IMF calls for more stimulus packages to ease recession

WASHINGTON -- The global economy is expected to move backward this year for the first time since World War II with major consequences for nations large and small -- trillions of dollars in lost business, millions of people left hungry and homelessness and crime on the rise.

And the pain won't stop this year, the International Monetary Fund said Wednesday, for what it said was "by far the deepest global recession since the Great Depression." To cushion the blow and head off further damage next year, the IMF is calling for more stimulus projects from the word's governments, including major spending for public works projects.

Even with many countries taking steps to turn things around, the global economy will shrink 1.3 percent this year, the IMF predicted.

"We can be fairly confident that in 2010 or even 2011, economies will not be back to normal," said IMF chief economist Olivier Blanchard. "Which means that governments should today basically think at least about contingent plans for infrastructure spending. ... Next year will be too late."

In the U.S., President Obama's $787 billion stimulus includes money for fixing roads and bridges and other infrastructure projects. IMF officials said there's room for Germany and other countries to do more in terms of fiscal stimulus, and the United States, too, has prodded the Europeans to ramp up efforts.

Without the help of countries' stimulative fiscal policies -- such as tax reductions or increased government spending -- the blow to the global economy would be even worse, Blanchard said: "We would be in the middle of something very close to a depression."

Even the projected 1.3 percent drop could leave at least 10 million more people around the world jobless, some private analysts said.

Allen Sinai, chief global economist at Decision Economics, thinks the global decline will be worse -- closer to 2 percent, which would mean 15 million to 25 million more people out of work.

"The global downturn guarantees that countries all over the world will be hit with extraordinarily high unemployment rates," Sinai said. "And, with the tremendous number of unemployed people comes the possibility of political unrest."

Also rising crime as millions more are forced into poverty and out of their homes, he and others said.

"By any measure," the downturn is the deepest since the Great Depression of the 1930s, the IMF said in its latest World Economic Outlook. "All corners of the globe are being affected."

All told, lost output worldwide could reach as high as $4 trillion this year alone, U.S. Treasury Secretary Timothy Geithner estimated in a speech Wednesday.

"The world economy is going through the most severe crisis in generations," he said. "We each face somewhat different challenges and thus are not all in the same boat. But we are all in the same storm."

Geithner did not mention any further commitments the U.S. might seek on Friday at meetings with other economic powers or during weekend meetings of the IMF and the World Bank in Washington. Analysts say those discussions are unlikely to produce any further major proposals.

Obama this week sent Congress a request for a tenfold increase in U.S. commitments to an emergency IMF loan fund, to $100 billion. That would represent the U.S. share of a $500 billion goal for the program. The European Union, China and Japan also have made pledges, but more donors will be needed to reach the goal.

The IMF's outlook for the U.S. is even bleaker than for the world as a whole: It predicts the American economy will shrink 2.8 percent this year, the biggest decline since 1946.

That's generally in line with the predictions of many U.S. analysts, who expect a figure in the range of 2.5 percent to 3 percent.

Besides trillions in lost business, a sinking world economy means far fewer trade opportunities for individual countries.

"This looks like the most synchronized recession in world history: We are all going down together," said David Wyss, chief economist of Standard and Poor's.

"In a lot of previous recessions, smaller countries can use exports to pull out of the recession. But you can't do that this time because nobody is buying," he said.

To get out of this global downturn, the United States -- the world's largest economy -- will need to lead the way, many analysts said.

Global powerhouse China is a big lever for restoring growth in Asia. But Sinai said, "For the world economy to recover, you need the U.S. to recover."

The notion of "decoupling" -- that the world economy was becoming less dependent on the United States for growth or better insulated from U.S. economic troubles -- has been dealt a setback by the current recession.

The financial crisis erupted in the United States in August 2007 and spread around the globe. It entered a tumultuous new phase last fall, shaking confidence in global financial institutions and markets. Total worldwide losses from the financial crisis from 2007 to 2010 could reach nearly $4.1 trillion, the IMF estimated in a separate report Tuesday.

Among the major industrialized nations studied for Wednesday's report, Japan is expected to suffer the sharpest contraction this year: 6.2 percent. Russia's economy would shrink 6 percent, Germany 5.6 percent and Britain 4.1 percent. Mexico's economic activity would contract 3.7 percent and Canada's 2.5 percent.

Still growing, China is expected to see its expansion slow to 6.5 percent this year. India's growth is likely to slow to 4.5 percent.

The jobless rate in the United States is expected to average 8.9 percent this year and climb to 10.1 percent next year, the IMF said.

Next year, the IMF predicts the world economy will grow again -- but just 1.9 percent. It said this would be consistent with its findings that economic recoveries after financial crises "are significantly slower" than ordinary recoveries typically are.

In 2010, the IMF predicts the U.S. economy will be flat, neither shrinking nor growing. Germany's and Britain's economies, meanwhile, will shrink by 1 percent and 0.4 percent respectively.

Other countries, such as Japan, Russia, Canada and Mexico, are projected to grow again. And China and India should pick up speed.

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AP Economics Writer Martin Crutsinger contributed to this report.