## IMF World Economic Outlook (WEO) Update -- Contractionary Forces Receding But Weak Recovery Ahead, July 2009

_World Economic Outlook, July 8, 2009_

## Source details

**Canonical URL:** [IMF World Economic Outlook (WEO) Update -- Contractionary Forces Receding But Weak Recovery Ahead, July 2009](https://www.imf.org/en/publications/weo/issues/2016/12/31/contractionary-forces-receding-but-weak-recovery-ahead)

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- [Bundle manifest](/en/publications/weo/issues/2016/12/31/contractionary-forces-receding-but-weak-recovery-ahead/bundle-manifest.json)

## Bibliographic details
- Published: July 8, 2009
- Series: World Economic Outlook

---

### Global overview and headline projections
- The global economy is beginning to pull out of a recession unprecedented in the post–World War II era, but stabilization is uneven and the recovery is expected to be sluggish.
- Economic growth during 2009–10 is now projected to be about ½ percentage points higher than projected in the April 2009 World Economic Outlook (WEO), reaching 2.5 percent in 2010.
- Global activity is forecast to contract by -1.4 percent in 2009 and to expand by 2.5 percent in 2010; on a fourth-quarter-over-fourth-quarter basis, real GDP growth is projected at 2.9 percent in 2010.
- Key summary figures from the WEO Table 1.1 (percent change, unless otherwise noted):
  - World output: 2007 = 5.1; 2008 = 3.1; 2009 = -1.4; 2010 = 2.5; Difference from April 2009 WEO Projections: -0.1 (2008), 0.6 (2010)
  - Advanced economies: 2007 = 2.7; 2008 = 0.8; 2009 = -3.8; 2010 = 0.6
  - United States: 2007 = 2.0; 2008 = 1.1; 2009 = -2.6; 2010 = -0.8
  - Emerging and developing economies: 2007 = 8.3; 2008 = 6.0; 2009 = 3.3
  - China: 2007 = 13.0; 2008 = 9.0; 2009 = 7.5; 2010 = 8.5
  - India: 2007 = 9.4; 2008 = 7.3; 2009 = 6.5; 2010 = 4.8
  - World trade volume (goods and services): 2007 = 7.2; 2008 = -12.2; 2009 = -1.2
  - Oil (U.S. dollars): 2008 average price per barrel = $97.03; assumed price based on future markets = $60.50 in 2009 and $74.50 in 2010
- Improvements in financial conditions have outpaced expectations, largely owing to public intervention; high-frequency data point to a return to modest global growth after a weak Q1 2009.

### Drivers, balance of forces, and near-term outlook
- Downward drags diminishing: financial shock, sharp fall of global trade, and heightened uncertainty are gradually losing intensity.
- Supportive forces remain weak: many housing markets have yet to bottom out; financial markets remain impaired; bank balance sheets need cleaning and institutions restructuring.
- Temporary supports: cuts in policy interest rates, ample liquidity provision, credit easing, public guarantees, and bank recapitalization have reduced systemic failure concerns and supported intermediation.
- Commodity developments: commodity prices have rebounded ahead of the recovery; oil prices have responded to perceptions of tighter market dynamics and OPEC discipline; forward markets project oil at $74.50 for 2010.
- Outlook summary:
  - Activity and credit growth likely to remain subdued in many economies.
  - Expansionary macroeconomic policies and inventory adjustment are supporting global activity but are temporary forces.
  - Advanced economies as a group projected not to show a sustained pickup until the second half of 2010.

### Regional and country highlights
- United States:
  - High-frequency indicators point to a diminishing rate of deterioration in the labor and housing markets; industrial production may be close to bottoming out; inventory cycle turning.
  - Stabilization in H2 2009 and gradual recovery emerging in 2010.
- Japan:
  - Signs of output stabilizing after a weak Q1 2009; improvement supported by consumer confidence, inventory adjustment, aggressive fiscal policies, and strong performance in other Asian economies.
- Euro area:
  - Consumer and business surveys recovering, but real activity shows few signs of stabilization; activity projected to strengthen more slowly; heavy dependence on a still-ailing banking sector.
- Emerging and developing economies:
  - Regain growth momentum in H2 2009 with regional differences.
  - Emerging Asia projections revised to 5.5 percent in 2009 and 7.0 percent in 2010, reflecting improved prospects in China and India and faster-than-expected turnaround in capital flows.
  - Latin America growth projections lowered by 1.1 percentage points in 2009 but revised up by 0.7 percentage points in 2010 due to rising commodity prices.
  - Central and eastern Europe: projections revised downward by 1.3 percentage points in 2009 and upward by 0.2 percentage points in 2010.
  - CIS: projections revised downward by 0.7 percentage points in 2009 and upward by 0.8 percentage points in 2010; Russia: 2008 = 8.1; 2009 = 5.6; 2010 = -6.5 (table entries reflect regional heterogeneity).
  - Emerging Africa and the Middle East: 2009 projections revised downward by 0.3 and 0.5 percentage points, respectively; 2010 broadly unchanged.
  - Low-income countries face challenges as official aid has fallen and vulnerability to commodity swings is high.

