The US will fall into recession this year, dragging down global economic performance for the next two years, the International Monetary Fund (IMF) said on Wednesday. When the fund last updated its semi-annual report, in January, it predicted the worst global performance in five years but stopped short of using the word recession. On Wednesday, however, it admitted the global slump could prove worse than predicted. There is a one-in-four chance that a global recession — seen when world economic growth falls below 3 per cent — will ensue.

The fund predicted global growth would slow to 3.7 per cent this year, half a percentage point lower than its January forecast, amid the still-deepening financial crisis set off by rampant speculation on securities backed by shaky mortgages in insufficiently regulated US financial markets. “The financial market crisis that erupted in August 2007 has developed into the largest financial shock since the Great Depression,” it said.

Latin America and countries linked to the plummeting US dollar will be hardest hit as the US-led slump spreads around the globe, the IMF said. Rapidly growing emerging economies, such as China and India, will suffer the least pain, it said. However, even they will feel a sting as rich countries cut their imports.

At the heart of the gathering darkness, the world’s largest economy will stagnate this year and much of next year as housing prices continue to drop and credit remains hard to obtain. US home prices already have fallen 10 per cent and the fund anticipated this deterioration to reach between 14 per cent and 20 per cent.

The US economy will grow by a negligible 0.5 per cent in 2008 despite many billions of dollars in government spending to aid the financial sector, shore up consumer and business spending, and save homeowners from dispossession. This performance will improve little, to 0.6 per cent, in 2009, the IMF said. It termed the prospect of two years in which the economy will fail to keep pace with population growth a “mild recession”.

Wednesday’s release came in advance of the coming weekend’s meetings of the IMF and World Bank. It appeared on the heels of a report in which the agencies warned that the so-called MDGs, set by the international community in 2000, are unlikely to be met by the target year of 2015.

The World Bank-IMF report, released Tuesday, said that most countries are on target to reach the goal of halving extreme poverty but will fall short on commitments to reduce hunger and malnutrition and to improve health and education. Many reasons lie beneath the likely failures but prominent among these, said the bank and fund, foreign aid spending by rich countries has stalled.

The report said that while soaring commodity prices have boosted some poor countries’ export revenues, they also have removed staple foodstuffs from the reach of countless people in developing countries, where many citizens spend half their income or more on food alone. Sub-Saharan Africa will miss nearly all of the MDGs but concern also centres on South Asia, home to most of the world’s poor and the planet’s highest

levels of malnutrition. Worldwide, the agencies said, 1 billion people lack access to clean water, 1.6 billion have no access to modern energy sources, and 2.6 billion live without basic sanitation. — IPS