World output expected to fall 1.3% in ’09: IMF

World output expected to fall 1.3% in ’09: IMF
The Economic Times, April 23, 2009, Page 14

PTI WASHINGTON

WITH the global economy reeling under recession, the International Monetary Fund (IMF) on Wednesday said world output is projected to decline by 1.3% in 2009, indicating that the slump is the deepest since World War II.

However, it is expected to recover only gradually in 2010, growing by 1.9 per cent, the IMF said in its World Economic Outlook report released at its headquarters in Washington.

“Achieving this turnaround will depend on stepping up efforts to heal the financial sector, while continuing to support demand with monetary and fiscal easing,” it said.

The IMF said advanced economies experienced an unprecedented 7.5 per cent decline in real GDP during the fourth quarter of 2008, and the output is estimated to have fall during the first quarter of 2009.

It is not only the US which has experienced a sharp downfall, but also other economies of the world too have had the same fate, including the western Europe and advanced Asia, it said. Emerging economies too are suffering badly and contracted four per cent in the fourth quarter in the aggregate.

While there have been some encouraging signs of improvement since the G-20 Summit in London early this month, the report said confidence in financial markets is still low, weighing against the prospects of an early economic recovery.

The April 2009 Global Financial Stability Report (GFSR) estimates write-downs on US-originated assets by all financial institutions over 2007-10 will be USD 2.7 trillion, up from the estimate of USD 2.2 trillion in January 2009. This is largely a result of the worsening prospects for economic growth. Total expected write-downs on global exposures are estimated at about USD 4 trillion, of which twothirds will fall on banks and the remainder on insurance companies, pension funds, hedge funds, and other intermediaries, it said.

An important side effect of the financial crisis, the report said, has been a flight to safety and return of home bias, which have had an impact on the world’s major currencies. Since September 2008, the US dollar, euro, and yen have all strengthened in real effective terms.

As the World Economic Outlook (WEO) projections assume that financial market stabilisation will take longer than previously envisaged, even with strong efforts by policymakers, the IMF said financial strains in mature markets are projected to remain heavy until well into 2010.