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UPDATE 1-IMF's Lipsky-downturn worst since World War 2 -paper

Published 03/05/2009, 09:02 PM
Updated 03/05/2009, 09:08 PM
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LONDON, March 6 (Reuters) - The world's rich economies are shrinking at rates not seen since the Second World War and the downturn may last into 2010, justifying unprecedented policy responses, a top International Monetary Fund official said on Friday.

The IMF has already signalled it is likely to cut its global 2009 growth forecasts into negative territory from an estimate of 0.5 percent growth it made in January.

"Our calculations suggest that the fall in GDP in the fourth quarter of last year and the first quarter of this year is the sharpest we can find in the post-war records," IMF First Deputy Managing Director John Lipsky told Britain's Daily Mail newspaper.

"A forceful policy response is both warranted and justified," he said.

Policymakers from leading developed and developing nations meet in London on April 2 under pressure to co-ordinate and step up their efforts to stave off a slump in the wake of the worst financial crisis in living memory.

Lipsky said there was a "pay-off" to nations acting simultaneously to boost domestic demand because it would also boost trade. He said monetary policy action was also needed to support the financial system.

"The emerging consensus is that it looks as if the downturn in the advanced economies will run through this year and into next year," Lipsky said.

"That would mean that there wouldn't be a return to trend line growth in the advanced economies until the second half of next year or the early part of the following year."

Lipsky said that meant the rate of unemployment would rise through this year and into next year.

"This is a very serious downturn that justifies unprecedented policy responses," he said.

The IMF official also said the decline in the value of the pound was likely to help the British economy recover.

The European Central Bank and the Bank of England cut interest rates to record lows on Thursday in a bid to revive the rapidly cooling euro zone and UK economies.

The BoE will also start so-called quantitative easing -- effectively printing money -- on an aggressive scale over the next three months, but doubts remain over whether it will work.

Quantitative easing has previously only been tried in Japan in the early part of the decade with limited success. But it has now become a watchword for central banks everywhere as their interest rates near zero and they look for other tools to combat the recession.

(Reporting by Matt Falloon; Editing by Kim Coghill)

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