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UK and world facing the biggest financial shock since the Great Depression, says IMF
By ALEX BRUMMER - More by this author »

The world is facing the biggest financial shock since the Great Depression, warns the International Monetary Fund. In its most startling report of modern times, it says the meltdown “has inflicted heavy damage on markets and the financial institutions at the core of the financial system”.

For the first time the IMF predicts that the American economy is heading for recession and will shrink by 0.7 per cent this year, sending shock waves across the globe. Despite healthy growth in the Far East, it now believes there is a 25 per cent chance that the whole world could follow the Americans into recession.

“The financial markets crisis that erupted in August 2007 has developed into the largest financial shock since the Great Depression,” the report says. It estimates that the losses from American mortgages will reach $945billion (£500billion) - more than twice previous estimates. The U.S. housing collapse is far from over, with the fund economists expecting a further 10 per cent decline in 2008, on top of a similar fall in prices in the previous years.

Such declines, it believes, are way beyond anything seen in the previous American experience. The apocalyptic language used by the fund is highly unusual and reflects an unprecedented concern about the impact of the credit crunch which has prevented banks from borrowing in the wholesale money markets, making it all but impossible to fund new mortgage lending on both sides of the Atlantic.

In Britain, the IMF warns that the “housing correction will continue to impact on consumers” and “be a drag on the economy”. 

http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=558297&in_page_id=1770&ct=5