IMF says Britain faces long recession By Krishna Guha in Washington and George Parker in London
Financial Times Published: March 17 2009 23:45 | Last updated: March 18 2009 07:51
Britain?s recession could be deeper and longer than in most other parts of the world, according to draft International Monetary Fund forecasts that cast a shadow over Gordon Brown?s election hopes for next year.
The IMF will on Thursday tear up forecasts it made for the world economy only weeks ago and predict a more severe slump, including a deeper recession in the UK that continues into 2010.
The fund?s economists have responded to the pace and severity of the downturn to cut further gloomy forecasts for growth in 2009 that it made in January.
Teresa Ter-Minassian, an adviser to Dominique Strauss-Kahn, IMF managing director, on Tuesday dropped a strong hint of what to expect on Thursday when new figures are released.
Citing internal draft forecasts drawn up in late February, she said in Lisbon that the IMF expected the world economy would shrink by 0.6 per cent this year, instead of growing 0.5 per cent as it had predicted. ?The scenario will be worse but the managing director has already said this,? Ms Ter-Minassian said. ?This is a true global crisis, impacting all parts of the world and countries at different levels of development.?
The figures she provided showed UK output was forecast to fall 3.8 per cent this year, when only Japan would fare worse. The IMF expected a further 0.2 per cent contraction in 2010.
The draft projections for the UK are in line with the Bank of England?s risk-adjusted forecast and far worse than Treasury numbers. The IMF figures are provisional and the Treasury is expected to lobby to change them. An IMF spokesman in Washington said they were ?unofficial and already out of date?.
The Conservatives seized on the figures as evidence that the recession could be longer than that suffered by other leading economies and a sign that ?Gordon Brown?s economic model is fundamentally broken?.
The IMF data suggest Britain could still be in recession at the time of the next general election ? which must be held by June 2010 at the latest.
Some Treasury officials hope the economy could be entering a recovery by the end of this year, but George Osborne, shadow chancellor, said: ?These IMF forecasts show that Britain is set to have the longest recession of all the major economies.?
The eurozone economy was forecast to contract 3.2 per cent in 2009, Ms Ter-Minassian said, compared with the IMF?s earlier forecast of a 2 per cent decline.
The US would shrink by 2.6 per cent this year (1.6 per cent) and Japan was forecast to shrink 5 per cent (2.6 per cent), making it the worst hit leading economy in 2009.