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Wednesday, 11 March 2009

World faces 'Great Recession': IMF chief

PARIS (AFP) - - The world is now in the grip of the "Great Recession" and economic growth could dip below zero in 2009, the head of the IMF warned on Tuesday, as stock markets hit their lowest levels in decades.

As China grappled with deflation, Germany was hit by an exports slump in and investment guru Warren Buffett said the US economy has "fallen off a cliff", calls for coordinated international action to tackle the downturn were growing.

The European Union meanwhile called on the IMF's resources for struggling nations to be doubled as the fund's chief warned the crisis risks throwing millions of Africans back into poverty.

Speaking at a gathering of African finance ministers in the Tanzanian capital Dar es Salaam, IMF Managing Director Dominique Strauss-Kahn said they were meeting at a "critical juncture in history.

"The global financial crisis, that might now be called the great recession, provides a sobering backdrop to our conference. The IMF expects global growth to slow below zero this year, the worst performance in most of our lifetimes," he said.

"Even though the crisis has been slow in reaching Africa's shores, we all know that it's coming and its impact will be severe.

"And the threat is not only economic, there is a real risk that millions will be thrown back into poverty," he added.

It is the first time that Strauss-Kahn, who said last week he saw no chance of a global recovery before 2010, had predicted an actual global contraction.

The conference was expected to hear appeals not to cut levels of foreign aid at a time when budgets are shrinking.

The impact of the crisis, meanwhile, on one of the world's wealthiest countries was highlighted by German figures showing its exports plunged 20.7 percent in January as a result of a reduction in demand.

The heavily export-driven German economy, the largest in Europe, is suffering its worst recession in six decades, with the government expecting output to shrink 2.25 percent this year.

Chinese Premier Wen Jiabao said last week that he expected the world's third-largest economy to meet a target of eight percent growth this year but news that it is now experiencing deflation could put that goal at risk.

China's statistics bureau said consumer prices -- including food, clothes and fuel -- were 1.6 percent cheaper in February than a year earlier, the first such fall since December 2002.

Elsewhere in Asia, Japan's Nikkei stock index closed down 0.44 percent to 7,054.98 points after another sell-off on Wall Street, hitting the lowest level since October 1982 for a second straight day.

US stocks tumbled in choppy trade to 12-year lows overnight, with the Dow Jones Industrial Average dropping 1.21 percent to 6,547.05 points.

"I've never seen Americans more fearful," Buffett, one of the world's richest men, said in a CNBC television interview.

"It takes five minutes to become fearful, much more time to regain confidence. The system does not work without confidence."

British finance minister Alistair Darling, whose country will host a summit of the G20 world powers focusing on the crisis next month, said governments "must be prepared to do more."

"In these extraordinary times it is essential that governments act together" Darling wrote in the Guardian newspaper.

His comments, ahead of an EU finance ministers meeting Tuesday, again highlighted differences between world powers ahead of the G20 summit.

After a eurozone finance ministers' meeting Monday, German Finance Minister Peer Steinbrueck said that no further measures were planned, adding: "We should concentrate on measures that have already been decided."

At Tuesday's meeting, the European Union was expected to call for the IMF's resources for struggling nations to be doubled to 500 billion dollars (396 billion euros), a draft document showed.

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