Global growth is headed for a ''major downturn'' next year, as US gross domestic product grinds close to a halt, the International Monetary Fund said in a staff report prepared for a Group of Seven meeting this week.
The US will expand 0.1% next year, after growth of 1.6% this year, the IMF said in the report prepared for the October 10 meeting of finance ministers and central bankers from the G-7 industrial nations. In its World Economic Outlook in April, the IMF said the US would grow 0.5% this year and 0.6% next. A revised WEO will be released tomorrow.
''The global economy is entering a major downturn,'' the fund said in the report, dated October 4. ''Many advanced economies are now close to recession, while emerging economies are also slowing rapidly.''
The IMF report suggested that the European Central Bank has scope to lower interest rates to help limit economic damage from the financial market crisis. The Washington-based lender said in the note that the dollar is ''in line'' with economic fundamentals, the euro is ''on the strong side'' and the yen is ''undervalued'' in the medium term.
The draft obtained by Bloomberg News indicates changes from the April forecasts. IMF spokeswoman Conny Lotze declined to comment on the figures.
Growth will be ''particularly weak'' in the G-7 countries - the US, Japan, Germany, France, the UK, Canada and Italy, the IMF report said.
US Recession
Global growth will slow to 3% in 2009, compared with a forecast in April of 3.7%. This year the global economy is expected to grow by 3.9%.
A recession in the US is ''looming,'' growth in western Europe is ''weakening markedly,'' activity in Japan is ''cooling rapidly'' and emerging countries ''have not decoupled from this downturn'' the report said.
Of advanced economies, the IMF made its steepest reduction in the growth prediction for UK, which the fund predicted will contract by 0.1% next year, the report said. Six months ago, the IMF forecast UK growth 1.6% in 2009.
Italy's economy will contract 0.2%, the IMF predicted, a reduction from its April forecast for 0.3%, the report said.
The fastest-growing G-7 country will be Canada, where GDP is forecast to increase 1.2%, the IMF report said, after a 2% outlook in April.
Central Bank Policy
The IMF report showed Germany's is expected to post zero growth next year, compared with a prediction in April of a 1% expansion. France's economy will register 0.2% growth, down from a 1.3% forecast six months ago, the report said.
In the US, the Federal Reserve's ''monetary policy is already highly accommodative,'' the IMF draft report said. The Bank of Japan's interest-rate policy stance ''remains accommodative and should remain so given that the economy has weakened and that underlying price pressures are well contained,'' it said.
For the ECB, ''monetary conditions are now quite tight,'' the report said. ''In light of this, there is now scope to ease monetary policy.''
Bloomberg
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