## IMF Survey: IMF Predicts Major Global Slowdown Amid Financial Crisis

_IMF News, October 8, 2008_

## Source details

**Canonical URL:** [IMF Survey: IMF Predicts Major Global Slowdown Amid Financial Crisis](https://www.imf.org/en/news/articles/2015/09/28/04/53/sores100808a)

## Other formats

- [Markdown version](/en/news/articles/2015/09/28/04/53/sores100808a/index.md)
- [Structured JSON version](/en/news/articles/2015/09/28/04/53/sores100808a/index.json)
- [Bundle manifest](/en/news/articles/2015/09/28/04/53/sores100808a/bundle-manifest.json)

## Bibliographic details
- Authors: Subir Lall IMF Research Department October
- Published: October 8, 2008

---

### Major findings on global outlook
- World growth will slow to 3.0 percent in 2009—0.9 percentage point lower than forecast in the July 2008 WEO Update.
- On an annual basis, global growth is expected to moderate from 5.0 percent in 2007 to 3.9 percent in 2008 and 3.0 percent in 2009.
- The world economy is entering a major downturn amid "the most dangerous financial shock in mature financial markets since the 1930s."
- Many advanced economies are close to or moving into recession, with "no growth in many advanced economies until at least mid-2009."
- Emerging and developing economies' growth is weakening but still expected to provide resilience due to strong productivity growth and improved policy frameworks.
- Recovery is expected to start in the course of 2009 but to be "exceptionally gradual by past standards" and global growth is not expected to return to trend until 2010.

### Inflation and commodity dynamics
- Headline inflation in advanced economies: 12-month headline inflation registered at 4¼ percent in August.2008, down modestly from a peak in July.
- Headline inflation in emerging and developing economies: reached 8¼ percent in the aggregate in August, with many countries experiencing double-digit inflation.
- Food price weight in consumption baskets: typically in the range of 30-45 percent in emerging and developing economies, as opposed to 10-15 percent in advanced economies.
- Commodity prices remain at much higher levels in real terms than at any time in the past 20 years, despite some correction since mid-July.
- The combination of rising economic slack and stabilizing commodity prices is expected to contain price increases in advanced economies; in many emerging and developing economies, inflation is projected to remain elevated through the end of 2008 before easing somewhat by the end of 2009.

### Risks to the baseline projections
- Principal downside risks:
  - Persistent financial stress and deeper, more protracted credit constraints from deleveraging than in the baseline.
  - Deeper deterioration in the U.S. housing market than forecast and broader weakening in European housing markets.
- Additional risks:
  - Potential disruptions to capital flows to emerging economies.
  - Risks of rising protectionism.
- A failure to restore confidence in the global financial system through internationally coherent and decisive measures could lead to an increasingly disorderly unwinding of leverage and greater real economy costs than built into the baseline.
- Inflation risks to growth are more balanced due to commodity price retreat in response to slowing global growth.

### Country and sectoral prospects
- Advanced economies: collective annualized growth of only 1 percent from Q4 2007 through Q2 2008; many advanced economies expected to face extremely sluggish growth or contraction in 2008 and H1 2009.
- United States: faces flat to negative growth for remainder of 2008 and early 2009; recovery hinge on an emerging housing turnaround and more stable oil prices in H2 2009.
- Emerging and developing economies: growth projected to decelerate, fall somewhat below trend in H2 2008 and early 2009, then pick up during the year; overall growth in this group expected to remain well above rates experienced in the 2001-02 global downturn.
- Commodity-exporting countries (particularly oil exporters): expected to maintain momentum.
- Countries dependent on food and fuel imports or external financing: expected to slow sharply; net external capital inflows are projected to fall by half in the aggregate, with some countries facing substantial pressure on reserve positions.

### Financial sector assessment and implications
- Financial turmoil effects are spreading to firms that previously weathered oil and commodity price hikes but now face sharply slowing demand.
- Key systemic problems to address: proliferation of illiquid problem assets, shortage of capital, and collapse of counterparty confidence.
- Interbank rates remain elevated; stabilizing financial conditions is essential for recovery.
- Recent announcement (October 8) by the U.S. Federal Reserve, the European Central Bank, and four other central banks to lower interest rates by a half percentage point was "a step in the right direction."

### Policy recommendations and challenges
- Combine joint financial and macroeconomic policies to "stem the negative momentum on multiple fronts":
  - Financial policies: design comprehensive programs to deal with systemic problems and restore confidence.
  - Macroeconomic policies: use monetary and fiscal policies to support growth and break negative feedback loops between the financial and real sectors.
- Immediate priorities for policymakers:
  - Stabilize global financial markets and address threats to financial stability.
  - Rapidly and effectively resolve problems in individual institutions while rebuilding financial intermediation.
  - Balance support for activity with measures to prevent a ratcheting-up of inflation from commodity-driven relative price shifts.
- Commodity market policy stance:
  - Do not let commodity price decline undercut efforts to relieve market strains.
  - Focus on policies to improve supply and demand responsiveness while avoiding short-term measures that exacerbate market tightness.
- Trade policy:
  - Ensure large imbalances in trade flows do not lead to protectionist measures on current or capital accounts.
  - Breaking the deadlock on the Doha Round would help strengthen the open multilateral trading system.

*IMF Survey: IMF Predicts Major Global Slowdown Amid Financial Crisis — October 8, 2008 (IMF Research Department)*

---


## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Research](https://www.imf.org/en/news/search)
- [Read the research](https://www.imf.org/external/pubs/ft/weo/2008/02/index.htm)
- [See WEO animated charts](https://www.imf.org/external/pubs/ft/survey/so/2008/NUM100808B.htm)
- [IMF warns on failure to act](https://www.imf.org/external/pubs/ft/survey/so/2008/NEW100708A.htm)
- [Watch Blanchard video](https://www.imf.org/external/mmedia/view.asp?eventID=1269)
- [WEO press release](https://www.imf.org/external/np/sec/pr/2008/pr08236.htm)
- [Crisis to worsen downturn](https://www.imf.org/external/pubs/ft/survey/so/2008/RES100208E.htm)
- [Emerging markets pulled in](https://www.imf.org/external/pubs/ft/survey/so/2008/NEW100708C.htm)
- [Interbank rates stay up](https://www.imf.org/external/pubs/ft/survey/so/2008/NEW100708B.htm)
- [U.S. housing crisis video](https://www.imf.org/external/mmedia/view.asp?eventID=1268)
- [IMF urges more regulation](https://www.imf.org/external/pubs/ft/survey/so/2008/NEW092908A.htm)
- [Crisis marks tectonic shift](https://www.imf.org/external/pubs/ft/survey/so/2008/NEW092508A.htm)
- [Crisis hits global economy](https://www.imf.org/external/pubs/ft/survey/so/2008/NEW091708A.htm)
- [New channels spread crisis](https://www.imf.org/external/pubs/ft/survey/so/2008/RES092308A.htm)
- [Global Financial Stability Report](https://www.imf.org/external/pubs/ft/gfsr/2008/02/index.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sores100808a_