IMF: Global Economic Outlook Grows Darker
OCTOBER 9, 2008
The outlook for the global economy has darkened considerably, with the spreading financial crisis expected to push several advanced economies into recession, the International Monetary Fund said.
"The world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s," the IMF said Wednesday in its World Economic Outlook.
Just a few months after upgrading its global forecasts, the IMF is now ratcheting down its expectations for the economy this year and into 2009.
The world economy is now expected to expand at a 3.9% pace in 2008, down from the estimate of 4.1% in July. The 2009 forecast was slashed from 3.9% to 3%, which would be the weakest level since 2002 and near the threshold of what the IMF considers a global recession.
While the IMF still expects a recovery to begin late next year, it warned there are "considerable downside risks" to that scenario, which assumes U.S. and European governments will succeed in their efforts to stabilize markets.
"Global activity is being buffeted by an extraordinary financial shock and by still-high energy and other commodity prices," it said. "Many advanced economies are close to or moving into recession, while growth in emerging economies is also weakening."
The report was completed before a wave of coordinated rate cuts by the U.S. Federal Reserve, European Central Bank, the Bank of England and other major central banks earlier Wednesday. The IMF suggested in the report that the Fed, ECB and Bank of England should consider easing rates.
The outlook for the U.S., which lies at the "center of the intensifying global financial storm," has improved for this year after a fiscal stimulus lifted first-half growth. The 2008 forecast rose to 1.6% from 1.3% in July. However, the U.S. economy is expected to contract in the fourth quarter of 2008 and early 2009, prompting the fund to downgrade next year's growth estimate to 0.1% from 0.8%.
A U.S. recovery is expected to begin in the second half of next year, the IMF said, as housing prices bottom out and the recently passed financial-rescue package helps stabilize markets. online.wsj.com
My comment: A 2H09 economic recovery is the "best-case scenario". Housing prices will not bottom in 2009 (housing busts take 5-7 years, peak-to-trough, and prices peaked in early 1996). Housing prices are likely to fall the most in 2008 and 2009, followed by small further declines in 2010 and 2011. |
