Click to play videoWashington: The International Monetary Fund (IMF) has a gloomy economic outlook for the United States and rest of the Western Hemisphere.
The IMF said that US economic growth will be close to zero or even slightly negative for the rest of 2008. Overall, the IMF says, growth in the advanced economies as a whole will also be close to zero at least until the middle of 2009.
According to the IMF a recovery is unlikely till the second half of 2009. Global economic growth, too, is likely to decline to 3.7 per cent this year, much below nearly five per cent recorded in 2007, as US, world's largest economy, is expected to slip into a recession.
The global economic growth is expected to fall further and touch 2.4 per cent in 2009.
Meanwhile, Europe is also expected to see economic downturn in the coming quarters and Asian economies may also feel the pinch, Swiss banking major UBS said.
"The downward revision in the economic forecast has been caused due to the distinct escalation of the global financial and credit market crisis since September," UBS said in a statement.
"Recession can no longer be avoided after the sustained losses on the equity and real estate markets and the credit crunch that is becoming increasingly entrenched," UBS said.
In Asia, according to UBS, exports in smaller and open economies have decreased noticeably, however, larger economies like India are likely to maintain a better stance.
"The Japanese economy is expected to stagnate at best in the coming year. Large countries such as China, India or Indonesia should fare better, as they have a smaller export ratio than the smaller Asian economies," UBS economists stated.
As the IMF outlook came out, Dow Jones opened down 200 hundred points and was soon trading more than 300 points down.
World leaders will meet in Washington on November 15 to discuss the global economic crisis.
A senior administration official said on Wednesday that the forum will be the first in a series of international meetings to discuss what economists predict could be a long and deep downturn.
Wachovia Corp, which is being bought by Wells Fargo for about $14 billion in stock, said it lost $23.89 billion in the third quarter.
It earned $1.62 billion in the same quarter a year ago. Airplane maker Boeing reported its earnings slumped 38 per cent as a strike halted production of commercial jets.
Merck & Co said it will slash 7,200 jobs as part of a new restructuring program. The drugmaker's third-quarter profit plunged 28 per cent, partly due to flat sales.
Tech companies are taking a hit, too, as the economy slows and spending by consumers and businesses drops. Yahoo is slashing 1,500 jobs while it braces for a deep downturn likely to extend well into 2009.
"We are going into what is very clearly a recession mode," Blake Jorgensen, Yahoo's chief financial officer, said in a Tuesday interview.
Even with the aggressive steps the government has already taken, Treasury Secretary Henry Paulson says it will take time before things get turned around.
"Clearly, we're going to have a number of difficult months ahead of us in terms of the real economy," Paulson said Tuesday in a television interview on "The Charlie Rose Show."
A week after Paulson announced the administration would spend $250 billion to buy stakes in US banks, the Federal Reserve stepped up on Tuesday with a new programme to help money market mutual funds that have been squeezed by worried investors demanding to cash out their holdings.
The US central bank, known as the Fed, said it would provide up to $540 billion in financing through a program run by JPMorgan Chase & Co to purchase from mutual funds certificates of deposit, bank notes and commercial paper.
The programme, to be called the Money Market Investor Funding Facility, is designed to revive the market for commercial paper, short-term loans that are critical for keeping businesses running.
"If these money markets are not working properly, then the economy is significantly threatened because this is where businesses get their short-term financing for their day-to-day operations," said Mark Zandi, chief economist at Moody's Economy.com.
Money market funds hold about one-third of all commercial paper and Fed officials said that about $500 billion had flowed out of prime money market funds since August as investors became increasingly worried about their ability to redeem shares.
On September 18, the Treasury Department announced that it was tapping a $50 billion Treasury fund to provide guarantees for the assets in the money market accounts.
The Fed has already announced that starting next Monday it will begin making direct purchases of commercial paper in a further effort to bolster this market.
In other government actions to deal with the unfolding crisis, the Treasury Department announced that it had selected two major accounting firms to help manage the government's $700 billion financial-system rescue program passed by Congress on October 3.
The programme to buy distressed assets from banks is expected to spend $100 billion initially, while Paulson announced last week that another $250 billion would be committed to buying stock in banks as a way of shoring up their capital reserves so that they will resume more normal lending operations.
Paulson said in his television interview that banks might use part of the money they receive from the government to make acquisitions of weaker banks.
(With inputs from PTI and Associated Press)
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