Economic outlook

News

The global economy is projected to shrink by 1.3 per cent in 2009, with a slow recovery expected to take hold next year, according to the IMF’s April World Economic Outlook.

In the most severe recession since World War II, the global economy is projected to shrink by 1.3 per cent in 2009, with a slow recovery expected to take hold next year, according to the IMF’s April World Economic Outlook (WEO).

While the rate of contraction should moderate from the second quarter of 2009 onward, output per capita is projected to decline in countries representing three-quarters of the global economy.

Growth is projected to re-emerge in 2010, but at 1.9 per cent it would be sluggish relative to past recoveries.

IMF chief economist Olivier Blanchard said that the world economy was being battered by competing crosscurrents, with the collapse in confidence and demand continuing to pull the economy down and government stimulus measures pulling the economy up.

Although Blanchard said that today the first current strongly dominates the second, he could see the balance shifting towards the end of the year, with growth in advanced countries becoming positive again in 2010 and returning to its normal level around the end of 2010.

Unemployment will crest only towards the end of 2010, however, and should decrease after that.

Historical evidence presented in the WEO suggests recovery may be slower than in other recessions.

Achieving the projected turnaround will depend on stepping up efforts to heal the financial sector, while continuing to support demand through monetary and fiscal easing.

The WEO said that while there have been some encouraging signs of improving sentiment since the Group of 20 (G-20) meeting in early April, confidence in financial markets is still low, weighing against the prospects for an early economic recovery.

Overall, the advanced economies are forecast to contract by 3.8 per cent in 2009, with the US economy shrinking by 2.8 per cent.

Emerging and developing economies will see positive growth of 1.6 per cent, bouncing back to 4.0 per cent next year.

Sub-Saharan Africa will remain in positive territory at 1.7 per cent in 2009, recovering to 3.9 per cent next year.