IMF warns over parallels to Great Depression

The International Monetary Fund has warned of "worrisome parallels" between the current global crisis and the Great Depression, despite the unprecedented steps already taken by central banks and governments worldwide.

This recession is likely to be "unusually long and severe, and the recovery sluggish," said the Fund, releasing two advance chapters from its World Economic Outlook. However, it warned there is a risk that it could spiral down into a full-blown slump unless further action is taken to stop "feedback effects" gathering force.

Dominique Strauss-Kahn, head of the IMF, said millions of people risk being pushed back into poverty as the economic storm ravages the most vulnerable countries. "The human consequences could be absolutely devastating. This is a truly global crisis, and nobody is escaping," he said.

"The free-fall in the global economy may be starting to abate, with a recovery emerging in 2010, but this depends crucially on the right policies being adopted today."

Mr Strauss-Kahn called for a urgent action to "cleanse banks" of toxic assets and for further fiscal stimulus beyond the 2pc of global GDP already agreed. The snag is that high-debt countries may have hit the limits already.

"The impact becomes negative for debt levels that exceed 60pc of GDP," said the Fund.

While no countries were named, this would raise questions about Japan, Germany, France, Italy and ultimately Britain and the US after their bank rescues.

The IMF said the US is at the epicentre of this crisis just as it was in the Depression, setting the two episodes apart from normal downturns. However, the risks are greater this time. "While the credit boom in the 1920s was largely spec­ific to the US, the boom during 2004-2007 was global, with increased leverage and risk-taking in advanced economies and many emerging economies. Levels of integration are now much higher than during the inter-war period, so US financial shocks have a larger impact," it said.

The IMF said the global financial system is still under acute stress, with output tumbling and inflation falling towards zero in key nations. "The risks of debt deflation have increased," it said.

Abrupt halts in capital flows can have "dire consequences" for emerging economies, it said. Eastern Europe has already suffered the effects, with a 17.6pc fall in industrial production in February. The region is highly vulnerable to the credit crunch since it owes more than 50pc of its GDP to Western banks.

Synchronised world recessions striking all major regions are "historically rare" events, the Fund said. They last one and a half times as long typical downturns, and are followed by painfully slow recoveries.

Source: Telegraph

PM's Just Saved Apocalypse for Later

HALLELUJAH! Gordon’s saved the world. But what about Britain?
To be fair, the Prime Minister pulled off a brilliant propaganda coup — and delivered real help for stricken economies around the world.

The good news is that bankrupt countries in Eastern Europe will not go bust or — more importantly — drag everyone else down with them.

That’s because the International Monetary Fund — the world’s pawn shop — can now print its own money and bail out basket-case economies such as Hungary.

“So, no Apocalypse Now,” says my City analyst.

The bad news is that Britain looks like becoming one of those basket cases.

Taking a begging bowl to the IMF would be a grotesque humiliation for a nation so recently rated as the world’s fourth-largest economy.

Yet in perhaps his most outrageous spin operation ever, Prince of Darkness Peter Mandelson is already smoothing the path.

Britain is not “head of the queue” for IMF money, he told C4 News. But there would be “no stigma” for Britain if we were.

An unnamed minister, who must surely be Mandy, later told a newspaper: “Previously, a country would only go to the IMF if they were in a very bad state. It was a bit like going to Accident and Emergency to get urgent help. This new facility is like getting wellbeing care or going to a spa to recuperate.”

Before you swallow that nonsense, listen to Simon Johnson, the IMF’s former chief economist.

“With all due respect to Gordon Brown and his ministers, they need some help right now,” he told the same C4 programme.

“Your economy — the UK economy — is in big trouble.”

Who do you believe?

I don’t want to rain on Gordon Brown’s parade, but I lean towards Mr Johnson — things are going to get much worse before they get any better.

My “Apocalypse Deferred” City source sees big trouble ahead. Any “green shoots” risk turning sickly yellow under the pall of national debt.

“The IMF is right,” he says. “The UK economy is in trouble and to suggest America is to blame is just daft.

“We are borrowing massively, printing money. We have a higher household debt ratio than America and rely more than anyone else on financial services, which are in trouble.

“As a result, Sterling is a risky currency.

“Big investors looking for safe havens for their clients’ billions are worried about the Pound. If they switch to another currency, Britain is in trouble.

“There is a 25-per-cent chance of a run on the Pound in the next six months. That’s a shockingly high probability.”

Some optimists say America will start recovering next year — but not debt-laden Britain.

