Mild Recession warning - 2008 and 2009 ?

IMF urges Japan to loosen its credit grip

WASHINGTON (Kyodo) The International Monetary Fund urged Japan Wednesday to maintain its growth-oriented monetary stance and consider easing its credit grip further because the global economy is at risk of a recession.

In its twice-yearly World Economic Outlook report, the IMF said the U.S. economy is likely to enter into a "mild recession" in 2008 due to the fallout from its subprime mortgage meltdown, which may globally cause a $945 billion hit. It also pointed to a "25 percent chance" of a global recession in 2008 and 2009.



The IMF projected the U.S. economy to grow 0.5 percent in 2008, down 1.0 point, and 0.6 percent in 2009, down 1.2 points from its previous forecasts released in January.

As for Japan, the IMF trimmed its growth estimate to 1.4 percent for 2008, down 0.1 point, and to 1.5 percent for 2009, down 0.2 percentage point from the January forecasts.

Despite robust growth in the final quarter of 2007, Japan's growth momentum entering 2008 "appears to have slowed with deteriorating business and consumer confidence, and export growth shows signs of moderating," it said.

"In light of the prevailing head winds to growth, monetary policy should maintain its accommodative stance and could be eased further in the face of a serious downturn," it said.

Earlier in the day, the Bank of Japan decided to hold the key short-term interest rate steady at 0.5 percent in a widely expected move. The rate has remained at that level since February 2007.

Noting the overall balance of global risks "remains tilted to the downside," the IMF cut its global outlook to 3.7 percent for 2008, down 0.5 point, and to 3.8 percent for 2009, down 0.6 point.

The fresh projections would mark the lowest global growth since 2002, when the world economy grew only 3.1 percent. But the report warned that the worst may still lie ahead.

"The IMF staff now sees a 25 percent chance of growth slowing to 3 percent or less in 2008 and 2009, equivalent to a global recession," it said.

"The greatest uncertainty comes from the still-unfolding events in financial markets, particularly the potential for the deep losses related to the U.S. subprime mortgage sector and other structured credits to further impair financial system capital and cause the current credit squeeze to mutate into a credit crunch," it said.