IMF warns of slowing growth
Updated
The International Monetary Fund says the world economy will come to a virtual standstill this year.
It says world growth is projected to fall to just half-a-per-cent this year, its lowest rate since the Second World War. And the IMF has strong advice for countries weighing up further economic stimulus programs.
Presenter: Michael Rowland
Speakers: Olivier Blanchard, IMF's chief economist; Jaime Caruana, head of the IMF's financial and capital markets division
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MICHAEL ROWLAND: For the IMF's chief economist Olivier Blanchard, fronting the world media is not one of his most enjoyable jobs.
OLIVIER BLANCHARD: This is the second time I do this presentation and I hope it doesn't become a habit that I become the bearer of rather bad news.
MICHAEL ROWLAND: And the news is very bad. The IMF has slashed its forecast for world economic growth by nearly two per cent, to just half a per cent.
For individual countries the IMF projections are a sea of minus signs. It expects the US economy to shrink by 1.6 per cent this year, Japan to contract by 2.6 per cent and Britain by close to three per cent.
Mr Blanchard says there's very little to be positive about.
OLIVIER BLANCHARD: Forecast is that we expect the global economy to come to a virtual standstill.
MICHAEL ROWLAND: The IMF hasn't provided a forecast for Australia but many economists believe it's only a matter of time before the local economy joins the recession club.
Asked about a new round of stimulus packages now being put together by countries like Australia, Mr Blanchard says policy makers have to tread very carefully. He's urging governments to put a much greater emphasis on new spending rather than tax cuts; tax cuts which may end up being saved rather than spent.
OLIVIER BLANCHARD: The key here is to design packages which provide maximum boost to demand very soon. That tends to argue in the current context for measures focused on spending rather than taxes. Measures focused on taxes tend to have less effect in the short run than measures which increase spending.
MICHAEL ROWLAND: The IMF is also warning the global financial system remains under considerable stress. It says banking balance sheets around the world face another year of strain.
It's upgraded its estimate of losses from toxic mortgage-related assets from $2-trillion to a staggering $3.2-trillion.
Jaime Caruana, the head of the IMF's financial and capital markets division says troubled banks will need more government bail-outs.
JAIME CARUANA: Thanks to the massive public sector injection of capital that occurred in the fourth quarter, banks have managed to obtain sufficient capital to offset the existing write-downs. But going forward, looking forward, banks will need more capital as expected losses will continue to materialise.
MICHAEL ROWLAND: The IMF is hopeful that if all the stimulus measures work and if financial markets gradually stabilise, the world economy will pick up speed in 2010 but it warns the timing and pace of the recovery remains extremely uncertain.
