Jan. 28 (Bloomberg) -- The global economy will slow close to a halt this year as more than $2 trillion of bad assets from the U.S. help sink economies from Russia to the U.K., the International Monetary Fund said. Bank losses worldwide from toxic U.S.-originated assets may reach $2.2 trillion, the IMF said in a report released today, more than the $1.4 trillion that the fund predicted in October. World growth will be 0.5 percent this year, the weakest postwar pace, the fund said in a separate report. The reports signal that writedowns and losses at banks totaling $1.1 trillion so far are only half of what’s to come and that contractions may deepen. Losses on that scale would leave banks needing at least $500 billion in fresh capital to restore confidence in their balance sheets, the IMF said. The IMF’s latest forecast revises its estimate of world growth down from 2.2 percent in November.
Global growth this year will come to a “virtual standstill,” said Olivier Blanchard, the IMF’s chief economist, in a press conference in Washington. “We need stronger policy on the financial front.”
In the U.S., President Barack Obama is negotiating with Congress on a plan worth $825 billion that includes tax cuts and spending projects to pull the world’s largest economy out of a 13-month recession. The Federal Reserve meets today in Washington to decide how to use emergency credit programs, rather than interest rates, to arrest the financial crisis. The European Central Bank has cut its benchmark interest rate by more than half since early October to 2 percent, matching a record low. Governments are also beginning to ease fiscal policy as the 16-nation euro-region suffers its worst recession since the single currency began trading a decade ago.
In the U.S., President Barack Obama is negotiating with Congress on a plan worth $825 billion that includes tax cuts and spending projects to pull the world’s largest economy out of a 13-month recession. The Federal Reserve meets today in Washington to decide how to use emergency credit programs, rather than interest rates, to arrest the financial crisis. The European Central Bank has cut its benchmark interest rate by more than half since early October to 2 percent, matching a record low. Governments are also beginning to ease fiscal policy as the 16-nation euro-region suffers its worst recession since the single currency began trading a decade ago.
China’s economy will likely expand 6.7 percent this year, the IMF said, reducing its estimate for the world’s fastest- growing major economy from 8.5 percent in November. Russia will contract 0.7 percent this year, compared with a 3.5 percent expansion the IMF predicted in November, today’s report showed.
The IMF report said inflation in advanced economies may fall to a record low of 0.3 percent this year, from a prediction in November of 3.6 percent. The average price of oil may be $50 a barrel this year, the IMF said, less than the $68 a barrel forecast it made three months ago.
source: www.bloomberg.com
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