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IMF Cuts Global Forecast on Worst Crisis Since 1930s (Update2)

By Shamim Adam

April 2 (Bloomberg) -- The International Monetary Fund cut its forecast for global growth this year and said there's a 25 percent chance of a world recession, citing the worst financial crisis in the U.S. since the Great Depression.

The world economy will expand 3.7 percent in 2008, the slowest pace since 2002, according to a document obtained by Bloomberg News at a meeting of Southeast Asian deputy finance ministers and central bankers in Da Nang, Vietnam. In January the fund projected growth of 4.1 percent.

The reduction is the third by the Washington-based lender since last July, when it predicted the world economy would cope with the U.S. credit squeeze and grow 5.2 percent this year. Central banks will need to conduct policy ``as flexibly'' as the circumstances warrant, the statement said, adding that the European Central Bank has room to lower borrowing costs.

``The financial shock that originated in the U.S. subprime mortgage market in August 2007 has spread quickly, and in unanticipated ways, to inflict extensive damage on markets and institutions at the core of the financial system,'' the statement said. ``The global expansion is losing momentum in the face of what has become the largest financial crisis in the United States since the Great Depression.''

The world's biggest financial companies have reported about $232 billion in credit losses and writedowns since the start of 2007, data compiled by Bloomberg show. UBS AG said yesterday it will have $19 billion more writedowns on assets related to mortgage assets, and Deutsche Bank AG reported $3.9 billion of further value reductions.

Lending Freeze
That's prompting banks to stop lending to all but the safest borrower, undermining consumer spending and business investment.

``The IMF's forecast is now below the world economy's longer- term trend so there is certainly some significance in what it is now seeing,'' said Andy Cates, a global economist at UBS in London. ``The world economy is slowing quite considerably and will be very different from what we've become accustomed to.''

The IMF gave a 25 percent chance that global growth will drop to 3 percent or less in 2008 and 2009, a pace the fund described as equivalent to a world recession. The last time that happened was in 2001.

U.S. European Growth
The fund lowered its forecast for U.S. economic growth to 0.5 percent this year, according to the document, below a 1.5 percent prediction made in January. The world's biggest economy will expand 0.6 percent in 2009, it said.

The euro region will expand 1.3 percent in 2008, the document said, down from the fund's 1.6 percent projection in January.

``Growth in the U.S. and Europe is slowing sharply,'' the IMF document said.

``The ECB can now afford some easing of the policy stance.''

The ECB has left its benchmark rate at a six-year high of 4 percent as inflation runs at 3.5 percent, above its goal of 2 percent and almost the fastest pace in 16 years.

``The greatest risk comes from the still-unfolding events in financial markets, particularly the potential that deep losses on structured credits related to the U.S. subprime mortgage market and other sectors would seriously impair financial-system capital and initiate a global de-leveraging that would turn the current credit squeeze into a full-blown credit crunch,'' the statement said.

Asian Forecasts
Japan's economy, the world's second largest, will grow 1.4 percent in 2008, less than the 1.5 percent the IMF predicted in January, according to the statement. China will grow 9.3 percent this year, slower than the 10 percent projection made in January, the statement said.

The Asian Development Bank today lowered its forecasts for Asia, and said central banks in the region would pursue policies to quell inflation rather than spur economic growth. The World Bank earlier this week also warned of the threat of rising energy and food prices.

Asia excluding Japan is predicted to expand 7.6 percent this year, less than a September estimate of 8.2 percent, the Manila- based ADB said in a report today.

``The divergence between advanced and emerging economies is expected to continue, with growth in advanced economies generally expected to fall well below potential,'' the IMF document said.

Roger Nightingale, global strategist at Pointon York Ltd. in London, said the IMF had been slow in spotting the slowdown.
Diverging Growth

``The IMF only really forecasts these things after they've begun,'' he told Bloomberg Television. ``You've got America, Italy and several other European countries and one or two Asian countries, actually in or very close to recession, and yet the IMF just now begins to talk about this phenomenon.''
The IMF statement said world inflation would remain elevated in the first half of 2008.

The U.S. dollar is strong relative to fundamentals and China's yuan remains ``substantially undervalued,'' the document said.
``The main counterpart of the dollar's depreciation since August has been the appreciation of freely floating currencies, notably the Canadian dollar and the euro, with the latter now being on the strong side relative to fundamentals,'' the statement said.

To contact the reporter on this story: Shamim Adam in Vietnam at [color=#0000ff][email protected][/color]
Last Updated: April 2, 2008 06:41 EDT

Ok.. here it goes..
I formally release today that I just have a 500 pips writedown on GJ. If this BS keeps continue I will have great chances of getting a margin call. If that happened i will have to file for bankruptcy or looking for new investor to come in. At that time, my value will be worth for only $2 per share.
Is this enough to get a cheap $30 billion loan or a bail out from Bernie??

the confirmation of the april fools day joke for the stocks rally..... haha

http://bigpicture.typepad.com/commen...et-hoax-g.html

I think you should mention that you're going to fire your maid because of those losses, so to add to unemployment claims, to recession fears and consumer sentiment fall.

Oh man if that is true

Best April fools day joke yet.

"Federal Reserve Chairman Ben Bernanke warned Congress that the economy may shrink over the first half of this year, which would signal the start of a recession."

Start of a recession? Just yesterday the headlines were "Worst is over"

It was part of the April fools imho..

I am hearing in the speech... the words... tools from the fed as... "WEAPONS", "BULLETS", "GUNS"....

that's the way to solve things ? with weapons of mass destruction....

http://www.imagefreehost.com/files/0...397353084.jpeg
The EURO POWER


http://thirdrail.smorgasblog.com/archives/donkey.jpg

THE DOLLAR

"Derivatives are financial weapons of mass destruction" - Alan Greenspan, ca. 2003

oh man, I'm just loving it... the whole journalism industry is so bizarre. ANYTHING for a story, no matter what. fact-checking? pooh-pooh, who cares about that anymore. I wonder if ever someone is going to use this madhouse behavior and pull a George Soros on the USD... the time is ripe... I imagine if you can control say 200m cash and have some good connections you should be able to start a nice avalanche.

top reasons why forex has taken over your life...

# 16. Your favorite champagne is "Bollinger"
http://4giftsdirect.com/productimages/1244_Bollinge.jpg

heh

here is one...

#17 when you start to calculate prices in the shops as pips instead of $ ...

come on... admit it... who has not calculated how many pips with your current leverage would be some item in a shop... :

True.

This one I gotta share. It was shown yesterday here in Brazil.

Californication, the scene where Becca goes tell Hank she's got her first period.

- It happened
- It what?
- It!
- It?
- "The" it!
- Oh IT?... SHIT!

Fist 30 sec of this video. Then the scene at the supermarket where Hank tries to buy tampons from the other lady.

Damn hilarious TV series.

Damn funny series....one of the best things on TV