In London, the Chancellor of the Exchequer sat down after delivering a Budget that depended for its credibility on a quick snap-back in economic growth next year. Less than an hour later, one of the world's most powerful economists stood up in Washington and blew a large transatlantic raspberry at that idea.
The International Monetary Fund's chief economist, Olivier Blanchard, delivering the institution's most gloomy prognosis for the world economy to date, declared that Britain's recession would last well into 2010, and that Alistair Darling was being hopelessly optimistic in his forecasts.
Mr Darling set out projections for growth next year of between 1.0 per cent and 1.5 per cent, but the IMF said UK output was on course to contract again, by 0.4 per cent. That would be on top of a projected shrinkage of the economy this year of 4.1 per cent, Mr Blanchard said – a prediction significantly worse than the Chancellor's range of 3.25 to 3.75 per cent.
Just three months ago, the IMF was predicting that Britain's economy would contract by 2.8 per cent this year, and eke out 0.2 per cent growth in 2010, but conditions in the world economy have deteriorated sharply. Mr Blanchard was outlining the conclusions of the IMF's quarterly report on the world economic outlook.
"By any measure, this downturn represents by far the deepest global recession since the Great Depression, and all corners of the globe are being affected," the IMF said. "The problem is that the longer the downturn continues to deepen, the slimmer the chances that such a strong rebound will occur, as pessimism about the outlook becomes entrenched and balance sheets are damaged further."
Britain is being particularly hard hit by the end of the boom in property and financial activity, the IMF said, and it singled out the UK as one of the western European nations facing the deepest recession. It is projecting a UK Government deficit reaching 11 per cent of gross domestic product in 2010, mainly because of tax shortfalls.
Of the world's major economies, only three are projected to shrink by more than the UK this year: Germany by 5.6 per cent, Japan by 6.2 per cent, and Italy by 4.1 per cent.
The report makes terrifying reading for economic optimists. In the space of three months, the IMF has gone from predicting a contraction of the global economy by 0.5 per cent this year, to some 1.3 per cent.
The prospects for world trade are even gloomier, with volumes forecast to decline 11 per cent in 2009, and recover to little more than flat next year. After 60 years as the engine of world growth, the sharp fall in trade is hitting many of the leading exporter nations, especially in Asia.
Only the massive programmes of government spending launched around the world have staved off the threat of a full-on depression, Mr Blanchard said yesterday. "Fiscal policies had made a gigantic difference," he added, and he pressed world leaders to work together to stimulate the economy through co-ordinated tax cuts and more spending.
The publication of its forecasts comes in advance of tomorrow's meetings between the US and other major economic powers, and weekend sessions of the IMF and World Bank.
The talks will seek to flesh out the commitments made at the summit of G20 leaders in London last month, when President Barack Obama and others pledged to boost financial support for the IMF and other international lending institutions by $1.1 trillion.Reuse content