IMF says global economy to contract this year

MANILA, Philippines - As global financial conditions continue to worsen, the International Monetary Fund (IMF) has revised its outlook for world economic growth to a contraction this year. The forecast of a decline “between half a percent and 1 percent" is reversal of the 0.5 percent growth the institution projected in January but the fund still sees a rebound next year, though the recovery will be dependent on the effective implementation of policy responses. “Turning around global growth will depend critically on more concerted policy actions to stabilize financial conditions as well as sustained strong policy support to bolster demand," the IMF said. “We do still see a global recovery getting gradually underway in 2010, but ... that turnaround depends on strong policy implementation," the IMF said. Advanced economies, led by the United States, Europe and Japan — all of which have already been declared as in recession — are expected to decline the most, between 3 percent to 3.5 percent this year, before flat or slight growth the year after. The forecasts, however, are still preliminary and may change when the IMF releases its official projections for the world and individual economies in April. “It is clear that the global economy is likely to contract for the first time since the Second World War in 2009. At this point, we expect global GDP (gross domestic product) to decline between half a percent and 1 percent in 2009 before recovery gradually gets underway in 2010," the IMF said. “The major advanced economies, the United States, the Euro Area and Japan, are all suffering severe recessions." The IMF estimates the world economy contracted by an “extraordinary" 5 percent in the fourth quarter of last year and will likely continue to decline at the same pace in the January to March period. Emerging economies in Asia, which includes the Philippines, are likely to continue to suffer the effects of weakening external demand from major trading partners like the US. The IMF now sees emerging economies growing by 1.5-2.5 percent, slower than the 3.3 percent earlier forecast. The current IMF growth outlook for the Philippines is 2.25 percent for this year, slower than the 4.6 percent growth in 2008. This is also lower than the three-decade high of 7.2 percent notched in 2007. The official government forecast is 3.7-4.4 percent growth. Asian manufacturing activity, said the IMF, “has been particularly hurt by collapsing information technology exports." Philippine exports, more than half of which is comprised of electronics, plunged by 41 percent in January. This was the single biggest monthly decline in history and also follows a similar 40 percent drop the previous month. The government expects exports to decline by 6-8 percent this year. The National Economic Development Authority (NEDA) said the government would particularly look at results for the first three months of the year. NEDA Deputy Director General Augusto B. Santos said the data could result in revised projections. “The government projections are not cast in stone. These will be reviewed when we see the results for the first quarter of the year," he said in an interview on Friday. Other indicators to consider, he said, will be remittance inflows, import volumes and government spending. Mr. Santos said that for the moment, the government was sticking to its current growth forecast. - Paolo Luis G. Montecillo, BusinessWorld