IMF issues grim forecast

WASHINGTON – The global economy is expected to lurch into reverse this year for the first time since World War II with appalling consequences for nations large and small – trillions of dollars in lost business, millions of people thrust into hunger and homelessness and crime on the rise, the International Monetary Fund declared Wednesday.

And the pain won’t stop this year, the IMF said, for what it said was “by far the deepest global recession since the Great Depression.” To cushion the blow and head off further damage next year, the IMF is calling for more stimulus projects from the world’s governments, including major spending for public works projects.

Even with many countries taking bold steps to reverse the trend, the global economy will shrink 1.3 percent this year, the IMF predicted.

“We can be fairly confident that in 2010 or even 2011, economies will not be back to normal,” said IMF chief economist Olivier Blanchard. “Which means that governments should today basically think at least about contingent plans for infrastructure spending. … Next year will be too late.”

In the U.S., President Barack Obama’s $787 billion stimulus includes money for fixing roads and bridges and other infrastructure projects. IMF officials said there’s room for Germany and other countries to do more in terms of fiscal stimulus.

Without the help of countries’ stimulative fiscal policies – such as tax reductions or increased government spending – the blow to the global economy would be even worse, Blanchard said: “We would be in the middle of something very close to a depression.”

Even the projected 1.3 percent drop could leave at least 10 million more people around the world jobless, some private analysts said.

Allen Sinai, chief global economist at Decision Economics, thinks the global decline will be worse – closer to 2 percent, which would mean 15 million to 25 million more people out of work. “The global downturn guarantees that countries all over the world will be hit with extraordinarily high unemployment rates,” Sinai said. “And with the tremendous number of unemployed people comes the possibility of political unrest.”

“By any measure,” the downturn is the deepest since the Great Depression of the 1930s, the IMF said in its latest World Economic Outlook. “All corners of the globe are being affected.”

The IMF’s outlook for the U.S. is even bleaker than for the world as a whole: It predicts the American economy will shrink 2.8 percent this year, the biggest decline since 1946.

Besides trillions in lost business, a sinking world economy means far fewer trade opportunities for individual countries.

“This looks like the most synchronized recession in world history: We are all going down together,” said David Wyss, chief economist of Standard and Poor’s.

To get out of this global downturn, the United States – the world’s largest economy – will need to lead the way, many analysts said.

Said Sinai: “For the world economy to recover, you need the U.S. to recover.”