"Global economy is expected to shrink this year"

(AP) The world economy is likely to shrink this year for the first time in six decades.

The International Monetary Fund projected the 1.3 percent drop in a dour forecast released Wednesday. That could leave at least 10 million more people around the world jobless, some private economists said.

"By any measure, this downturn represents by far the deepest global recession since the Great Depression," the IMF said in its latest World Economic Outlook. "All corners of the globe are being affected."

The new forecast of a decline in global economic activity for 2009 is much weaker than the 0.5 percent growth the IMF had estimated in January.

Big factors in the gloomier outlook: It's expected to take longer than previously thought to stabilize world financial markets and get credit flowing freely again to consumers and businesses. Doing so will be necessary to lift the U.S., and the global economy, out of recession.

The report comes in advance of Friday's meetings between the United States and other major economic powers, and weekend sessions of the IMF and World Bank. The talks will seek to flesh out the commitments made at a G-20 leaders summit in London last month, when President Barack Obama and the others pledged to boost financial support for the IMF and other international lending institutions by $1.1 trillion.

The IMF's outlook for the U.S. is bleaker than for the world as a whole: It predicts the U.S. economy will shrink 2.8 percent this year. That would mark the biggest such decline since 1946.

Among the major industrialized nations studied, Japan is expected to suffer the sharpest contraction this year: 6.2 percent. Russia's economy would shrink 6 percent, Germany 5.6 percent and Britain 4.1 percent. Mexico's economic activity would contract 3.7 percent and Canada's 2.5 percent.

Global powerhouse China, meanwhile, is expected to see its growth slow to 6.5 percent this year. India's growth is likely to slow to 4.5 percent.

All told, the lost output could be as high as $4 trillion this year alone, U.S. Treasury Secretary Timothy Geithner estimated.
Besides trillions in lost business, a sinking world economy means fewer trade opportunities and higher unemployment. It raises the odds more people will fall into poverty, go hungry or lose their homes. And while keeping a lid on interest rates and consumer prices, the global recession increases the risk of deflation, which would drag down prices and wages, making it harder for people to make payments on their debt.

The jobless rate in the United States is expected to average 8.9 percent this year and climb to 10.1 percent next year, the IMF said.

In Germany, the jobless rate is expected to average 9 percent this year and 10.8 percent next year. Britain's unemployment rate is projected to rise to 7.4 percent this year and to 9.2 percent next year....

The financial crisis erupted in the United States in August 2007 and spread around the globe. The crisis entered a tumultuous new phase last fall, shaking confidence in global financial institutions and markets. Total worldwide losses from the financial crisis from 2007 to 2010 could reach nearly $4.1 trillion, the IMF estimated in a separate report Tuesday.

The crisis has led to bank failures, wiped out Lehman Brothers and forced other big institutions, like insurance giant American International Group, to be bailed out by U.S. taxpayers.

And it's triggered radical government interventions — such as the United States' $700 billion financial bailout program and the Federal Reserve's $1.2 trillion effort to lower interest rates and spur spending.

Actions by the United States and government in other countries have helped ease the crisis in some ways. But markets are still not operating normally.

The 185-nation IMF, headquartered in Washington, is the globe's economic rescue squad, providing emergency loans to countries facing financial troubles. It has urged countries to take bolder actions to bolster banks...

Because the world economy won't be back to normal next year or perhaps even in 2011, Blanchard urged countries to spend money on big public works projects — something the Obama administration is doing — to bolster activity...