Next Year is Not Looking Good, Says IMF as it Revises Forecast

Sources: China Daily, IMF: Growth to fall from 9.3% to 8.5%; IMF Survey Magazine, IMF Urges Stimulus as Global Growth Marked Down Sharply; International Monetary Fund, IMF World Economic Outlook Update

The credit crisis has claimed its next victim: the IMF's global economic growth prediction for 2009. The IMF announced this week that the global economy will only grow by 2.2% next year, and not by 3%, as it had predicted last month. To put this in perspective, in 2007, the global economy grew by 5%; in 2008, it grew by 3.75%. The IMF attributes this latest development to the global credit crisis, which has affected the global economy in ways that are "worse than expected."

The IMF has posted its revised forecast in the October update to its latest World Economic Outlook Report. The IMF publishes two World Economic Outlook Reports every year as part of its research duties. The reports are just one of several means by which the IMF shares its research findings and economic predictions with its member states and with the general public.

The updated report also predicts that China will only grow by 8.5%, and not 9.3%, as originally predicted. Though countries in East Asia, including China, are in a better trading position because commodity prices are falling, China will still suffer as a result of the downturn in the American and European economies. The IMF also noted in its report that economic growth in advanced economies will contract for the first time since World War II, though it was also quick to predict that the economy will begin to recover by late 2009.

Though the IMF is expected to issue specific recommendations regarding the international community's response to the crisis during the upcoming November 15th G-20 meeting in Washington, D.C., it has thus far called for countries to take an active part in the recovery of their economies. In the IMF's view, national governments should enact policies to stimulate economic growth. The organization has not elaborated on the types of policies it considers will be effective, but its leadership is likely to provide more guidance during the G-20 meeting.

Discussion Questions:

1- In just one month, the IMF's predictions for global economic growth have decreased by .8%. How do you think the IMF's revised forecast will affect the markets?

2- What kinds of national policies do you think countries could enact to help stimulate their economies? Do you agree that national governments should become more involved in their countries' economic markets?