The International Monetary Fund on Wednesday warned that the global economy was in "a severe recession" and the world output is projected to decline 1.3 percent this year, the deepest global recession since the Great Depression in 1930s.

"The global economy is in a severe recession inflicted by a massive financial crisis and acute loss of confidence," said the IMF in its latest World Economic Outlook report. "All corners of the globe are being affected."

Epicenter of crisis

According to the report, the world economy is projected to decline by 1.3 percent in 2009 as a whole and to recover only gradually in 2010, growing by 1.9 percent.

"Achieving this turnaround will depend on stepping up efforts to heal the financial sector, while continuing to support demand with monetary and fiscal easing," said the IMF.

The advanced economies experienced an unprecedented 7.5 percent decline in real GDP during the fourth quarter of 2008, and output is estimated to have continued to fall almost as fast during the first quarter of 2009, according to the report.

Although the US economy may have suffered most from intensified financial strains and the continued fall in the housing sector, western Europe and advanced Asia have been hit hard by the collapse in global trade, as well as by rising financial problems of their own and housing corrections in some national markets.

Emerging economies are suffering badly and contracted 4 percent in the fourth quarter in the aggregate.

The United States, at the center of an intensifying global financial storm, will contract by 2.8 percent this year, said the IMF, adding that "the biggest financial crisis since the Great Depression has pushed the United States into a severe recession."

Meanwhile, the euro zone economy will shrink by 4.2 percent this year and fall a further 0.4 percent in 2010, the IMF said, criticizing the bloc for weak public policy responses and coordination.

In Japan, the IMF expects 2009 output to fall 6.2 percent, far worse than its January forecast for a 2.6 percent decline.

China is expected to slow to about 6.5 percent this year, half the 13 percent growth rate recorded pre-crisis in 2007 but still a strong performance given the global context, according to the IMF.

Uncertain outlook

The IMF warned the financial crisis remains acute. "The financial market stabilization will take longer than previously envisaged, even with strong efforts by policymakers," it said.

Thus, financial strains in the mature markets are projected to remain heavy until well into 2010, and overall credit to the private sector in the advanced economies is expected to decline in both 2009 and 2010.

Meanwhile, emerging and developing economies are expected to face greatly curtailed access to external financing in both years.

In a semi-annual report Global Financial Stability Report (GFSR), which was released on Monday, the IMF said write-down on US-originated assets to be suffered by all holders will be US$2.7 trillion, "largely as a result of the worsening base-case scenario for economic growth."