- The Washington Times - Saturday, October 11, 2008

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.

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.

“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 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 cutting rates: The central banks of China, Canada, Sweden, and Switzerland. The Bank of Japan said it strongly supported the actions.

The IMF’s chief economist, Olivier Blanchard, called the orchestrated rate cuts “clearly a step in the right direction.” However, he warned that it is also clear that “there will be tough economic times ahead.” Lower rates aren’t a cure-all, he said. “By itself, it cannot solve the problem, but it is part of the solution.”

Asked about the risk of the global economy getting stuck in a prolonged downturn, Blanchard responded: “I believe that the risk of a Great Depression is nearly nil.’

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