IMF Lowers Growth Forecast for 2010

The International Monetary Fund projects that the global economy will shrink by 1.3% in 2009, with a slow recovery expected to take hold next year. In its April World Economic Outlook, released today, the IMF lowered its January forecast for a 3% rate of growth in 2010. The new report predicts growth of just 1.9%, largely because of the slower-than-anticipated recovery of the banking sector and that sector's reluctance to lend capital — especially to emerging markets — because so much as unknown about the direction of the economy.

“This is not the time for complacency, and the need for strong policies, both on the macro and especially on the financial fronts, is as acute as ever," IMF chief economist Olivier Blanchard said in a document accompanying the report. "But, with such policies in place, there is light at the end of this long tunnel. World growth can turn positive by the end of this year, and unemployment can start decreasing by the end of next year.” 

Bankers are not the only people who have become too fearful and uncertain to play their usual roles. For an article titled "Global Economic Forecast for 2009: Will Demand for Good News Outpace Supply?" Wharton finance professor Franklin Allen told Knowledge at Wharton that the economy will remain weak as consumers and businesses refrain from new spending until they are confident that asset prices are no longer falling. "We need things to stabilize," he said. "The problem at the moment is that people don't know what their wealth is." Americans have no idea what their investment portfolios or real estate holdings are really worth and, as a result, are afraid to spend or make additional investments. "I think everybody is frozen with fear of losing their jobs and the rest of their wealth. There's huge uncertainty. Until that starts going away, until things stop getting worse, we'll keep going down."

The fear factor was also examined in the current Knowledge at Wharton article, "Hope, Greed and Fear: The Psychology behind the Financial Crisis."