The world economy will grow by only 0.5 per cent in 2009, the worst rate since end of World War II, as industrial nations battle a severe recession that is dragging developing countries down with them, the International Monetary Fund said on Wednesday as it slashed its global economic forecasts.
Wealthy nations will experience their worst recession in the post-war period, contracting 2 per cent in 2009 despite massive fiscal stimulus packages planned by most of the world's richest countries.
The United States will contract by 1.6 per cent and Germany - Europe's largest economy - by 2.5 per cent, the IMF said.
Growth in emerging and developing countries will also slow dramatically in 2009 to 3.3 per cent from 6.3 per cent in 2008. China's economy will slow to 6.7 per cent in 2009 from 9 per cent, India's will drop to 5.1 per cent and Brazil's growth will plummet a whopping 4 percentage points to 1.8 per cent in 2009.
In its November update, the IMF had forecast 2.2-percent global growth for 2009, a contraction of 0.3 per cent in advanced economies and 5.1-per cent growth in developing countries. World growth below 3 per cent is considered a global recession.
The global downturn continues to be led by the financial crisis which began with a collapse in the US' housing market but has since spread to all corners of the globe.
Financial firms are now projected to lose a total of $2.2 trillion before the crisis is over - about $500 billion more than banks currently have in their reserves.
"Global economic recovery depends first and foremost on dealing with the financial crisis," said Charles Collins, the IMF's deputy director of research.
Governments still need to take more drastic actions to shore up banks, revive lending to consumers and "break the corrosive spiral between financial and economic weakness," Collins said.