In more bad news for Caribbean economies, world growth is forecast to fall to its lowest level since World War II, with financial markets remaining under stress and the global economy taking a sharp turn for the worse, sending both global output and trade plummeting, the IMF said in its latest assessment of the world economy.
World growth is projected to fall to just .5 percent in 2009, its lowest rate in 60 years, the IMF said in an update to its World Economic Outlook and Global Financial Stability Report.
“We see that risks to financial stability have intensified since last October,” said Jan Brockmeijer, Deputy Director in the fund’s Monetary and Capital Markets Department of the IMF. “Financial markets worldwide are continuing to experience ongoing deleveraging pressures amidst a deepening economic downturn.
“Credit risks have risen, as the deterioration of economic and financial conditions have resulted in rising loan losses.
At the same time, the flight from risky assets and illiquid market conditions have increased funding costs, even as risk-free rates have declined with monetary easing.”
Brockmeijer, said that with the help of extensive government support, market functioning improved toward the end of 2008 in a number of asset classes. However, he added, the negative interaction between the economy and the financial sector has intensified, as the credit crunch bites harder and extends globally, with confidence among financial counterparties remaining strained.
“Despite public injections of capital, there is an insufficient capital cushion in the banking system to weather a deep global economic downturn.
“Emerging market countries, particularly corporate borrowers, remain extremely vulnerable to continued deleveraging and credit retrenchment. Capital markets remain reluctant to lend amid large external rollover needs for some emerging market countries, and corporates face the additional challenge of falling revenues as the global economy slows.
“There is the potential that the abrupt pullback from some emerging market country assets by investors and heightened financing costs will erase some of the economic gains these countries have made in recent years.”