Saturday, November 08, 2008
"This will be tough, it will be hard, it will be difficult," said Prime Minister Rudd greeting the revised forecasts. "The bottom line is the global economy has suffered a huge whacking as a consequence of the global financial crisis."
The November update to the IMF's World Economic Outlook has the US contracting 0.7%, the UK 1.3%, mainland Europe 0.5% and Japan 0.2%. A month ago the Fund expected all but the UK to grow.
Worldwide economic growth will slow to 2.2%, well below the 3% benchmark the IMF uses to define a global recession.
As the Fund released its update the Bank of England cut its official interest rate by an unprecedented 1.5% to just 3.0% - its lowest level since 1954.
The IMF is forecasting negative inflation in the major developed economies and interest rates close to zero - something that would make economic management much more difficult...
"When you get to zero interest rates, you're done in terms of using interest rates," said the Fund's chief economist Olivier Blanchard. "We're not there yet, but as we get closer, clearly the room is smaller."
Although starting from a strong position, Australia would be hit hard.
"It's a raw material exporter and at the same time it is very much integrated with other advanced economies and expecting a slowdown for the same reasons as the other advanced economies are. Taking the two together we see real growth in Australia slowing appreciably in 2008/09, probably hitting around 1.80%," Dr Blanchard said.
In Tuesday's budget update the Treasurer Wayne Swan forecast growth of 2.0%, climbing to 2.25% the following financial year.
Mr Rudd played down the difference.
"The growth projected by both by the IMF and in the forecast released by the Treasurer are basically about the same. I think there is a difference of about 0.2%. We have to deal with the challenges we face coming off the back of this gloomy prognosis from the IMF and a global recession across the major economies next year."
The Solomon Lew-owned toy and home goods distributor PlayCorp and the Commonwealth Bank both announced plans to shed staff in response to the global slowdown.
Playcorp will sack 20 of its 100 staff working in graphic design, sales and administration in its Melbourne office.
The Commonwealth Bank confirmed that downsize its institutional banking division and corporate communications arm, but could give no numbers.
The Australian Prudential Regulation Authority revealed in its annual report that it has been helping manage small number of financial institutions that it believes are facing difficulty. "Where APRA has had concerns that an institution was not managing its liquidly or funding profile as conservatively as would be expected, supervisors have worked closely with that institution to address the concerns," the report said.
APRA did not identify the institutions.