MercoPress. South Atlantic News Agency

Global contraction in 2009, first time in decades says IIF

The global economy likely will contract next year for the first time in decades as the credit crunch bites, according to the Institute of International Finance (IIF), a Washington-based association representing more than 375 of the world's major banks and financial institutions.

According to IIF the world economy would shrink 0.4% in 2009, after a 2% gain this year. "It should be emphasized that an overall contraction in the global economy is a truly weak outcome, and the first time this has happened in the post-1960 period," the IIF said in its monthly Global Economic Monitor report. Charles Dallara, the managing director of the IIF, called it "the most severe, globally synchronized recession in modern economic history." He said the economy was mired in a negative feedback loop. "The weakening of economic activity and intense financial market strains are feeding on each other and are reinforced by the global synchronization of the slowdown," the IIF head said. Philip Suttle, the IIF macroeconomic analysis director, said that data as far back as the early 1950s do not show a contraction in the world economy. The IIF said that the mature economies already gripped in recession -- the United States, the 15-nation Euro-zone and Japan -- would contract a hefty 1.4% amid the worst financial crisis since the Great Depression. Those advanced economies were seen growing a mere 0.9% this year as the global credit crunch that erupted in August 2007 flared in mid-September with the collapse of Wall Street investment bank Lehman Brothers. The US economy the world's largest and epicentre of the financial tsunami would shrink 1.3% in 2009 after growth of 1.2% this year, according to the IIF projections. The Euro-zone would contract more sharply, by 1.5% from 0.9% growth, and Japan would shrink 1.2% per cent after zero growth. The sharpest markdown was for the emerging economies, including powerhouses China, India, Brazil and Russia. Those engines of global growth had resisted the impact of the credit crunch gripping the advanced economies until the mid-September financial firestorm, the IIF said. The IIF forecasted economic growth in emerging markets would brake to 3.1% in 2009 after a 5.9% gain this year. China's growth would drop to 6.5% in 2009 from 9.3% this year and 11.9% in 2007, while India's deceleration would be less steep, to 5% from 6.2%.