WASHINGTON, Nov 6: The International Monetary Fund on Thursday forecast advanced economies would contract 0.3 per cent next year in the face of an escalating global financial crisis, the first such decline since World War II.

The IMF slashed its global growth forecast for 2009 to 2.2 per cent, still led by emerging economies although at a weaker pace.

Less than a month ago, in its twice-yearly World Economic Outlook report, the IMF forecast 0.5 per cent growth in the advanced economies and 3.0 per cent worldwide.

“Prospects for global growth have deteriorated over the past month, as financial sector deleveraging has continued and producer and consumer confidence have fallen,” the IMF said.

“In advanced economies, output is forecast to contract on a full-year basis in 2009, the first such fall in the post-war period,” the 185-nation financial institution said in an update of its October World Economic Outlook (WEO) report.

The IMF said the downturn in advanced economies would be “broadly comparable in magnitude” to recessions in 1975 and 1982, but that “a recovery is projected to begin late in 2009.”The IMF made more modest downward revisions to its 2008 forecasts, projecting world growth at 3.7 per cent, down 0.2 point, and advanced economies at 1.4 per cent, down 0.1 point.

But it sharply lowered its forecast for the United States in 2009, predicting the world’s largest economy would contract 0.7 per cent. In its WEO issued on October 8, the US economy was seen growing at a meagre 0.1 per cent.

The IMF said it now sees far more difficult conditions worldwide as a result of a global credit crunch that has hit banks and financial markets.

“Markets have entered a vicious cycle of asset deleveraging, price declines, and investor redemptions,” the IMF said.

“Beyond the direct impact of the financial crisis, activity is increasingly being held back by slumping confidence. As the financial crisis has become more entrenched, households and firms are increasingly anticipating a prolonged period of poor prospects for jobs and profits. As a result, they are cutting back on consumption, notably of durables, and investment.”The hardest-hit economy will be Britain, the IMF said, projecting a contraction of 1.3 per cent in 2009, down 1.2 points from the October forecast.

The IMF said the United States, the epicentre of a financial crisis that erupted in August 2007 after the collapse of the subprime mortgage market, would still show positive growth for 2008, but at a tepid rate of 1.4 per cent, with the second-half contraction offsetting growth in the first six months of the year.

Official US data, which may still be revised, showed US gross domestic product fell at a 0.3 per cent annual pace in the third quarter amid a sharp retrenchment by consumers and businesses.—AFP