## IMF World Economic Outlook (WEO) Update -- Global Economic Slump Challenges Policies, January 2009

_World Economic Outlook, January 28, 2009_

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## Bibliographic details
- Published: January 28, 2009
- Series: World Economic Outlook

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### Overview
- World growth is projected to fall to ½ percent in 2009, its lowest rate since World War II.
- The projection for global growth in 2010 is 3 percent, reflecting a gradual recovery contingent on strong policy actions.
- This outlook represents a downward revision of about 1¾ percentage point from the November 2008 WEO Update.

### Growth projections and revisions
- World output (year-over-year): 5.2 (2007), 3.4 (2008), 0.5 (2009), 3.0 (2010).
- Q4 over Q4 and differences from November projections are incorporated in the baseline projections.
- World growth measured in market exchange rates is expected to turn negative in 2009.
- World trade volume (goods and services) experienced a sharp decline in late 2008 and is projected to remain weak during 2009.

### Financial market conditions
- Financial market conditions have remained extremely difficult and more protracted than envisaged in November 2008.
- In advanced economies, spreads in funding markets have only gradually narrowed since end-October despite government guarantees; many credit market spreads remain close to their peaks.
- In emerging economies, sovereign and corporate spreads remain elevated despite recent moderation.
- Equity markets in both advanced and emerging economies have made little or no gains; currency markets have been volatile.
- Financial markets are expected to remain strained during 2009 until forceful restructuring and resolution of uncertainty about losses are implemented.

### Real-financial feedback loop and macro impact
- Asset values fell sharply across advanced and emerging economies in late 2008, reducing household wealth and consumer demand.
- High uncertainty prompted households and businesses to postpone expenditures, reducing demand for consumer and capital goods.
- Disruptions in credit constrained household spending and curtailed production and trade, reinforcing a pernicious feedback loop between the real and financial sectors.
- Global output and trade plummeted in the final months of 2008.

### Advanced economies
- Output in advanced economies is expected to contract by 2 percent in 2009—the first annual contraction in the postwar period.
- The cumulative output loss (relative to potential) is comparable to the 1974-75 and 1980-82 periods.
- Under assumptions of comprehensive financial policy actions, sizable fiscal stimulus, and large interest rate cuts, output is expected to start recovering in late 2009 and rise by about 1 percent in 2010.
- Stabilization in the U.S. housing market is expected to help underpin the recovery.

### Emerging and developing economies
- Growth in emerging and developing economies is expected to slow from 6¼ percent in 2008 to 3¼ percent in 2009.
- Drag factors include falling export demand and financing, lower commodity prices, and much tighter external financing constraints—especially for economies with large external imbalances.
- Stronger economic frameworks provide greater room for policy support than in past downturns, helping cushion the shock.
- Developing countries in Africa and elsewhere are better prepared due to improved macroeconomic implementation, but Africa remains in a weaker position because of poverty levels and reliance on commodity exports.

### Commodity prices and inflation
- The slump in global demand led to a collapse in commodity prices; oil prices have declined by over 60 percent since their peak in July 2008.
- The IMF baseline petroleum price projection is $50 a barrel for 2009 and $60 a barrel for 2010 (revised from $68 and $78).
- Metals and food prices have been marked down in line with recent developments.
- Inflation pressures have subsided:
  - Advanced economies headline inflation: 3½ percent in 2008 → ¼ percent in 2009 → ¾ percent in 2010.
  - Emerging and developing economies inflation: 9½ percent in 2008 → 5¾ percent in 2009 → 5 percent in 2010.

### Policy responses and recommendations
- Financial sector: need to restore functionality and unclog credit markets by producing credible loan loss recognition; sorting financial companies according to medium-run viability; providing public support to viable institutions by injecting capital and carving out bad assets.
- Specific financial measures recommended include:
  - Force credible and coordinated loan loss recognition.
  - Resolve insolvent banks.
  - Set up public agencies to dispose of bad debts, possibly through a "bad bank" approach, while safeguarding public resources.
- Monetary policy:
  - Central banks in advanced economies have cut policy rates substantially; short-term market interest rates in 2009 are assumed about ¾ percentage point lower in the United States, the euro area, and the United Kingdom relative to the November WEO Update.
  - With interest rates approaching zero in several major countries, central banks are exploring alternative approaches that use their balance sheets to ease monetary conditions further.
  - Emphasis on unlocking key (high-spread, low-liquidity) credit markets.
- Fiscal policy:
  - Fiscal stimulus in G-20 countries in 2009 is projected to be 1.5 percent of GDP.
  - Fiscal balances in advanced economies are projected to deteriorate by 3¼ percentage points to -7 percent of GDP in 2009 due to stimulus, automatic stabilizers, revenue losses, and financial rescue costs.
  - Fiscal stimulus packages should rely primarily on temporary measures and be formulated within medium-term fiscal frameworks to ensure reversibility and long-term sustainability.
  - Countries with limited fiscal space should prioritize supporting the financial sector and credit flows while adjusting budgets to less favorable external conditions.
  - Avoid cutbacks in foreign aid in response to tightening budgets.

