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Financial crisis leads US into recession until early 2009, IMF says

Other News Materials 8 October 2008 18:46 (UTC +04:00)

The United States economy is likely to contract between now and early 2009 as the country continues to weather a financial storm that is far from over, the International Monetary Fund warned on Wednesday, reported dpa.

A US recession was to be expected as the financial system works its way out of a crisis that has severely curbed the availability of credit to businesses and consumers, the IMF said in a semi-annual report on the state of the global economy.

With a recession now looking increasingly likely, the key questions are, how deep will the downturn be, when will a recovery get under way, and how strong will it be?" the IMF report said.

For the full year of 2008, the IMF actually raised its July growth forecast by 0.3 percentage points to 1.6 per cent, the result of strong economic growth of 2.9 per cent in the second quarter due to strong exports and a fiscal stimulus package that bolstered consumer spending.

But the IMF said it expected a contraction during the second half of the year and growth of a mere 0.1 per cent in 2009 ­ down from 0.8 per cent in its July forecast. The economy grew by 2 per cent in 2007.

September has witnessed a series of US bank failures, government bail-outs and emergency acquisitions that has sent stock markets plummeting and caused remaining banks to horde cash out of fear of a similar fate.

Access to loans would remain tight" through this year and through 2009 as banks battle to raise capital and go through a painful restructuring period. "Potential growth" is only likely in 2010, the IMF said.

The IMF also warned that risks to its growth outlook were clearly negative, as the rapidly expanding and increasingly dangerous financial crisis" could last longer and have a far greater impact on credit access then the forecast takes into account.

At the centre of the credit crisis is a housing market downturn that the IMF called unprecedented since the Great Depression" of the 1930s. The plunge in housing prices, which has sparked a record number of home foreclosures that have decimated the value of banks mortgage-related assets, will not reach bottom until 2009.

With the US struggling, the rest of the world is also tottering on the brink of recession amid the ongoing financial turmoil and surging food and energy prices. Global growth was forecast at 3.9 per cent for 2008 and 3 per cent for 2009. A level of under 3 per cent is considered a global recession. dpa cc aw

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