IMF: credit crisis is largest financial shock since Great Depression

Yesterday, the International Monetary Fund (IMF) warned that as a result of the credit squeeze, the global economy will grow much more slowly in the next 2 years.

The IMF warned that the US will slump into recession following the largest financial shock since the Great Depression. It is the first major international institution to state that the US faces recession this year.

It also warns that with the scale of the credit losses to the financial sector approaching $1 trillion (£500 billion), there is a risk that the financial crisis could get worse.

IMF’s World Economic Outlook report predicts expansion of just 1.6% this year and in 2009 in Britain. This figure is well short of the 2% prediction made by Mr Darling in his first Budget last month and would represent the weakest performance in 15 years.

The report follows the announcement from Halifax who said UK house prices fell by 2.5% - the biggest margin since the early 1990s crash.

In the US, property prices have already fallen by around 10% and the IMF says that they may be over-valued by more than 20% in the UK, Ireland and Spain.

The Pound slumped to a record low against the Euro, breaching the 80p mark for the first time since the single currency was introduced in 1999 at 66p. It recovered marginally but was also down compared with other currencies.

The Bank of England is now under severe pressure to cut interest rates today.

Discuss this in the Finance Markets forums

Story link: IMF: credit crisis is largest financial shock since Great Depression