global growth gloom.
BY DANIELLE CRONIN
The world is headed for the worst recession since World War II, which will inevitably affect Australian jobs and growth.
The International Monetary Fund's dire forecasts issued today come as the Reserve Bank of Australia appears set to significantly cut official interest rates in the wake of the worsening economic outlook.
Reflecting the sense of gloom hitting the nation, Australian Industry Group chief executive Heather Ridout said yesterday that interest rates should be slashed to 2 per cent.
Prime Minister Kevin Rudd and United States President Barack Obama have also talked about the ''need for coordinated international action in the present global recession, including through effective fiscal stimulus''.
Closer cooperation to tackle climate change, nuclear non-proliferation and an ''even more active'' Australia-US alliance were also discussed yesterday during the 25-minute conversation between the leaders their first since Mr Obama was sworn in.
Meanwhile, the IMF's World Economic Outlook says the US, Japan and China Australia's major trading partners are expected to experience significant slumps in growth this year. Global growth is projected to fall to 0.5 per cent in 2009, with advanced economics expected to suffer the worst recession since World War II.
Collectively, these economies are predicted to contract by 2 per cent this year. It would be the first annual contraction in the postwar period.
''In the current circumstances, the timely implementation of fiscal stimulus across a broad range of advanced and emerging economies must provide a key support to world growth,'' the report said.
''Given that the current projections are predicated on strong and coordinated policy actions, any delays will likely worsen growth prospects.''
Treasurer Wayne Swan said the IMF had drastically revised down its forecasts for the global economy since November.
''Against the sobering backdrop of a global recession and collapsing commodity prices, it is inevitable that Australian jobs and growth will be affected,'' Mr Swan said.
''While our economy is better placed than most other countries to face this crisis, we can't completely resist the pull of international economic forces.
''The IMF is now forecasting that the global recession will be much deeper and more protracted than previously envisaged.''
The Rudd Government had already taken ''decisive action'' to protect the economy from the worst effects of the global recession.
He cited the guarantee of bank deposits and wholesale funding, nation building investments and the $10.4billion pre-Christmas stimulus package with one-off payments for pensioners, parents and carers.
There is mounting speculation the Government will deliver a second stimulus package soon, while the Opposition has repeatedly called for the Government to bring forward tax cuts slated for July.
Mr Swan said the Government ''stands ready to take whatever action is required, in a responsible way, to respond to these rapidly changing global conditions''.
The Australian Bureau of Statistics reported yesterday the consumer price index fell 0.3 per cent in the December quarter the largest quarterly fall in more than a decade.
The statistics have prompted economists to predict the Reserve Bank will slash official interest rates when the board meets next week, its first meeting for this year.
Westpac chief economist Bill Evans predicted yesterday the bank would cut rates by 100 basis points, with the cash rate to reach 2 per cent by the June quarter.
Westpac predicts the Australian economy will contract by 0.7 per cent this year and the unemployment rate will rise to 7 per cent by the end of 2010.
[IMF's global growth gloom