IMF sharply cuts world growth projections to 2.2 %

"Prospects for global growth have deteriorated over the past month, as financial sector deleveraging has continued and producer and consumer confidence have fallen," said the IMF in its updated World Economic Outlook.

    Accordingly, the world economy is projected to expand by 2.2 percent in 2009, down by some 0.75 percentage point from the projections in October.

    Advanced economies are expected to contract 0.3 percent on a full-year basis next year, the first such fall since World War II.

    The IMF now expects the U.S. economy to contract 0.7 percent in2009, sharply down from its estimate of a 0.1 percent growth issued just a month ago.

    "The U.S. economy will suffer, as households respond to depreciating real and financial assets and tightening financial conditions," the IMF said.

    Growth in the euro area will be hard hit by tightening financial conditions and falling confidence. In Japan, the support to growth from net exports is expected to decline.

    In emerging economies, growth is projected to slow appreciably but still reach 5 percent next year, higher than in earlier business cycle troughs, according to the IMF.

    However, the cyclical downturn in emerging economies is of a similar magnitude to that in the advanced economies when measured relative to higher trend growth rates, in line with past cycles, warned the IMF.

    "Downward revisions vary considerably across regions. Among the most affected are commodity exporters, given that commodity price projections have been marked down sharply, and countries with acute external financing and liquidity problems," it said.

    "Countries in East Asia -- including China -- generally have suffered smaller markdowns, because their financial situations are typically more robust, they have benefited from improved terms of trade from falling commodity prices, and they have already initiated a shift toward macroeconomic policy easing," it said.