World facing lowest growth since WWII, says IMF report
World growth is to slow to its lowest level in 60 years according to an International Monetary Fund report released Wednesday (28 January).
In an update to its World Economic Outlook series, the fund predicts world growth will fall to just 0.5 per cent in 2009, before rebounding to 3 per cent in 2010.
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"We now expect the global economy to come to a virtual halt," said IMF Chief Economist Olivier Blanchard in prepared remarks for a press briefing.
IMF managing director Dominique Strauss-Kahn said a restructuring of the banking sector to allow credit to start flowing again was an essential first step if growth figures are to improve.
The report says advanced economies will be hit hardest, with the US forecast to contract by 1.6 per cent, the euro area by 2 per cent and Japan by 2.6 percent.
Developing nations fair slightly better but forecasts are still severely down on the IMF's November update.
The current report predicts Chinese growth will fall to 6.75 in 2009. Speaking at the World Economic Forum on Wednesday however, Chinese premier Wen Jiabao said the Chinese economy would grow by 8 per cent in 2009.
Increased uncertainty and difficulties attaining credit have resulted in reduced consumer demand says the report. This in turn resulted in a fall in global output and trade in the last few months of 2008.
So far the IMF has lent $47.9bn to countries whose finances have been jeopardized by the current crisis.
These include EU member states Hungary and Latvia as well as Belarus, Iceland, Pakistan, Serbia and Ukraine. The fund also announced a loan for El Salvador this month and is in negotiations with Turkey.
Criticism of EU farm subsidies
Against this economic backdrop, the European commission this month re-introduced export subsidies for milk, butter and cheese as short-term measures to support the EU dairy sector where milk prices have fallen dramatically.
On Wednesday the Cairns group of developing nations demanded that Brussels reverse this step, calling it protectionist.
The group of 19 countries that includes Australia, New Zealand, Indonesia, South Africa and Brazil, said export subsidies would likely drive world market prices down further and prolong the economic downturn.
"Increasing trade distorting measures and protectionism in a time of a crisis carries a very high price," they said in a joint statement issued to the World Trade Organisation in Geneva.