Imf warns of 'deeper slump' risk

The US housing downturn may deepen and last longer than previously forecast, and the slump could spread to other countries, argues the IMF...

In a report to the Group of 20 developed and developing countries, the IMF said that house prices in the US and other countries could continue to plunge through 2010 as unemployment rises amid the global economic slowdown.

"In the United States in particular, there is a risk of deeper and more prolonged housing correction," the Washington-based multilateral institution said.

Severe pressure

The US housing slump, at the epicentre of the global financial crisis, in under severe pressure "as labour markets deteriorate further, mortgage financing remains restrained and foreclosures rise steeply as the 'negative equity' problem in housing spreads," it said.

"There are risks that house price declines could intensify in other advanced economies and also spread to a broader range of countries, particularly if the availability of housing finance is squeezed through adjustment in the financial sector," it said.

The report was prepared for a G20 ministerial meeting held in London on January 31 and February 1 ahead of a G20 summit in the British capital on April 2.

"House prices could continue to fall sharply through 2010, undermining recovery in financial markets and contributing to the adverse feedback loop with the real economy," the 185-nation IMF warned.

Outlook slashed

Last week, the IMF slashed its global economic outlook, predicting the financial crisis would slam growth to a virtual standstill this year as the world economy faces a "deep recession."

The advanced economies were expected to contract by 2.0 percent, their first annual contraction in the post-war period and far more than the negative 0.3 percent the IMF estimated less than three months ago.

Source: www.imf.org