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IMF Sees Major Global Downturn

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WASHINGTON — In its bleakest forecast in years, the International Monetary Fund said on Wednesday the world economy was set for a major downturn with the United States and Europe either in or on the brink of recession.

Published: Thu 9 Oct 2008, 10:58 PM

Updated: Sun 5 Apr 2015, 2:14 PM

  • By
  • (Reuters)

The IMF said a still-developing financial upheaval — the most violent since the 1930s — would exact a heavy economic toll as markets wrestle with a crisis of confidence and global credit is choked off.

The IMF’s assessment was written before a globally coordinated interest-rate cut of half a percentage point on Wednesday by the U.S. Federal Reserve, European Central Bank, Bank of England, Switzerland, Canada and Sweden.

China also cut its key rate 27 basis points and its reserve requirements for banks by half a percentage point.

The joint move followed weeks of unprecedented turmoil in global markets that has frozen money markets, even as central banks have pumped billions of dollars into the global financial system.

In its report, the IMF warned that credit conditions remain very difficult, restraining global growth prospects.

“The world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s,” the IMF said in its World Economic Outlook.

In hindsight, the IMF said lax economic and regulatory policies probably allowed the global economy to “exceed its speed limit.” At the same time, market flaws, together with policy shortcomings, allowed stresses to build.

Now, the global economy is about to pay the price.

The IMF slashed its 2009 forecast for world growth to 3 per cent, which would be the slowest pace in seven years, from a July projection of 3.9 per cent, and warned that a recovery would be unusually slow. “A protracted strike could put at risk our ability to fly the 787 in the fourth quarter as we promised. We have assessed the situation and have mitigation plans in place to minimise the impact of a work stoppage.”



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