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International Monetary Fund revises global fo -

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Reporter: Richard Lindell

TANYA NOLAN: The International Monetary Fund says the global economy is deteriorating much faster
than previously thought.

The IMF has again downgraded its global forecasts and now expects the world economy to shrink by as
much as one per cent this year.

The situation for developed economies is much worse, and the IMF says governments will need to do a
lot more to stave off an even deeper and longer recession.

Richard Lindell has been taking a close look at the IMF report and he's in the studio now with me.

Richard, how bad does the IMF say the global downturn is going to get?

RICHARD LINDELL: Tanya, the numbers are pretty grim. According to the IMF, the US will shrink by
just under three per cent this year, eurozone by more than three per cent, and Japan by about six
per cent.

The developing world will fare a bit better with growth of 1.5 to 2.5 per cent, but that's much
lower than historical standards.

There was no specific forecast for China, but the World Bank this week downgraded its forecast from
eight to 6.5 per cent. Now that may sound very strong, but that's really at the bottom end of
what's required for China to maintain political stability and also meet the basic requirements of
an urbanising population.

And also with downgrades coming thick and fast, you have to really question the accuracy of those
numbers and whether forecasts for China will be cut further in coming months, and most economists
certainly think that will be the case.

There's also no specific forecast for Australia, but with China slowing, with Japan already in a
depression, that's two of our biggest trading partners for coal, for iron ore, and other resources
and that means commodity prices will stay low for quite a long time to come. We won't get the boost
to export earnings that we've enjoyed through the boom of the last five years and that will weigh
on Australian growth, and most economists here say Australia is already in recession anyway.

TANYA NOLAN: Well governments have been throwing trillions of dollars at the problem but the IMF
says there needs to be more stimulus - how much more?

RICHARD LINDELL: Well, the IMF certainly thinks that, you know, they have been throwing trillions
at it, as you say, but they're calling for a more coordinated global response, more fiscal stimulus
from all the major economies and the governments there.

Australia has already moved quickly from surplus to deficit and this morning Treasurer Wayne Swan
didn't rule out further spending down the track.

WAYNE SWAN: We've got about two per cent in the system for this year; that is the amount which is
recommended by the IMF. And remember that almost three-quarters of the nation building and jobs
plan is direct investment in schools and energy efficiency and housing. And most of that direct
investment kicks in in the second half of this year and through next year.

So we are certainly well placed with our nation building and jobs plan to respond to the challenge
that the IMF has highlighted. But if further measures are required, we've said all measures will be
on the table.

TANYA NOLAN: Treasurer Wayne Swan this morning on Sky News.

Well Richard, can government spending alone do the trick?

RICHARD LINDELL: Well what's got to happen to get the global economy moving again is that banks
have to start lending again. And the IMF wants governments - especially in the US and Europe - to
move much faster on this front to repair bank balance sheets and that means taxpayers will have to
take on more toxic assets from the banks and it also means more nationalisations of banks,
particularly in the US.

And the IMF is very critical on this front and says that governments - particularly in the US - is
moving way too slowly on this front.

TANYA NOLAN: Well this is the fourth downgrade from the IMF since September last year. Should we
expect worse to come in the months ahead?

RICHARD LINDELL: Well if history is any guide, quite possibly. We are in unchartered territory. The
global economy is in its worst position since World War II, with every major market going backwards
at the same time. This financial crisis is really unprecedented, so no-one really knows what's
going to happen.

Governments and policymakers are certainly betting that the stimulus will gain traction at some
stage, that record low interest rates and Government spending will provide some sort of recovery
perhaps next year; the optimists say maybe later this year.

But some economists say that even if there is a recovery, it could be short term because
governments are spending and they're actually taking on more debt to solve a recession that was
caused in the first place by too much debt.

TANYA NOLAN: Richard Lindell, thank you.