Recession will be over by Christmas, says IMF

Quite depressing economic news today but good news that the 2010 growth forecast has been revised up.  Putting a bit of a positive spin on it at least this demonstrates that the more inflexible nations like Germany will suffer at lot more than the UK.  We are also still due to come out of recession this year and I would expect the financial services industry to put in a much stronger performance than commentators presently dare forecast which should boost growth in 2010.

Gary Duncan, Economics Editor, and Philip Webster

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Britain’s recession will end this year, with the economy returning to anaemic growth in 2010, the International Monetary Fund (IMF) said yesterday, as it upgraded its view of prospects for the UK and other leading economies.

In a boost for Alistair Darling’s predictions that Britain’s worst postwar slump will be over by Christmas, the IMF sharply raised its UK forecasts for next year.

It now predicts insipid growth of 0.2 per cent, compared with the 0.4 per cent decline that it expected in April and with a savage 4.2 per cent slump still projected for this year.

The Chancellor will welcome the fund’s backing for his hopes for an imminent end to the recession, but the IMF’s growth projection falls a long way short of Mr Darling’s bet on a much stronger expansion, of between 1 and 1.5 per cent — a blow to the Government’s hopes of fighting an election next year framed by recovery.

Meeting in L’Aquila in Italy, G8 leaders from the Group of Seven key Western economies plus Russia echoed warnings from the IMF that although the world is beginning a long haul out of its slump, a frail recovery could still be derailed by persistent and grave threats to prospects.

The G8 leaders conceded the lurking danger of a “double dip” downturn in agreeing that it was still too early to begin to unwind the unprecedented emergency measures they have taken to tackle the deepest recession in living memory.

“Significant risks remain to economic and financial stability,” the G8 said. The summit concluded that “exit strategies” from present emergency action should be put into effect only “once the recovery is assured”.

In its report, the IMF warned that: “Despite positive signs, the global recession is not over and the recovery is still expected to be slow.”

It said that a world upturn was set to be “sluggish” and patchy, with some countries recovering markedly better than others.

The eurozone, and Germany especially, remains a key source of anxiety. The IMF now expects German GDP to tumble by 0.6 per cent in 2010, after a 6.2 per cent plunge this year.

It foresees eurozone GDP falling by 0.3 per cent next year on the heels of a 4.9 per cent slump in 2009. The fund’s upgrade to its world outlook was driven by improved expectations for the United States, now tipped to grow by 0.8 per cent next year.

The IMF said the chief threat was the vulnerability of the financial sys-tem. Financial stresses had eased and stricken banks had been stabilised, but “more work is needed to fix banks and markets . . . Rising unemployment and a loss of confidence . . . in the financial sector could put renewed downward pressure on asset prices and potentially trigger a deflationary episode.”  (Gary Duncan, The Times) http://business.timesonline.co.uk/tol/business/economics/article6670277.ece

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