THE world economy is at a standstill, with the major developed countries in deep recession, according to leaked forecasts prepared by the International Monetary Fund.
The third downward revision to the IMF's forecasts in the last four months comes as layoffs affecting more than 70,000 workers were announced around the world on Monday.
The IMF is due to release new official economic forecasts before the end of the week. However, a well-sourced report carried by Reuters news agency says it expects global growth of just 0.5per cent this year.
The fund has been struggling to keep up with the rapidly deteriorating world economy, having cut its estimate for world growth next year from 3.8 per cent last April to 3 per cent in October and 2.2 per cent in November.
The latest update anticipates sharply slowing growth in China and India.
The US economy is expected to contract by 1.6 per cent, while Europe will shrink by 2 per cent and Japan by 2.6 per cent.
The fund expects the world economy to recover in 2010, with a return to 3 per cent global growth and the major economies recording small positive results.
Wayne Swan said that although he could not comment on the reports of the IMF's forecasts, it was clear the world economy was deteriorating.
"We're now facing the prospect of a deeper and more protracted global recession. This will clearly have an impact on growth and jobs," the Treasurer said.
"There are no quick fixes, but the Government will continue to take whatever action is necessary and responsible to support jobs and growth amid these very difficult global conditions."
The Reserve Bank, which on Tuesday meets for the first time since last month, is expected to respond to the worsening outlook with a large cut in interest rates.
Financial markets are tipping a one percentage point reduction, which would cut the official interest rate to 3.25 per cent and, if passed on in full by the banks, would reduce standard home loan rates to about 5.9 per cent.
The increasing severity of the downturn has been marked by a rapid rise in the number of redundancies being announced as businesses face shrinking sales revenue. A spate of announcements on Monday, including 45,000 job losses in the US, reached a total of 70,000.
Earthmoving equipment company Caterpillar announced 20,000 redundancies, drugs company Pfizer laid off 8000 workers, and Dutch electronics firm Philips made 4000 positions redundant.
In Australia, unions warned yesterday the manufacturing sector was "drowning" and predicted workers would suffer.
The Australian Manufacturing Workers Union said Caterpillar planned to shut down the night shift at its Tullamarine plant in Melbourne. Union organiser Tony Mav said about 30 workers were employed on the shift.
National Australia Bank's latest business survey found there was some recovery in business confidence and sales last month following the federal Government's stimulus package.
However, more companies are shedding labour, with businesses planning to cut their work force outnumbering by 17 per cent those planning an increase.
Additional reporting: Ewin Hannan
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