Coming to a standstill

According to Reuters, the global economy is coming to a virtual standstill and it is vitally important that policy-makers purify the banking system of noxious assets to help reinstate progression and development.

In a bleak evaluation of the world economy, the IMF cut its 2009 forecast to a slight 0.5 percent, the weakest year since World War Two, from a November estimate of 2.2 percent.

IMF chief economist Olivier Blanchard said the world economy had taken a turn for the worse over the past three months, with global output and trade falling significantly.

He appealed for countries to work more closely together and to take key policy actions to reinstate the collapse in confidence and revive the global financial system.

"Despite wide-ranging policy actions, financial strains remain acute, pulling down the real economy," the IMF said. "A sustained economic recovery will not be possible until the financial sector's functionality is restored and credit markets are unclogged."

While central banks have already belligerently cut interest rates, Blanchard said there was still scope for lower rates as inflation pressures have sunk. On the other hand, deflation has become an increasing risk, he added.

Meanwhile, countries applying sizable incentive packages should aspire towards maximum impact on demand, which contests for measures to increase spending, Blanchard added.

The IMF's outlook was especially despondent for advanced nations such as the United States and in the euro area, whose economies are seen contracting by 1.6 percent and 2 percent, respectively.

The sharpest decline will be in Britain, whose economy is likely to contract by 2.8 percent this year, the IMF said. Japan's economy is anticipated to reduce by 2.6 percent in 2009.