Developed economies are heading for their first collective contraction since World War II, with the US outlook for 2009 particularly poor, according to the International Monetary Fund (IMF).

The IMF predicted that the world’s developed economies would shrink by 0.3 per cent in 2009 and America will decline by 0.7 per cent.

The IMF’s gloomy forecast marks a significant change of heart, coming less than a month after the organisation forecast that the US economy would grow by 0.1 per cent in 2009. On Wall Street, shares sank by 182.39 points to 8,956.88.

It also emerged today that the number of Americans filing for unemployment hit a 25-year high last week, adding to growing evidence that the US workforce is under pressure after job cuts by US businesses hit a six-year high in October.

Some 481,000 workers filed initial claims in the week ending November 1, according to the Labour Department, ahead of the consensus estimate of 477,000.

A spokesman for the IMF said: "Prospects for global growth have deteriorated over the past month, as financial sector deleveraging has continued and producer and consumer confidence have fallen."

Markets have entered a vicious cycle of asset deleveraging, price declines and investor redemptions. Beyond the direct impact of the financial crisis, activity is increasingly being held back by slumping confidence," he added.

The IMF also forecast that global economic growth would fall from an estimated 3.7 per cent in 2008 to 2.2 per cent next year. The organisation considers any growth below 3 per cent to be a recession.

Emerging markets are now expected to grow by 5.1 per cent in 2009, one percentage point below the IMF’s forecast of about a month ago.

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