UK recession will end this year, says IMF

Britain's recession will end this year with the economy returning to anaemic growth in 2010, the International Monetary Fund (IMF) said today as it upgraded its view of prospects for the UK and other leading economies.

In a boost for Alistair Darling's predictions that Britain's worst post-war slump will be over by Christmas, the IMF sharply raised its UK forecasts for next year. It now predicts insipid growth of 0.2 per cent, compared with the 0.4 per cent decline it had expected in April and a 4.2 per cent slump projected for this year.

The Chancellor will welcome the fund's backing for his hopes for an imminent end to the recession.

But the IMF's growth projection falls a long way short of Mr Darling's bet on a much stronger expansion of between 1 per cent and 1.5 per cent, and is a blow to the Government's hopes of fighting an election framed around economic recovery.

The IMF expects, however, that Britain will still do better than the eurozone thanks to a continuing slump in Germany. The fund has torn up its April predictions for stagnation in Germany next year. It now sees a further sharp 0.6 per cent contraction in German GDP next year, leading to a 0.3 per cent decline in the wider eurozone.

Today's IMF prediction of a stronger performance next year by the global economy as a whole, with the world pulling out of its sharpest recession for half a century, is driven by improved expectations for the United States.

The US economy is now forecast to grow by 0.8 per cent next year, compared with the IMF's April view that it would manage, at best, to stagnate, with zero growth. This year, US GDP is seen as falling by 2.6 per cent, against the 2.8 per cent decline previously predicted.

"The world economy is stabilising, helped by unprecedented macroeconomic and financial policy support," today's report, an interim update of the IMF's World Economic Outlook, concludes.

But it sounds a warning that the revival in growth is set to be both "sluggish" and patchy, with some countries recovering markedly better than others. "The advanced economies as a group are still projected not to show a sustained pick-up in activity until the second half of 2010," the fund said.

"Despite these positive signs, the global recession is not over, and the recovery is still expected to be slow."

The report said the key problem hampering growth and requiring further efforts by governments and central banks remained the weakness and vulnerability of the West's financial system.

While financial stresses in the markets had eased, and stricken banking systems had been stabilised, complacency must be avoided as "more work is needed to fix banks and markets", the IMF warned.

"Rising unemployment and a loss of confidence in the stability of the financial sector (possibly resulting from a larger-than-anticipated wave of corporate bankruptcies) could put renewed downward pressure on asset prices and potentially trigger a deflationary episode," it cautioned.

Gary Duncan
The Times
www.timesonline.co.uk

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