The IMF projects the economies of the US, Japan and euro zone all will shrink next year in a simultaneous decline in the world’s biggest industrial powers, according to a fund staffer who cited revised forecasts.
The US economy will contract 0.7 percent, Japan will recede 0.2 percent and the euro area will fall 0.5 percent, said an IMF staffer who reviewed the expected revisions to the fund’s World Economic Outlook.
A month ago, the IMF predicted all three would expand — 0.1 percent in the US, 0.5 percent in Japan and 0.2 percent in the euro zone.
The changes expected to be released yesterday come a month after the Washington-based fund already slashed expectations for world growth to reflect the impact of the financial crisis.
As the credit crunch widens, the reversal of growth in major developing countries is spreading to poorer nations, increasing demand for IMF loans.
“While a modest recovery is expected to begin in the second half of 2009, this outlook is exceptionally uncertain and additional downside risks are evident,” IMF first deputy managing director John Lipsky said in a statement on Wednesday.
Global growth will be 2.2 percent next year, down from 3.7 percent this year, the staffer said. On Oct. 7, the IMF said the world economy would expand by 3 percent next year — lower than its forecast of 3.9 percent in July.
The IMF has said that a growth rate of 3 percent or less is “equivalent to a global recession.”
In emerging and developing economies, GDP next year will grow 5.1 percent, less than the 6.1 percent expansion the fund predicted last month, the staffer said.
China’s growth will measure 8.5 percent next year, weaker than the 9.3 percent forecast a month ago, the staffer said.
Policy makers in Asia should prepare for the possibility of a “sharp slowing” of economic growth in the region as the global financial crisis widens, the No. 2 official at the IMF said on Wednesday.
“Asian authorities will need to remain vigilant to spillovers from the global turmoil and be prepared to respond quickly and flexibly to a sharp slowing of domestic activity,” said John Lipsky, the IMF’s first deputy managing director, in an e-mailed statement after talks with finance ministers in Trujillo, Peru.
Latin American policy makers should also “remain on high alert,” he said.
Lipsky cautioned that a recovery next year wasn’t a certainty.
“The financial crisis has spread to emerging economies,” he said.
“While a modest recovery is expected to begin in the second half of 2009, this outlook is exceptionally uncertain and additional downside risks are evident,” Lipsky said.
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