IMF: Economic Woes Could Linger

Economic meltdown is likely to last longer than typical recessions and be followed by a weaker than average recovery, the International Monetary Fund said Thursday.

WASHINGTON (AP) -- The economic meltdown many countries are experiencing is likely to last longer than typical recessions and be followed by a weaker than average recovery, the International Monetary Fund said Thursday.

The IMF said the combination of a financial crises and an economic downturn affecting many countries at the same time is historically rare and interpretations of these events should be cautious.

"Nonetheless, the fact that the current downturn is highly synchronized and associated with deep financial crises suggests that it is likely to be persistent, with a weaker-than-average recovery," the IMF said in the analytical chapters to its semiannual World Economic Outlook, released in advance of the report's publication next week and the organization's spring meeting April 25-26.

Economic recessions usually are short and recoveries are strong, the IMF said, with a typical recession lasting about a year and the ensuing bounce-back expansion lasting more than five years.

But recessions associated with financial crises have typically been severe and drawn out, the IMF said.

Excluding the present recession, there have been three episodes since 1960 during which 10 or more of the 21 advanced economies the IMF studied were in recession at the same time: 1975, 1980 and 1992.

"The duration of a synchronous recession is, on average, nearly 1 1/2 times as long as a typical recession," the IMF said. "Recoveries are usually sluggish, owing to weak external demand, especially if the United States is in recession."

During the 1975 and 1980 recessions, the IMF said, sharp falls in U.S. imports contributed to a significant retraction in world trade.

The IMF is a Washington-based lending institution which has a mission of monitoring the global economy, warning of impending crises and providing financial and technical advice to its 185 member nations.

During financial meltdowns in the 1990s, it lent billions of dollars to countries in trouble. But as recently as last October questions were raised about its relevancy as its loan portfolio declined. In recent months as the global economic turmoil deepened, several countries in difficulties have turned to the IMF for financial help.

At the G-20 summit in London last month, the world's biggest rich and emerging economies decided the IMF should have more resources to lend and play a bigger role in the world economy than in the past, giving the organization a new sense of purpose. The finance ministers decided to increase the amount the IMF has to lend by $500 billion to $750 billion.

In another chapter of the report released Thursday, the IMF said financial crises in the rich economies spread strongly and rapidly to emerging economies, partly because of the increasing financial linkages of globalization.

"In line with this pattern," the IMF said, "the unprecedented spike in financial stress in the advanced economies in the third quarter of 2008 had a major effect on emerging economies. In the fourth quarter, financial stress was elevated in all segments of financial systems in all emerging regions, and on average exceeded levels seen during the Asian financial crisis" of the mid-1990s.

The IMF said the main source of the spreading troubles was bank lending, which eventually dried up as the global economic meltdown deepened.

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