Global economy to shrink in 2009, says IMF

The International Monetary Fund (IMF) said global economic activity is set to fall this year for the first time in 60 years.

In a report submitted to the G20 summit in London, the IMF said activity will drop by between 0.5% and 1% over 2009, following a year-on-year GDP contraction of 5% in the fourth quarter of last year.

The report blames a sharp slowdown in advanced economies, which are registering their sharpest declines since World War II, for the contraction. GDP in developed economies plunged 7% in the last quarter of 2008, led by Japan, which dropped by a post-war record of 13%.

The key factor in any recovery will be restoring confidence in markets and dealing directly with problems in the financial sector, according to the report.

Although announced fiscal stimulus measures will have a significant effect, the IMF stresses they still “fall short of the 2% of aggregate GDP in 2009 and 2010 recommended by the Fund, particularly in 2010”.

Modest growth is still forecast for 2010, although it depends on further fiscal support, an improvement in credit markets and commodity prices remaining at low levels, says the fund.

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