International Monetary Fund said that the current global recession is likely to be unusually long and severe and the recovery sluggish because it sprang from a financial crisis. New IMF analysis shows recessions tied to a financial crisis, like the current one that has its roots in reckless lending for the US housing market, are more difficult to shake because they are often held back by weak demand.
IMF said that worse still is that today’s recession combines a financial crisis at the heart of the United States, the world’s largest economy, with a broader global downturn making it unique. It added that "The analysis suggested that the combination of financial crisis and a globally synchronized downturn is likely to result in an unusually severe and long lasting recession.
It said that counter cyclical policies can help shorten recessions but its impact is limited in the presence of a financial crisis. It added that fiscal stimulus can be particularly effective in shortening the life of a recession though not appropriate for countries with high debt levels.
In its most recent forecast, the IMF said that the world economy will shrink in 2009 by between 0.5% and 1%, the largest contraction since the Great Depression. The IMF said dealing with the current global recession will require coordinated monetary, fiscal and financial policies.