Global economy set to contract slightly in 2009

WASHINGTON (Reuters) - The global economy was set to contract in 2009 for the first time in the post-1960 period, dragged down by recessions in the United States, the euro zone and Japan, the Institute of International Finance (IIF) said on Thursday.

The IIF, an association of financial services firms with 400 members worldwide, forecast global output falling by 0.4 percent in 2009 from an estimated expansion of 2.0 percent this year.

“We now face extraordinary challenges. The weakening of economic activity and intense financial market strains are feeding on each other and are reinforced by the global synchronization of the slowdown,” said IIF managing director Charles Dallara.

Real gross domestic product (GDP) in the United States, the epicentre of a devastating financial crisis, was forecast to drop by 1.3 percent in 2009, while euro zone GDP was seen falling by 1.5 percent.

U.S. GDP growth was forecast at 1.2 percent this year, with the euro area’s expansion pace estimated at 0.9 percent.

The IIF predicted Japan’s economy would shrink by 1.2 percent next year, while no growth was seen this year.

“The extent of the declines in the major economies in the current quarter and the next quarter or two may be substantial, with the U.S. and the euro area likely to see falls in real GDP in the fourth quarter of this year of respectively 5 percent and 3 percent,” Dallara.

The association reckons growth in the three so-called mature economies, will only start to materialise in the late summer. It predicted a period of rising unemployment in 2009.

Growth in emerging markets was seen around 3.1 percent in 2009, braking sharply from an estimated 5.9 percent expansion this year.

China’s GDP growth would probably slow to 6.5 percent next year from an estimated 9.3 percent pace in 2008, the association said. It forecast crude oil prices averaging $55 per barrel next year.

Reporting by Lucia Mutikani and David Lawder; Editing by Chizu Nomiyama