IMF sees U.S. in recession in 2009

World economies headed for downturn

By Tom Stundza -- Purchasing, 10/8/2008 1:12:00 PM

Global growth is headed for a “major downturn” next year, as U.S. gross domestic product grinds close to a halt, the International Monetary Fund says in a staff report prepared for a Group of Seven meeting this week and reported by Bloomberg.

A recession in the U.S. is “looming” with a GDP expansion of just 0.1% next year, after growth of 1.6% this year, the IMF staff reports. In its World Economic Outlook in April, the IMF had said the U.S. would grow 0.5% this year and 0.6% next.

Global growth will slow to 3% in 2009, compared with an expected 2008 expansion rate of 3.9%. “The global economy is entering a major downturn,” the IMF says in an updated report. “Many advanced economies are now close to recession, while emerging economies are all slowing rapidly.” Growth will be “particularly weak” in 2009 in all G-7 industrial countries: The U.S., Canada, Japan, Germany, France, the United Kingdom and Italy.

An Associated Press report says the $700 billion U.S. financial bailout plan approved last Friday has failed to soothe investors worried about a deepening economic malaise. The Dow Jones industrial average fell more than 500 points Tuesday to a five-year low. Asian shares were hammered hard Wednesday, with the Japan's benchmark Nikkei 225 stock average spiraling down nearly 10% to a five-year low. Hong Kong's market plunged 8%. And, from Sydney, Peter McGuire, managing director at investment firm Commodity Warrants Australia, says: “We've got major issues in every corner of the planet. The world economy is like a house that's been ravaged by termites.”

So, this morning, the Federal Reserve ordered an emergency interest rate cut of half a percentage point to help ease the financial crisis.  And, the Federal Reserve, European Central Bank, Bank of England, Bank of Canada and other major central banks worldwide announced coordinated cuts in target interest rates, the latest dramatic action to help stem a growing global financial crisis. Details are available from these banks at: Federal Reserve, www.federalreserve.gov; Bank of Canada, www.bankofcanada.ca; Bank of England, www.bankofengland.co.uk; European Central Bank, www.ecb.int; Sveriges Riksbank (Swedish central bank), www.riksbank.se; Bank of Japan, www.boj.or.jp/en/, and Swiss National Bank, www.snb.ch.