03 October 2008

IMF: Financial crisis likely to worsen economic downturn

The current financial market meltdown being witnessed in the United States and other advanced economies will likely lead to longer and deeper economic downturns in some of these countries, according to the IMF.

The current financial market meltdown being witnessed in the United States and other advanced economies will likely lead to longer and deeper economic downturns in some of these countries, according to the IMF.

 

"Economies like the United States seem to be particularly vulnerable to sharp contractions in activity in the face of financial stress," Charles Collyns, Deputy Director in the IMF's Research Department, said. "This is because leverage tends to be more procyclical, the process of deleveraging can be more severe, and the risks of a credit crunch are greater."

 

However, the health of the non-financial corporate sector and the timely and decisive reaction of the Federal Reserve in lowering interest rates have so far helped the country avoid slipping into a recession.

 

The forthcoming World Economic Outlook (WEO), which will be released on October 8, contains an analytic chapter on financial stress and economic downturns.

 

Press release

© International Monetary Fund