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(CEP News) - The International Monetary Fund expects the global economy to contract 1.3% in 2009, a downward revision from the previous forecast calling for a contraction of between 0.5% and 1.0%, according to its semi-annual report released on Wednesday.
The Fund also said that in 2010 the global economy should grow 1.9% versus a previous forecast for 3% growth. "This is not the time for complacency, and the need for strong policies, both on the macro and especially on the financial fronts, is as acute as ever," said IMF chief economist Olivier Blanchard. "But, with such policies in place, there is light at the end of this long tunnel. World growth can turn positive by the end of this year, and unemployment can start decreasing by the end of next year." All G7 nations are expected to contract in 2009 with the U.S. economy shrinking 2.8% in 2009, with zero growth in 2010. The Japanese economy is expected to contract 6.2% in 09 and grow 0.5% in 2010, the euro zone economy is forecast to shrink 4.2% in 2009 and 0.4% in 2010, the Canadian economy is seen falling 2.5% in 2009 and growing 1.2% the following year, and the UK economy is expected to decline 4.1% in 2009 and 0.4% in 2010. "These projections are based on an assessment that financial market stabilization will take longer than previously envisaged, even with strong efforts by policy-makers," according to Blanchard and José Viñals, head of the IMF's Monetary and Capital Markets Department, in a joint statement. "Thus, financial conditions in the mature markets are projected to improve only slowly, as insolvency concerns are diminished by greater clarity over losses on bad assets and injections of public capital, and counterparty risks and market volatility are reduced," they added. The report also suggests that interest rates in the world's largest economies will remain near zero levels for some time. By Erik Kevin Franco,
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