### Risks and uncertainty
- The uncertainty surrounding the outlook is unusually large; downside risks dominate.
- Main downside risk: if financial strains and uncertainties are not forcefully addressed, the real-financial feedback loop could intensify, further damaging global growth.
- Rising risks of deflation in a number of advanced economies.
- Emerging economies' corporate sectors face risks from continued limited access to external financing.
- Sharp increase in public debt issuance could prompt adverse market reactions unless governments clarify strategies to ensure long-term sustainability.
- Upside risk: stronger-than-expected policy actions could improve global financial conditions faster than expected and lift growth.

### Key statistics and highlighted figures
- World growth: ½ percent (2009), 3 percent (2010).
- Downward revision from November 2008 WEO Update: about 1¾ percentage point.
- Advanced economies growth: -2 percent (2009).
- Emerging and developing economies growth: 6¼ percent (2008) → 3¼ percent (2009).
- Oil price assumptions: $50.00 a barrel (2009), $60.00 a barrel (2010); average price of oil in U.S. dollars a barrel was $97.03 in 2008.
- Oil price change in 2009 projection: -48.5 percent (listed in Table 1.1 commodity line).
- Advanced economies headline inflation: 3½ percent (2008) → ¼ percent (2009) → ¾ percent (2010).
- Emerging and developing economies inflation: 9½ percent (2008) → 5¾ percent (2009) → 5 percent (2010).
- Fiscal stimulus in G-20 countries in 2009: 1.5 percent of GDP.
- Fiscal balance deterioration in advanced economies: deterioration by 3¼ percentage points to -7 percent of GDP in 2009.
- Table 1.1 selected aggregates (percent change, unless otherwise noted): World output 5.2 (2007), 3.4 (2008), 0.5 (2009), 3.0 (2010).

*IMF World Economic Outlook (WEO) Update -- Global Economic Slump Challenges Policies, January 2009*

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## Content in this bundle

- [0109a (PDF)](/-/media/websites/imf/imported-flagship-issues/external/arabic/pubs/ft/weo/2009/update/01/pdf/0109a.pdf){rel="external" type="application/pdf"}
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## References

- [October 2008](http://www.imf.org/external/pubs/ft/weo/2008/02/weodata/index.aspx)
- [Archive of WEO Reports](https://www.imf.org/external/ns/cs.aspx?id=29)
- [Research at the IMF](https://www.imf.org/external/pubs/res/index.htm)
- [World Economic Outlook Database](https://www.imf.org/external/pubs/ft/weo/2008/02/weodata/index.aspx)
- [discussion forum](https://www.imf.org/external/pubs/ft/weo/forum/index.htm)
- [United Kingdom and the IMF](http://www.imf.org/external/country/GBR/index.htm)
- [United States and the IMF](http://www.imf.org/external/country/USA/index.htm)
- [https://www.imf.org/en/publications/weo](https://www.imf.org/en/publications/weo)
- [Global Economy in Crosscurrents of War and Technology](https://www.imf.org/en/publications/weo/issues/2026/07/08/world-economic-outlook-update-july-2026)
- [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)
- [https://www.imf.org/en/publications/fm](https://www.imf.org/en/publications/fm)
- [Fiscal Policy under Pressure: High Debt, Rising Risks](https://www.imf.org/en/publications/fm/issues/2026/04/15/fiscal-monitor-april-2026)
- [https://www.imf.org/en/publications/reo](https://www.imf.org/en/publications/reo)
- [Asia and Pacific](https://www.imf.org/en/publications/reo/apac)
- [Europe](https://www.imf.org/en/publications/reo/eu)
- [Middle East and Central Asia](https://www.imf.org/en/publications/reo/meca)
- [Sub-Saharan Africa](https://www.imf.org/en/publications/reo/ssa)
- [Western Hemisphere](https://www.imf.org/en/publications/reo/wh)
- [https://www.imf.org/en/publications/areb](https://www.imf.org/en/publications/areb)
- [Getting to Growth in an Age of Uncertainty](https://www.imf.org/en/publications/areb/issues/2025/09/24/annual-report-2025)
- [https://www.imf.org/en/publications/finance-development](https://www.imf.org/en/publications/finance-development)
- [More Publications](https://www.imf.org/en/publications)
- [November 2008 WEO Update](https://www.imf.org/external/pubs/ft/weo/2008/update/03/index.htm)
- [January 2009 Global Financial Stability Report—Market Update](https://www.imf.org/external/pubs/ft/fmu/eng/2009/01/index.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/publications/weo/issues/2016/12/31/global-economic-slump-challenges-policies_