IMF PREDICTS 2 YEARS OF U.S. RECESSION

by Abid Aslam

(IPS) WASHINGTON -- The United States will fall into recession this year, dragging down global economic performance for the next two years, the International Monetary Fund (IMF) said on Wednesday.

When the fund last updated its semi-annual World Economic Outlook report, in January, it predicted the worst global performance in five years but stopped short of using the word recession.

On Wednesday, however, it admitted the global slump could prove worse than predicted. There is a one-in-four chance that a global recession -- seen when world economic growth falls below three percent -- will ensue, it said.

The fund predicted global growth would slow to 3.7 percent this year, half a percentage point lower than its January forecast, amid the still-deepening financial crisis set off by rampant speculation on securities backed by shaky mortgages in insufficiently regulated U.S. financial markets.

"The financial market crisis that erupted in August 2007 has developed into the largest financial shock since the Great Depression," it said.

Latin America and countries linked to the plummeting U.S. dollar will be hardest hit as the U.S.-led slump spreads around the globe, the IMF said.

Rapidly growing emerging economies, such as China and India, will suffer the least pain, it said. However, even they will feel a sting as rich countries cut their imports.

At the heart of the gathering darkness, the world's largest economy will stagnate over the course of this year and much of next year as housing prices continue to drop and credit remains difficult to obtain. U.S. home prices already have fallen 10 percent and the fund anticipated this deterioration to reach between 14 percent and 20 percent.

The U.S. economy will grow by a negligible 0.5 percent in 2008 despite many billions of dollars in government spending to aid the financial sector, shore up consumer and business spending, and save homeowners from dispossession. This performance will improve little, to 0.6 percent, in 2009, the IMF said. It termed the prospect of two years in which the economy will fail to keep pace with population growth -- estimated at 0.9 percent a year -- a "mild recession."

Japan, the world's second-largest economy, will slow to 1.4 percent this year and 1.5 percent in 2009.

The 15-member eurozone will see its growth slow to 1.4 percent in 2008 and 1.2 percent next year, down 0.2 percentage points and 0.7 percentage points, respectively, since the IMF's January forecasts.

By contrast, emerging and developing economies are likely to post a relatively robust 6.7 percent rate of growth this year, down only 0.2 percentage points from the fund's earlier forecast. This could slip slightly in 2009, to 6.6 percent.

China will continue to lead, growing at 9.3 percent this year and 9.5 percent in 2009, down 0.7 points and 0.5 points, respectively. India's economy should expand by 7.9 percent this year and 8.0 percent next year, off 0.5 points and 0.2 points, respectively.

Wednesday's release came in advance of the coming weekend's annual Spring Meetings of the IMF and World Bank. It appeared on the heels of a report in which the agencies warned that the so-called Millennium Development Goals (MDGs), set by the international community in 2000, are unlikely to be met by the target year of 2015.

The World Bank-IMF report, released Tuesday, said that most countries are on target to reach the goal of halving extreme poverty but will fall short on commitments to reduce hunger and malnutrition and to improve health and education.

Many reasons lie beneath the likely failures but prominent among these, said the bank and fund, foreign aid spending by rich countries has stalled.

Official development assistance (ODA) fell in 2006 and 2007 despite a 2005 promise by the G-8 countries to double aid by 2010, they added.

"If current ODA trends persist, sizeable shortfalls loom, which would particularly hurt poor countries and fragile states that offer promising opportunities to scale up development results," Tuesday's report said.

An aid revival appears unlikely as the cost of the credit crisis continues to rise. The IMF, which is charged with maintaining global financial stability, said in a separate report Tuesday that worldwide losses from the financial turmoil could top 945 billion dollars within two years. Others also have predicted costs around the 1.0-trillion-dollar mark.

The bank and fund, in their joint report, said that while soaring commodity prices have boosted some poor countries' export revenues, they also have removed staple foodstuffs from the reach of countless people in developing countries, where many citizens spend half their income or more on food alone.

Sub-Saharan Africa is expected to miss nearly all of the MDGs but concern also centers on South Asia, home to most of the world's poor people and the planet's highest levels of child malnutrition.

Worldwide, the agencies said, 1.0 billion people lack access to clean water, 1.6 billion people have no access to modern energy sources, and 2.6 billion live without basic sanitation.