"With a recession now looking increasingly likely, the key questions are, how deep will the downturn be, when will a recovery get under way and how strong will it be?" the IMF asked. Much will hinge on how effective the United States' steps to stabilize financial markets and get credit flowing more freely again turn out to be. Another important factor is whether these and other actions turn around US consumers, whose retrenchment is hurting the economy.
The IMF - and many private economists - believe the US economy will probably contract in the final three months of this year and the first three months of next year, meeting a classic definition of a recession. The economy's last recession was in 2001.
The government's bailout package is aimed at thawing lending by buying bad mortgage-related debt from troubled financial institutions. The idea is that the banks' books would then be cleaner, putting them in a better position to lend and get the economy moving.
The IMF said this effort should help to stabilize markets but even so "the process of balance-sheet repair will be long and arduous." Credit availability is likely to remain constrained throughout 2009, the IMF said.
Fed Chairman Ben Bernanke warned in a speech Tuesday that the economy's outlook for this year has darkened and the pain could last for some time. His remarks were seen as heralding the rate cut Tuesday.
Looking at other countries, Germany's growth will slow to 1.8 percent this year, down from 2.5 percent last year. France's growth will weaken to just 0.8 percent, compared with 2.2 percent in 2007. Britain's economy will see growth taper to 1 percent, down from 3 percent last year. Canada's growth will tail off to 0.7 percent this year, from 2.7 percent last year.
In Japan, growth will cool to just 0.7 percent, from 2.1 percent last year.
China and India will see growth clock in this year at a robust 9.7 percent and 7.9 percent, respectively. Even if those projections prove correct, they would still mark downgrades from their blistering performances last year. Russia's economy should grow by a brisk 7 percent this year, down from 8.1 percent last year.
Inflation around the world remains high, driven up by surging energy and food prices through much of this year.
It will be tricky for Bernanke and his counterparts in other countries to navigate weak growth and inflation pressures, the IMF said.
"The immediate policy challenge is to stabilize financial conditions, while nursing economies through a period of slow activity and keeping inflation under control," it said.
(Chinadaily.com.cn via agencies October 9, 2008)
