Recession Likely to be Long, Recovery Slow - IMF

Thu Apr 16, 2009 3:50pm BST

WASHINGTON, April 16 (Reuters) - The current global recession is likely to be unusually long and severe and the recovery sluggish because it sprang from a financial crisis, the International Monetary Fund said on Thursday.

New IMF analysis shows recessions tied to a financial crisis, like the current one that has its roots in reckless lending for the U.S. housing market, are more difficult to shake because they are often held back by weak demand.

Worse still is that today's recession combines a financial crisis at the heart of the United States, the world's largest economy, with a broader global downturn making it unique, the Fund added.

"The analysis suggested that the combination of financial crisis and a globally synchronized downturn is likely to result in an unusually severe and long lasting recession," the IMF said in chapters of its World Economic Outlook, which is to be released in full on April 22.

It said counter-cyclical policies can help shorten recessions but its impact is limited in the presence of a financial crisis.

Fiscal stimulus can be particularly effective in shortening the life of a recession though not appropriate for countries with high debt levels, it added.

In its most recent forecast, the IMF said the world economy will shrink in 2009 by between 0.5 percent and 1.0 percent, the largest contraction since the Great Depression.

With advanced economies all in recession and growth in emerging market economies slowing abruptly, the IMF has urged countries to move quickly to clean up their financial sectors, in particular remove toxic assets from bank balance sheets, which would allow the economy to mend.

The IMF said dealing with the current global recession will require coordinated monetary, fiscal and financial policies.

(Reporting by Lesley Wroughton; Editing by Chizu Nomiyama)

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