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The International Monetary Fund IMF says losses from financial crisis have fallen, sees more write-downs

The International Monetary Fund (IMF) has revised its predictions for economic growth in 2010, raising it from +2.5% to +3.1%. The news was reported by German daily Handelsblatt, quoting IMF sources.

Global growth predictions for this year have also been raised from -1.4% to 1.1%. The IMF also predicts that the Germany economy will grow 0.3% in 2010, against the initial prediction of -0.6%, whilst this year the contraction is predicted to be 5.3%, against the initial figure of -6.2%.

The International Monetary Fund cut its projection for global writedowns on loans and investments by 15 percent to $3.4 trillion.

The tally, released in a semiannual report today, was based on a new methodology after criticism of an April estimate of about $4 trillion. Banks’ losses on bad assets are projected to increase from July 2009 through next year by $470 billion in the euro area, $420 billion in the U.S. and $140 billion in the U.K., the report said.

The losses from the crisis, between 2007 and 2010, will amount to some 3,400 billion dollars. The figure is better by 600 billion dollars than the one initially announced by the International Monetary Fund (IMF).

The IMF made its predictions in the October edition of the Global Financial Stability Report (GFSR) released yesterday. According to the IMF, “global financial stability has improved but the risk remains high.” The improvement in financial stability comes from “unprecedented actions and signs of economic recovery.

The general risk nonetheless remains high and the risk of relapses is substantial. Our predictions on global losses due to the crisis for the period 2007-2010 now stand at 3,400 billion dollars (some 600 billion dollars less than the one initially announced by the GFSR), thanks to improved monetary guarantees.” The report indicates that “financial institutions continue to have to deal with three main challenges: the reconstruction of capital, the strengthening of earnings and the “weaning off” support provided by government funds” put in place to cope with the crisis.

And for policymakers, there are “considerable challenges in the short term. These include guaranteeing the growth of credit to support the economic recovery, drawing up suitable exit strategies and managing the increased risk from public borrowing.” “Financial devaluation has started to be reduced, but the deterioration of credit will continue to drive loss on loans over the coming years.


Valuations of banks on loans to firms and securitisations amount to 1,300 billion dollars between the middle of 2007 and the middle of 2009. We estimate that 1,500 billion dollars of potential new losses between now and the end of 2010 have not yet been acknowledged.

Capitalisation and predictions for banks are however significantly better than our previous prediction. We don’t expect devaluations to overtake capitalisation.”

In its half-yearly Global Financial Stability Report, the fund said concerted efforts by governments and central banks around the world to deal with the crisis and fledgling signs of a global economic recovery have helped limit the losses.

“Systemic risks have been substantially reduced following unprecedented policy actions and nascent signs of improvement in the real economy,” the IMF said.

“There is growing confidence that the global economy has turned the corner, underpinning the improvements in financial markets,” it added.

The IMF said its analysis suggests that U.S. banks are more than halfway through the loss cycle to 2010, whereas in Europe loss recognition is less advanced, reflecting differences in the economic cycle.

Over the last year, governments around the world have bailed out banks and stimulated their economies by increasing spending, while major central banks have slashed interest rates and pumped cheap money into the financial system in an attempt to get liquidity flowing again.

The International Monetary Fund on Wednesday said it cut its estimate of global bank losses by 15% due to rising asset values, but warned that credit will continue to deteriorate and that banks have yet to recognize more than half their expected write-downs.

The IMF, in its latest Global Financial Stability Report, said it now estimates that losses arising from the financial crisis will total $3.4 trillion, around $600 billion less than forecast in April, due largely to rising securities values.

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