One measure of that uncertainty was the steep downward projections of the new estimate itself, compared to the previous WEO issued by the IMF nearly two months after the collapse of the investment firm Lehman Brothers, which sharply accelerated the crisis. The Nov. 6 WEO predicted that world output would grow by 2.2 percent in 2009. That estimate was down from the three percent the Fund had predicted in October.
Average growth rates for all advanced economies will fall well into negative territory at minus two percent on average, according to the WEO. Worst hit will be the newly industrialized Asian economies -- South Korea, Singapore, Hong Kong, and Taiwan -- whose combined growth rate will fall to minus 3.9 percent, but Britain and Japan, at minus 2.8 percent and minus 2.6 percent, respectively, will not be far behind.
As for the United States, where most of the so-called "toxic" assets responsible for the ongoing financial crisis originated, the IMF predicted a negative 1.6 percent growth rate this year before a revival to plus 1.6 percent in 2010.
Developing countries will also suffer due to the contraction of credit and demand brought on by the crisis, although their growth rates overall should remain in positive territory. Sub-Saharan Africa should grow at a 3.5 rate this year, down from 5.4 percent in 2008, while Latin America's growth in 2009 will be substantially more anemic, at just 1.1 percent, down from 4.6 percent last year. Mexico's growth rate, which is closely tied to the U.S. economy, will fall to minus 0.3 percent this year, it said.
The Russian economy is also expected to plunge this year -- to minus 0.7 percent from 6.2 percent in 2008, while China, whose average annual growth rate over the past 30 years has been a torrid 10 percent, will fall short of a seven-percent increase, down from nine percent last year. As a region, developing economies in Asia, including India, will experience 5.5 percent growth, down from 7.8 percent in 2008.
The latest report comes as governments around the world are trying to stimulate their economies in ways that will overcome the credit crunch resulting from the insolvency of banks or their reluctance to lend money at such an uncertain time.
According to a second report released by the IMF, global bank losses from toxic U.S. assets may reach $2.2 trillion, up from a 1.4 trillion-dollar estimate issued just three months ago.
Obama has spent much of his first week in office -- as he did again Wednesday -- lobbying Congress for an 825-billion-dollar economic stimulus package that he hopes will restore the flow of credit and pull the economy out of what many have called the worst financial crisis since the Great Depression.
Even if, as seems likely, he succeeds in persuading Congress -- the House of Representatives approved it Wednesday -- to pass the measure, some experts say it is unlikely to be sufficient given the depth of the crisis and the rapid growth in unemployment, which could go as high as 10 percent by next year, according to recent estimates.
The IMF's latest report also coincides with the opening of the annual "World Economic Forum" in Davos, Switzerland, where much of the discussion the policy-makers, politicians, and economists gathered there is expected to focus on how to address the financial crisis and especially on what kinds of stimulation packages are likely to work best and how best to coordinate them.
The IMF, which is itself trying to carve out a bigger role as a source of quick lending to countries affected by the crisis, stressed in its report that efforts to date have only addressed the immediate threats to the financial system and "done little to resolve the uncertainty about the long-term sdolvency of financial institutions."
It called for countries to set up public agencies to dispose of bad debts held by financial institutions in a definitive manner. ."..(U)nless stronger financial strains and uncertainties are forcefully addressed, the pernicious feedback loop between real activity and financial markets will intensify, leading to even more toxic effects on global growth," it said.
And it stressed that quick action, including interest-rate cuts, was essential. "In current circumstances, the timely implementation of fiscal stimulus across a broad range of advanced and emerging economies must provide a key support to world growth," it said. "Given that the current projects are predicated on strong and coordinated policy actions, any delays will likely worsen growth prospects."
It noted that the crisis has reversed the commodity price boom that began earlier in the decade and reached its height as recently as six months ago. Oil prices have declined 60 percent since then and are currently projected to average 50 dollars a barrel this year and 60 dollars a barrel next year.
Those declines have dampened inflationary pressures considerably, but they have also weakened economies, mostly those of poor countries, that are dependent on commodity exports. While developing countries have by and large weathered the crisis relatively well compared to previous global downturns, a prolonged crisis could have devastating consequences.
In appealing last week for a global "Vulnerability Fund" for poor countries to be included in the stimulus packages of wealthier nations, World Bank President Robert Zoellick noted that the economic crisis has "already pushed an estimated 100 million people back into poverty."
"It will be important to avoid cutbacks in foreign aid in response to tightening budget constraints, lest hard-won economic gains in developing countries are lost," the WEO warned.
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Albion Monitor January
30, 2009 (http://www.albionmonitor.com)
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