### Inflation and labor market
- Inflation dynamics:
  - Year-over-year inflation moderated to 1.7 percent in May 2009, down from around 6 percent one year earlier.
  - In advanced economies, headline inflation fell below zero percent in May 2009; core inflation around 1½ percent.
  - Emerging markets: headline and core inflation fell below 4½ percent and to around 1 percent in May 2009, respectively.
  - Global inflation expected to remain subdued through 2010 due to significant excess capacity; inflation rates marked up by about ½ percentage point for 2010 from the April WEO forecast.
- Labor market:
  - Growth in 2010 would still fall short of potential until late in the year, implying continuing increases in unemployment.
  - Unemployment rates will reach double digits in some countries, weighing on wages and household spending.

### Risks to the outlook
- Risks remain tilted to the downside though tail risks have diminished.
- Key downside risks:
  - Rising unemployment and renewed loss of confidence in financial sector stability could pressure asset prices and trigger deflation.
  - Questions about public debt sustainability in some countries could raise bond yields and impede housing market recovery.
  - Falling house prices could undermine bank capital bases.
  - Emerging economies vulnerable to intensified financial stress with potential feedback effects.
  - Policy responses that restrict trade/finance or roll back reforms could harm confidence and productivity.
- Upside risks:
  - Larger-than-expected drop in risk aversion and stronger internal demand dynamics in some major emerging economies.

### Policy priorities and recommendations
- Overarching priority:
  - Restoring financial sector health remains the primary policy priority.
- Financial policy:
  - Continue efforts to restore bank solvency, clean bank balance sheets, and restructure or resolve institutions where necessary.
  - Achieve credible recapitalization together with appropriate restructuring or resolution; implement measures forcefully and transparently to rebuild confidence and reaccelerate credit growth.
  - Ensure short-term support measures are consistent with long-term objectives to strengthen incentives and market discipline.
- Monetary policy:
  - Monetary policy should remain supportive until growth resumes and deflationary risks dissipate.
  - Exploit remaining room to cut policy rates; continue exploring nonconventional measures to support credit flows.
  - Develop and communicate exit strategies for withdrawing exceptional conventional and nonconventional monetary support; develop tools to facilitate unwinding expanded central bank balance sheets.
- Fiscal policy:
  - Fiscal policy should stay supportive through 2010, with plans to rebuild fiscal balances and ensure sustainable debt paths once growth is reestablished.
  - Strengthen medium-run fiscal policy frameworks, fiscal rules, and institutions; reduce buildup of future pension and health liabilities.
  - Consider commitments to raise statutory retirement ages in line with life expectancies and to slow health services costs through efficiency improvements.
- Emerging economies:
  - Balance support for demand with risks of capital outflows and fiscal sustainability.
  - Where underlying inflationary pressures are easing, central banks should reduce policy rates cautiously to avoid disorderly exchange rate adjustments and large capital outflows.
  - Assess banking system soundness, especially where corporate sectors struggle due to falling export revenues and loss of external financing.
- Rebalancing global demand and medium-run growth:
  - Shift from temporary public demand support to policies that rebuild potential output and reallocate resources.
  - Rebalancing implies private demand must increase as public demand recedes; countries with large current account deficits (e.g., the United States) may need shifts toward external demand, while surplus countries must support stronger domestic demand.
  - Success in rebuilding financial sectors in advanced economies and supporting private consumption in surplus emerging economies will be critical to recovery beyond 2010.

*IMF World Economic Outlook (WEO) Update, July 2009.*

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## References

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- [https://www.imf.org/en/publications/gfsr](https://www.imf.org/en/publications/gfsr)
- [Global Financial Markets Confront the War in the Middle East and Amplification Risks](https://www.imf.org/en/publications/gfsr/issues/2026/04/14/global-financial-stability-report-april-2026)
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_Source: https://www.imf.org/en/publications/weo/issues/2016/12/31/contractionary-forces-receding-but-weak-recovery-ahead_