Edmund Conway
Telegraph
January 28, 2009

The Institute of International Finance, the global organisation of major banks, predicted an almost unprecedented collapse in world economic growth and capital flows.

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It became the first major global institution to forecast a full-scale global contraction in 2009, predicting that the economy would shrink by 1.1pc.

IIF chief economist Philip Suttle said: “This is the worst period since the interwar years. The global growth backdrop is very difficult. We foresee a contraction in 2009 in the global economy of over 1pc.”

He also expects rich economies to contract by 2.1pc – the worst peacetime output since the 1930s.

Private flows of capital into the emerging world are set nearly to dry up in the next year, the IIF predicted, dropping from $928.6bn in 2007 down to $465.8bn in 2008 and then to $165.3bn the following year.

As a result the current account deficits in emerging Europe will more than treble in the coming year, from $30bn in 2008 to $117bn next year.

The forecasts shed light on the likelihood that the current financial crisis transmutes into a severe worldwide recession of the kind that has not been seen since the Second World War. Asia is likely to suffer a worse downturn than during the Asian financial crisis, the report indicated.

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