While you were sleeping: IMF forecasts, UK deficit

Thursday 23rd April 2009

The global economy will probably shrink by 1.3% this year, the deepest slump since WWII and governments' efforts to stem the slide may be inadequate, according to the International Monetary Fund.

It called for continued stimulus measures through 2010 and predicted losses at banks and other financial institutions could reach US$4.1 trillion and require US$875 billion in new capital.

Interest rates should be kept low and central banks with room to cut their key rates further should move quickly.

The projection for a global recession this year is a deterioration from the IMF’s forecast three months ago for a 0.5% expansion in world growth.

“A key concern is that policies may be insufficient to arrest the negative feedback between deteriorating financial conditions and weakening economies in the face of limited public support for policy actions,” the IMF said.

The US economy will likely shrink 2.8% this year while the European Union economy would contract 4.2%. Growth will return in 2010, with a global expansion of 1.9% predicted.

US Treasury Secretary Timothy Geithner said in a speech today that worldwide action is needed to avert the worst economic crisis in modern times.

“We may have to adapt our policies further as conditions evolve, and we need to make sure we provide a scale of support that matches the intensity of the challenge,” Geithner said.

US stocks pared their gains in late trading, with the Dow Jones Industrial Average slipping 1% to 7886.57 and the Standard & Poor’s 500 Index falling 0.8% to 843.55. The Nasdaq Composite rose 0.1% to 1646.12.

Morgan Stanley fell 9% to US$22.44 after posting a bigger-than-expected US$177 million first-quarter loss and cutting its dividend. Losses from real-estate were US$1 billion and it also took a US$1.5 billion accounting loss. Citigroup gained 0.3% to US$3.25.

Wells Fargo & Co., the second-largest US bank, sank 3.4% to US$18.18 after reporting a 53% rise in first-quarter profit to a record $3.05 billion on demand for mortgage refinancing.

General Motors fell 0.6% to US$1.69. The automaker was reported by the Wall Street Journal to be unlikely to meet a US$1 billion debt payment due on June 1 because it will probably be restructuring debt through negotiation with investors or via bankruptcy. General Electric climbed 0.9% to US$11.80 after saying its finance unit will be profitable this year.

Construction company Toll Brothers rose 0.2% to US$19.74 after figures showed US home prices rose 0.7% in February from January, the first time prices have increased for two straight months in two years. Prices declined 6.5% in February from a year earlier, according to the Federal Housing Finance Agency said.

Caterpillar gained 3.4% to US$32.45 on reports the heavy earthmoving equipment maker will likely scrape through without the need for government aid.

Copper fell for a third day on speculation prolonged global recession will sap demand for the metal used to make pipes and wires. Copper futures for July delivery slipped 0.9% to US$2.0605 a pound on the Comex division of the New York Mercantile Exchange.

Crude oil for June delivery rose 0.6% to US$48.85 a barrel on the New York Mercantile Exchange. Gold for June delivery rose 0.4% to US$885.90 an ounce in New York.

European stocks rose, with the Dow Jones Stoxx 600 Index gaining 1.2% to 192.38. Electrolux jumped 16% after posting a smaller-than-expected first-quarter loss of 346 million kronor.

The UK’s FTSE 100 gained 1.1%, France’s CAC 40 rose 1.7% and Germany’s DAX 30 gained 2.1%.

US Chancellor of the Exchequer Alistair Darling forecast the worst recession in the UK since WWII, eroding revenue for the Treasury. He predicted the British economy would contract 3.5% this year, twice as much as forecast in November.

The UK budget deficit almost tripled to 90 billion pounds in the 12 months through March, according to the government statistician. Jobless claims rose 73,700 to 1.46 million.

Businesswire.co.nz

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