IMF paints gloomy picture for UK economy

The International Monetary Fund has painted a gloomy picture for the recession-hit UK economy as it forecast that the British economy will perform the worst among all developed nations by contracting 2.8 per cent this year.

By putting Britain at the bottom of the league table for developed nations, the IMF has only added to the already bagful of criticism that the UK Prime Minister Gordon Brown is carrying after he recently told his countrymen that Britain is better placed than most nations to handle the depression.

With the UK facing the worst single-year performance since the Great Depression of the 1930s, the IMF report shows that the recession in Britain will be far worse than the US, France, Germany, Italy among other nations.

Revising its contraction forecast down to 2.8 per cent from its November forecast of 1.3 per cent of the UK economy, the IMF's forecast is gloomier than the UK governments pre-budget estimate report, where Chancellor Alistair Darling forecast that the country's economy would shrink from 0.75 per cent to 1.25 per cent.

The IMF also warned that in 2010 the UK will experience virtually no growth at all, with GDP expanding by a mere 0.2 per cent.

The recession in Britain was confirmed last week when figures released by the UK's Office for National Statistics showed that the country had two successive quarters of negative growth, with the economy shrinking by 1.5 per cent in the final three months of 2008 forcing analysts to predict a long and deep recession.

Since the release of the IMF report yesterday, Gordon Brown admitted that the country ''is in deep recession'' although politically he appeared to have made a blunder when he admitted on BBC Radio 4's Today programme last week, that he did not see the economic crisis coming. (See: UK PM Gordon Brown admits failing to recognise crisis)

A Gordon Brown's spokesman said in Downing Street that the Prime Minister is "absolutely confident" that the government is handling the recession in the right manner and its action will see Britain out of the global recession.

Separately, the Institute of Fiscal Studies warned that British taxpayers will face the prospect of a tax increase or an extra £20 billion in spending cuts to put the country's economy back on track.

The IFS report said that with all the measures already taken and will take in the future by the government to combat the recession, the already ballooned public sector debt will not return to 2007 levels for more than 20 years

Yesterday, the International Labour Organisation said that 50 million jobs could be lost globally this year because of the global economic crisis and in worst case scenario, 51 million more jobs could be lost this year taking the world's unemployment figures to 7.1 per cent by the end of 2009 compared to 6 per cent in 2008 and 5.7 per cent in 2007.

Both these international forecast from two reputed organizations came as world leaders gathered in Davos for the annual meeting of the World Economic Forum, where the theme was ''Shaping the Post-Crisis World.'' (See: Davos meet to focus on shaping the post-crisis world)

George Osborne, the shadow chancellor said that he hoped that the IMF forecast was wrong, but if it was right then the country was facing the worst economic year since World War II and if the direction is not changed in the country, then the British people would be left facing a debt crisis for generations due to the ineffective policies of the labour government.

The IMF's also warned that the world economy will come to a grinding halt and would suffer its worst year since the Second World War.

It expects world growth to be at 0.5 per cent this year as the world is stepping into uncharted territory as far as the current financial crisis is concerned.

The US will see a 1.6 per cent contraction this year, while Germany and Japan will see output fall by 2.5 per cent and 2.6 per cent respectively.

Growth in emerging and developing economies is expected to slow sharply from 6¼ per cent in 2008 to 3¼ per cent in 2009, under the drag of falling export demand and financing, lower commodity prices, and much tighter external financing constraints.

On the recovery, it said ''The global economy is projected to experience a gradual recovery in 2010, with growth picking up to 3 per cent. However, the outlook is highly uncertain, and the timing and pace of the recovery depend critically on strong policy actions.''

Although growth in the rest of the world is also expected to slow sharply, the IMF said that China and India will see the global economy through from shrinking this year with China growing at 6.7 per cent and India at 5.1 per cent.