The International Monetary Fund has predicted that the world economy will grow at its slowest pace since World War II this year.
In an update of forecasts issued in November, it said global growth would be only 0.5% this year, 1.75 percentage points lower than its previous estimate.
'The world economy is facing a deep recession,' the IMF said, adding that the outlook was 'highly uncertain'. The 185-country institution said the world's more advanced economies would shrink by 2%.
IMF managing director Dominique Strauss-Kahn that a sustained economic recovery would not be possible until the banking sector was restructured and credit markets unclogged.
The organisation's report also called for more decisive action for government and other policy-makers to address the economic crisis.
It said new initiatives should provide support to viable financial institutions by injecting capital and 'carving out' bad assets, possibly by using a 'bad bank' approach. This is where riskier loans are taken from other banks and placed with one institution.
The IMF says Britain is set to be the worst performer of the advanced economies in 2009 with its economy shrinking by 2.8% next year.
The updated forecasts said the US economy would shrink by 1.6% this year, while the euro zone would contract by 2%.
The IMF also said today that global banking industry losses may reach $2.2 trillion losses in the current financial crisis, revising upwards its previous estimate of $1.4 trillion.
The International Monetary Fund made a sharp upward revision in its estimate for losses for US-orginated credits, largely from the property sector, that have hit banks worldwide.
