Wednesday, February 10, 2010

May 25, 2009 22:23 PM

Global Economy To Contract 1.3 Percent In 2009, Says IMF

From D. Arul Rajoo

HANOI, May 25 (Bernama) -- The global economic growth is expected to fall 1.3 percent this year, the first negative global growth in the post-war period while global trade is likely to contract 11 percent, the International Monetary Fund (IMF) said Monday.

Akira Ariyoshi, Director of IMF's Regional Office for Asia and the Pacific, said the contractions were far more than during any of the previous episodes of global economic downturns.

"The global economy is facing its deepest and most widespread recession since World War Two," he said.

Addressing Foreign Ministers attending the Asia Europe Meeting (ASEM) here, he said while United States was the epicentre of the crisis, Europe and Asia have been hit very hard by the crisis.

"For Europe, this was partly due to its own vulnerabilities, including banks' exposures to toxic assets from the US, rapid credit growth as well as large current account deficits in emerging Europe," he said.

On the contrary, Asia's exposure to toxic assets was limited and its financial and macro-economic position entering into the crisis was strong, but the region has been severely affected by the massive fall in exports.

Akira said various monetary and fiscal stimulus packages undertaken by affected countries were beginning to bear fruit, but the recovery was expected to be weak and protracted.

Following a weak first quarter this year, the rate of global economic contraction should moderate but global output was expected to increase only very gradually over 2010 and still remain well below potential, he said.

Asia, he said, was unlikely to experience a sharp recovery, and stronger growth in China may not be enough to provide much of the a boost to the region, given its focus on public investment.

Akira also said that continued spillover affects from the financial problems in the US and Europe remain a particular concern.

Furthermore, he said fighting protectionism was also critical.

On IMF's role in dealing with the crisis, Akira said the new Flexible Credit Line which provides large, upfront assistance for countries with sound economic frameworks, with no policy condition, was a useful addition to the fund's toolkit.

He said the provision of US$100 billion loan by Japan and European Union's commitment to provide 75 billion euros, and the agreement at the G20 to expand the IMF's borrowing agreement to treble IMF resources were a welcome move.

-- BERNAMA

We provide (subscription-based) 
news coverage in our Newswire service.