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IMF: World economy to slow sharply, led by US

(Agencies)
Updated: 2008-10-08 22:38

The world economy will slow sharply this year and next, with the United States likely sliding into recession reflecting mounting damage from the most dangerous financial jolt in more than a half-century.

Two shoppers browse an aisle inside a Wal-Mart Supercenter Thursday, Oct. 2, 2008, in Rosemead, Calif. [Agencies]

The International Monetary Fund, in a World Economic Outlook released Wednesday, slashed growth projections for the global economy and predicted the United States - the epicenter of the financial meltdown - will continue to lose traction.

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"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 report.

The IMF now projects that the global economy, which grew by a hardy 5 percent last year, will lose considerable speed, slowing to 3.9 percent this year. It is forecast to weaken even more - to just 3 percent - next year, marking the worst showing since 2002. In the past, the IMF has called global growth of 3 percent or less the equivalent to a global recession.

The IMF's projection was made before the Federal Reserve and six other major central banks from around the world slashed interest rates Wednesday in an attempt to prevent a financial crisis from becoming a global economic meltdown.

The Fed reduced its key rate from 2 percent to 1.5 percent. In Europe, which also has been hard hit by the financial crisis, the Bank of England cut its rate by half a point to 4.5 percent, while the European Central Bank sliced its rate to 3.75 percent.

Also taking part were the central banks of China, Canada, Sweden, and Switzerland. The Bank of Japan said it strongly supported the actions.

The financial crisis, which erupted in the United States in August 2007 and has quickly spread around the globe, entered a tumultuous new phase last month, badly shaking confidence in global financial institutions and markets, the IMF said. It has triggered a cascading series of bankruptcies, forced mergers and radical government interventions - such as the United States' unprecedented $700 billion financial bailout - to stem the fallout.

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