It's actually worse that that. Their numbers have it going backwards, but there's a limit as to how bad an IMF headline should look
The International Monetary Fund has forecast the worst year for the world economy since the great depression as Westpac has pushed its forecasts for Australia sharply into negative territory.
The IMF's latest World Economic Outlook puts global growth at just 0.5 per cent in the year ahead, down from a forecast of 2.2 per cent just two months ago.
But the forecast is calculated using a special non-market exchange rate created by the IMF known as "purchasing power parity". When market exchange rates are used the forecasts put global growth into negative territory for the first time since World War 2.
The Fund says the US economy will shrink 1.6 per cent while the UK contracts 2.8 per cent, Japan 2.6 per cent, mainland Europe 1.6 per cent, and a group known as "other advanced economies" which includes Australia 2.4 per cent.
Treasurer Wayne Swan greeted the news declaring it was "inevitable that Australian jobs and growth will be affected".
Separately Westpac downgraded its forecast for Australia from zero economic growth to growth of minus 0.7 per cent - Australia's worst result since the early 1990's recession. Westpac said it expected that to be followed by "positive but anaemic" Australian growth throughout 2010.
The IMF is also predicting a recovery next year although it warns that it it is not highly confident of that forecast...
"Unless stronger financial strains and uncertainties are forcefully addressed, the pernicious feedback loop between real activity and financial markets will intensify, leading to even more toxic effects on global growth," the report says.
The Fund is particularly concerned about the risk of deflation which is says is increasing in a number of developed economies. Australian figures released yesterday showed that local prices fell in the three months to December - the first quarterly incident of deflation since 2006 in which recorded prices slipped 0.1 per cent due to the "banana effect" of a return to fruit production after Cyclone Larry.
The Bureau of Statistics says Australian prices dived 0.4 per cent in the December quarter, led down by an 18 per cent slide in the price of petrol along with a 2.4 per cent fall the price of cars.
Footwear prices were down 0.4 per cent, household appliance prices down 0.6 per cent and computing equipment prices down 2.9 per cent notwithstanding the lower dollar, implying heavy discounting in the lead up to Christmas.
The home entertainment retailer Strathfield was yesterday placed in voluntary administration citing falling consumer demand and worsening economic conditions. It has 18 outlets in Victoria.
By contrast Woolworths which operates the Safeway chain of supermarkets reported a 7.1 per cent annual jump in like-for-like sales, giving some of the credit to the government's $8.67 billion economic stimulus package.
"This suggests that consumption of many basic items was strong in the December quarter," said the Treasurer. But we will await the overall data".
"I’d just like to make this point: the Government stands ready to take whatever action is required, in a responsible way, to respond to these rapidly changing global conditions," he said.
Japan unveiled a massive additional stimulus plan Wednesday valued at $80 billion including a minimum cash handout of $200 to every man, woman and child in the country. Germany unveiled a package worth $100 billion.
The IMF called on countries such as Australia with "policy room" to commit to doing more should things deteriorate.
It expected the average budget deficit among developed countries to deteriorate to a near-record 7 per cent of GDP.
Australia's annual rate of inflation slid from 5.0 to 3.7 per cent in the December quarter, freeing the Reserve Bank board to consider cutting interest rates aggressively when it meets for the first time this year next Tuesday.
JP Morgan, Citibank and Westpac are among the forecasters expecting a cut of a further 1.00 per cent, with TD Securities saying there is a chance the cut could be as big as 1.50 per cent. Both Westpac and TD Securities expect the Reserve Bank's cash rate to slide to a record low of 2.00 per cent from its present 4.25 per cent.
Global growth in 2009
United States -1.6%
United Kingdom -2.8%
"Other advanced" including Australia -2.4%
IMF: January World Economic Outlook update (Click to enlarge.)