Australia will be shielded from a near-certain global recession, the International Monetary Fund says in its World Economic Outlook report, issued today.
The IMF predicts the world's leading economies will be in or close to recession from around Christmas until the middle of next year but that Australia should comfortably dodge the recession bullet. Britain, Italy, Spain and Ireland are all forecast to have negative growth in 2009, while the US is expected to grow at just 0.1per cent. The IMF report comes amid more carnage on world stockmarkets brought about by the US-spawned credit crisis and as the British Government announced a $A1.3trillion bank bail-out. And last night, the US Federal Reserve, acting in coordination with other global central banking authorities, announced it was cutting a key US interest rate by half a percentage point to steady a teetering economy.
The Fed reduced its key rate from 2 per cent to 1.5 per cent.
In Europe, the Bank of England cut its rate by half a point to 4.5 per cent, while the European Central Bank sliced its rate to 3.75 per cent. Other central banks also taking part include the banks of Canada, Sweden, and Switzerland.
The IMF report slashes the global growth forecast for 2009 by 0.9 per cent to 3.0 per cent, the lowest growth since 2002, citing the effects of ''the most dangerous financial shock to mature financial markets since the 1930s''.
While growth in most leading economies slows to just 0.1 per cent in 2009, growth in Australia is expected to be 2.5 per cent for 2008 and still a resilient 2.2 per cent next year.
The IMF report states, ''The major advanced economies are already in or close to recession and, although a recovery is projected to take hold in 2009, the pick-up is likely to be unusually gradual, held back by continued financial market de-leveraging.''
The IMF adds that its forecasts come with substantial downside risks.
The global financial crisis continues to wreak havoc on stockmarkets around the world, and the rally that Australia's bourses enjoyed on Tuesday after the Reserve Bank's official one-point interest rate cut was negated yesterday with both indices, the S&P/ASX 200 and the All Ordinaries, closing nearly 5 per cent poorer.
In a dramatic day on fear-stricken markets, Tokyo plummeted 9.38 per cent by the close, the biggest loss since October 1987. Shares in Singapore closed 6.61 per cent lower and Hong Kong ended 8.2per cent down.
London shares were down nearly 6per cent in early trading last night.
The British Government said it would use 50billion ($A130billion) of taxpayers' dollars to purchase significant stakes in the banks, which include the Royal Bank of Scotland and Barclays.
The three-part package also makes available the equivalent of $A520billion in short-term loans and the Government will issue $A650billion to guarantee loans between banks.
British Prime Minister Gordon Brown also proposed a ''European-wide funding plan'' to help ease the global financial crisis.
''We have invited other European countries to consider proposals we have put to them this morning on medium-term funding [and] are in active consultation about how we can adopt a European-wide funding plan,'' he said yesterday.
The Australian dollar resumed its free fall yesterday, dropping US4.4c to $US0.68, the lowest level since September 2003.
Senior economists at the ANZ and Westpac predicted interest rates would continue to drop by another percentage point within six months to combat the wave of negative news.
In further indication of the weakening housing market in Australia, new figures issued by the Australian Bureau of Statistics yesterday showed a 2.2 per cent fall in the number of home loans in August, down to the lowest level since March 2001.
Personal financial failures are on the rise, according to figures issued yesterday by Insolvency and Trustee Service Australia.