After his G20 triumph, the Prime Minister will be pleased by a three-per-cent bounce in share prices — and in Labour’s poll ratings.

He will also welcome dodgy claims that house prices are rising again. All three are likely to be “blips”.

Indeed, the Halifax have already trashed the evidence of a housing revival, with figures showing a 1.9 per cent FALL in prices last month.

In a remarkable outburst of candour, Chancellor Alistair Darling blames predecessor Gordon Brown for castrating the watchdogs who might have saved our banks.

Now, on the eve of this month’s crucial Budget, he warns we are nowhere near recovery.

“It’s worse than we thought,” he says.

Mr Darling says the economy will shrink in its worst performance since World War II. Unemployment will keep soaring — perhaps even doubling to 4million.

Asked if there was any reason for cheer, the Chancellor confessed: “There is some way to go yet.

“We have to be realistic. You cannot — you must not — build up false hope.”

This bleak scenario is a million miles from the PM’s beaming optimism.

As the G20 packed up, he claimed a “new world order”, backed by a mythical trillion dollars in spending money. Don’t believe it. As Chancellor, Gordon Brown was famous for his thimble-and-pea tricks.

As in so many of his smoke-and-mirror budgets, these numbers simply don’t add up.

FRANCE and Germany were pleased with their G20 pincer attack on the “Anglo-Saxon economies” – Britain and America.

Pint-sized egotist Nicolas Sarkozy resents popular Barack Obama almost as much as he does First Lady Michelle for eclipsing his wife Carla Bruni.

America will ignore him. But he and Germany’s Angela Merkel have forced concessions out of Britain on the way we do business.

In return for his “triumph” last week, just how many economic levers has Mr Brown surrendered to Brussels?

Source: TREVOR KAVANAGH

UK will have the worst deficit in Western world, warns IMF

Britain is now tumbling towards the biggest budget deficit in the Western world, the International Monetary Fund has warned.

Next year the Treasury will have to borrow a record 11pc of gross domestic product as it fights the crisis – equating to more than £150bn and far more than has ever been borrowed before in British history, according to a devastating new assessment by the Fund. The assessment coincided with the publication of official figures showing a further deterioration in the public finances during February as the recession ate further into tax revenues.

The IMF also confirmed, as had been leaked earlier this week, that it now expects the world economy to shrink this year for the first time since the Second World War. It also expects the UK to endure a more severe and longer-lasting contraction than almost any other major economy.

However, it is its analysis on the state of Britain's accounts that will cause the most consternation in Whitehall and beyond. The Fund predicted that the UK's government borrowing balance would reach 9.5pc of GDP this year, before rising to 11pc of GDP next year. This is greater even than the US, which is embarking on the biggest fiscal spending spree in history, despite the fact that Gordon Brown has been unable to carry out any major tax cuts or spending increases of his own, save for the temporary cut in VAT.

The parlous state of Britain's finances is due instead to the billions of pounds of taxes lost because of the collapse of the financial services industry, and to the extra costs associated with higher unemployment. The Treasury's figures showed that in February the budget deficit reached £9bn, taking the total deficit for the first 11 months of the fiscal year to a record £75.2bn – more than triple last year's total.

The IMF projections will further increase the resistance within the Treasury to prospective tax cuts which, it is thought, are being pushed for by Number 10. Moreover, they do not take into account losses associated with the various bail-outs of the financial system.
Shadow Chancellor George Osborne said: "These dreadful figures show how the Labour government has given us the worst public finances in the developed world.
"The figures also show Britain simply cannot afford a further discretionary fiscal stimulus – our automatic stabilisers are already amongst the biggest in the world."

Updating its forecasts for world economic growth, the Fund said the global economy could shrink by as much as 1pc this year – the biggest contraction in more than 60 years. Britain's recession is expected to last until next year, in contrary to Alistair Darling's forecast that the economy will start to grow as soon as this summer.

Source: Edmund Conway, Telegraph

UK Economy to Contract in 2010

BRITAIN is the only major country whose economy will SHRINK next year, a damning forecast said last night.

The International Monetary Fund predicts a 0.2 reduction. But it expects the US economy to grow by the same amount, the Eurozone by 0.1 per cent, Asia by 5.8 per cent and Latin America by 2.3 per cent.

The forecast is a blow to PM Gordon Brown. But Ministers will say it shows the UK recovering from this year’s estimated 3.8 per cent shrinkage.

Shadow chancellor George Osborne said: “This forecast is further evidence that Gordon Brown’s economic model is fundamentally broken and his policies on the recession aren’t working.”

Source: GEORGE PASCOE-WATSON