Developing economies will fare better in 2010

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The global economy will contract by 1.3 percent in 2009 in the most severe recession since World War II, the International Monetary Fund (IMF) reported April 22 in its World Economic Outlook.

But with strong economic policies that instill confidence, especially in the banking sector, growth can return in the advanced countries in early 2010, and unemployment may start showing signs of diminishing at the end of 2010, according to the report.

“This is not the time for complacency, and the need for strong policies … especially on the financial fronts, is as acute as ever,” IMF chief economist Olivier Blanchard said. “But with such policies in place, there is light at the end of this long tunnel.” The International Monetary Fund, founded in the 1940s to ensure the stability of the international monetary system, released its outlook a few days before IMF and World Bank spring meetings open in Washington.

The key to ending the recession is healing the financial sector, and that requires reporting the full extent of global financial losses, the report says. “Convincing progress on this front is crucial for an economic recovery to take hold and would significantly enhance the effectiveness of monetary and fiscal stimulus,” it says. The outlook says that recovery from this recession likely will be slower than in previous ones.

According to the IMF, the intensity of the economic contraction likely will start moderating from the second quarter of 2009 onward, and the concerted action taken by the Group of 20 advanced economies in April generated some encouraging signs.

Emerging and developing economies

The advanced economies will contract by 3.8 percent this year, with the U.S. economy shrinking by 2.8 percent, according to the IMF. The emerging and developing economies of the world will fare better, managing to grow by 1.6 percent in 2009 followed by a resurgence of growth at 4 percent in 2010.

The report indicates that if the advanced economies delay tackling the underlying problems of the global economy, the downturn may last longer and go deeper, costing taxpayers more. And it warns against protectionism in trade and finances, which could cause huge damages to the world economy, such as occurred as a result of the policies adopted in the 1930s that worsened the Great Depression.

The report calls for greater international cooperation to avoid exacerbating cross-border strains and international spillovers from actions taken by individual nations. The World Economic Outlook says international actions taken by the IMF and others can play an effective role in easing the impact of recession on developing countries.

The full text of the report and more information are available on the IMF Web site.

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