The International Monetary Fund has once again downgraded its global growth forecast and called for governments to continue to spend up on stimulus packages to help boost the economy.
The organisation says global economic growth will now contract by 0.5% to 1% during 2009, the biggest decline since World War II.
“(This revision) reflects unrelenting financial turmoil, negative incoming data, sinking confidence, and the limited effect to date of policy responses with respect to restoration of financial system health,” it said.
“The turnaround depends critically on more concerted policy actions to stabilise financial conditions as well as sustained strong policy support to bolster demand.”
Federal Treasurer Wayne Swan reacted to the news by saying unemployment is sure to rise.
“So what we are seeing is a sharper contraction in the global economy and the consequence of that for Australia is slower growth and higher unemployment,” Swan told Sky News.
Swan also said the Government’s forecasts for economic growth are outdated, and will be given a refresh in the coming budget.
“Certainly growth will be slower,” he said. “I can’t tell you how much higher (unemployment) will be.”
The Australian sharemarket opened slightly higher today but has had a nervous morning, moving in both directions after negative leads from Wall Street overnight.
The benchmark S&P/ASX200 index was up 0.8 points or 0.02% to 3481 at 11.56 AESDT. The dollar is also trading at about US68 cents.
Commonwealth Bank shares have fallen 2.4% to $33.17, while NAB has fallen 1.5% to $19.20. ANZ dropped 1.9% to $14.48 as Westpac also lost 0.7% to $18.07.
Overseas, Wall Street suffered losses as investors became nervous over the Federal Reserve’s plan to purchase government debt to help ease the country out of its recession.
The Dow Jones Industrial Average closed down 85.78 points or 1.15% to 7400.8, while the S&P500 index dropped 10.31 points or 1.3% to 784.04. Oil prices also jumped 6% to $US51 a barrel.
The US House of Representatives has also passed legislation that will recover most of the $US165 million in Government bailout funds given to AIG executives as bonuses.
“The whole idea that they should be rewarded millions of dollars is repugnant to everything that decent people believe in,” Charlie Rangel, the Democratic chairman of the Ways and Means Committee, told Reuters.
And the Australian Competition and Consumer Commission’s decision to pursue legal action against Telstra may lead to the Government splitting the telco’s business.
The ACCC launched legal proceedings against the company for breaching standard access obligations, but telecommunications analyst and managing director of White Funds Management, Angus Gluskie, told the Sydney Morning Herald that structural separation is imminent.
“It’s somewhat inevitable, and it is happening whether Telstra likes it or not,” Gluskie said in the report.
The ACCC says that Telstra has breached telecommunications law by not providing interconnection of certain facilities, but the company says action is a waste of time and money.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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