More aggressive and concerted efforts are needed by key economies to quell financial market stresses if the world is to avoid an even sharper and longer recession, the International Monetary Fund (IMF) urged yesterday.

The warning that still more far-reaching efforts were needed from leading developed and emerging market economies, and that these needed to be coordinated, came as the IMF forecast the worst global slump since the Second World War.

The world economy is set to shrink by between 0.5 per cent and 1 per cent this year, in its first outright contraction in the postwar era, the fund said. Developed economies will contract by between 3 per cent and 3.5 per cent, with an anaemic recovery leading only to stagnation, with zero growth, in the rich world in 2010, it added.

Confirming figures leaked earlier this week, the IMF also forecast that this year the US economy would contract by 2.6 per cent and the eurozone by 3.2 per cent. Japan will probably contract by 5.8 per cent in 2009 and by another 0.2 per cent in 2010, it indicated.

The bleak projections came in a report prepared for last week’s meeting of the Group of 20 key economies.

“Turning around global growth will depend critically on more concerted policy actions to stabilise financial conditions as well as sustained, strong policy support to bolster demand,” the report concluded. It emphasised that restoring confidence in financial conditions was vital to resolving the crisis, and said that this meant “tackling head-on the problems in the financial sector”. It urged: “Policymakers must resolve urgently balance sheet uncertainty by dealing aggressively with distressed assets and recapitalising viable institutions.”

In a rebuke to fractious G20 members bickering over how to combat global recession, the IMF added: “Since financial market strains are global, greater global policy cooperation is crucial for restoring market trust.”

It warned: “Delays in implementing comprehensive policies to stabilise financial conditions would result in a further intensification of negative feed-back loops between the real economy and the financial system, leading to an even deeper and prolonged recession.”

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