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The world economy will this year suffer its worst performance for more than 60 years with a serious risk that 50m people will lose their jobs, international organisations have warned. Reported by Krishna Guha et al.

29th January 09 - Krishna Guha, Alan Beattie and Chris Giles, The Financial Times

The warnings came as the Federal Reserve expressed fresh concern about deflation, noting that the US economy had “weakened further” since its last policy meeting in December.

The US central bank made no immediate move to purchase Treasury securities – disappointing some in the markets – and signalled that its preference is to expand targeted credit operations instead. The Fed said it would “assess whether expansions of or modifications to lending facilities would serve to further support credit markets”.

Earlier, the International Monetary Fund increased its estimate of credit losses on US-based assets from $1,400bn to $2,200bn. It also said world output, measured at market exchange rates, would fall in 2009 for the first time since the second world war. Weighted by purchasing power, growth would be very slightly positive.

The new growth forecasts mark a huge revision – down by more than 1.5 percentage points – from the IMF’s previous forecast for the year in spite of the inclusion of the fiscal stimulus efforts by governments into its predictions for the first time. Advanced economies, the IMF predicted, would contract 2 per cent in 2009 with the UK hit hardest.

In Geneva, the International Labour Organization said the global recession would lead to a “dramatic increase” in unemployment this year, which would certainly lead to 18m-30m additional unemployed and more than 50m “if the situation continues to deteriorate”.

The forecasts helped frame a sombre and gloomy mood as executives and policymakers started the annual meeting of the World Economic Forum in Davos, with leaders stressing the sharp and synchronised nature of the downturn, expressing concern about global policy co-ordination, and some scepticism that fiscal interventions would ensure a recovery.

Barack Obama, US president, meanwhile hosted a meeting with corporate leaders to rally support for a fiscal stimulus – which may now exceed $825bn – amid resistance from Republicans opposed to massive government spending. Werner Wenning, chairman of Bayer, the German pharmaceuticals group, was among several saying he did not expect solutions to be found during the week-long event. The problem, said Stephen Roach, chairman of Morgan Stanley Asia, was that the US consumer was only in the first stages of a rebalancing that would take a number of years and reduce consumption and increase saving. In the meantime, China, the world’s workshop, would find it difficult to expand production and, “as the Chinese economy has hit a wall, so has the rest of Asia”.

US bank stocks rallied on hopes that the Obama administration was moving ahead with plans for an “aggregator” bank that would buy toxic assets. Remarks by Tim Geithner, the new Treasury secretary, who played down the prospect of nationalisation, helped to buoy investor sentiment. In New York, Wells Fargo was up 30.9 per cent, Citigroup 18.6 per cent, Bank of America 13.7 per cent and JPMorgan Chase 10.4 per cent.

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IMF: UK economy will be hardest hit in worst recession since second world war

28th January 08 - Julia Kollewe, The Guardian (UK)

Britain's economy will be the hardest hit in the developed world in what is expected to be the "deepest recession since the second world war," the International Monetary Fund said today.

The IMF now expects the UK economy to shrink by 2.8% this year, compared with the 1.3% it was forecasting in November. This is worse than the 2% average drop in output the organisation has estimated for advanced nations.

Global growth is expected to fall to 0.5% this year as the "scale and scope of the current financial crisis have taken the global economy into uncharted waters".

Official figures last week confirmed that Britain fell into recession at the end of 2008. The UK economy slumped by 1.5% in the final three months of the year – worse than expected and sparking fears of a deep and prolonged recession. Over 2008 as a whole, the British economy shrank by 0.7%.

Also today, a United Nations agency warned that more than 50 million jobs could disappear around the world this year. As the global economy battles its worst downturn since the Great Depression, the International Labour Organisation (ILO) said its worst case scenario would see 51 million more jobs lost by the end of this year, taking the global unemployment rate to 7.1% from 6% last year.

More realistically, the organisation estimates that 30 million people could lose their jobs if financial turmoil continues through 2009, pushing the unemployment rate to 6.5%. Under its most optimistic scenario, this year would end with 18 million more people out of their jobs and a jobless rate of 6.1%.

"If the recession deepens in 2009, as many forecasters expect, the global jobs crisis will worsen sharply," the ILO said. "We can expect that for many of those who manage to keep a job, earnings and other conditions of employment will deteriorate."

Developing countries will suffer most, according to the organisation, whose governing structure includes governments, employers and workers' groups.

"Sub-Saharan Africa and south Asia stand out as regions with extremely harsh labour market conditions and with the highest shares of working poor of all regions," the report said.

The ILO estimates that North Africa and the Middle East had the highest unemployment rates at the end of 2008, at 10.3% and 9.4% respectively.

Central and south-eastern Europe and the former Soviet states ended last year with a jobless rate of 8.8%. In sub-Saharan Africa it was 7.9% and Latin America's rate was 7.3%. East Asia fared best of the world's regions at 3.8%.

Most job creation in 2008 came from south Asia, south-east Asia and east Asia, while developed economies and the European Union had a net loss of about 900,000 jobs.

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