The International Monetary Funds had some bad news for Australia overnight: growth in our main export markets in east Asia will halve, with Japan, our largest export destination, plunging to the level where it comes becomes the worst performing major economy.

Teresa Ter-Minassian, an aide to IMF managing director Dominique Strauss-Kahn, told reporters overnight that the Fund now expects the world economy will shrink by 0.6% per cent this year, that’s about on par with the World Bank’s estimate a week ago for negative growth of 1-2%.

The IMF had forecast global growth of just 0.5% in its January update of its global forecasts. It noted then that world trade and output was weakening at a rapid rate. It has — and this has helped drive the forecasts lower. Up-to-date forecasts for the world are likely to be issued later this week, with more detailed regional and country analysis next month ahead of the Fund’s Spring meeting in Washington.

But growth in Japan will fall by an unsettling 5%, almost double the January forecast of a 2.6% contraction, and growth in Asia (excluding Japan) will be 3.6%, compared with the earlier January forecast of 5.8%, as output in China slows.

The official didn’t provide a figure for China’s growth. The January forecast said the Fund expected growth of 6.7% this year for China. Seeing growth in countries such as Taiwan, Hong Kong, South Korea and Singapore are all forecast by their central banks to be negative this year, the IMF’s forecast means there is still some positive growth in China.

The Japanese economy contracted by 3.3% in the 4th quarter of 2008, meaning that the contraction this year will have to be far deeper for the 5% forecast to be met.

Overnight the Bank of Japan confirmed that it was looking at allocating $US10 billion to the country’s banks to help raise their capital levels to enable more lending. Mazda said it might have to ask for Japanese Government aid to help it finance car sales outside of Japan. It has the second lowest rating of Japan’s car companies.

Exports in January were off 46%, industrial production was down 10% and inflation is falling, meaning the chances are rising of a demand-crippling bout of deflation, which will add to the contractionary pressures in the world’s second biggest economy.

The IMF official said the US economy is forecast to shrink by 2.8% this year, compared to the January forecast of negative growth of 1.6%, the Eurozone is forecast to slide by 3.2% from January’s negative 2% and the UK will contract by 3.8% from the January forecast for a 2.8% shrinkage.

Reuters said the following is a breakdown of forecasts provided by the IMF official:

2009 2010
Global economy -0.6 2.3
United States -2.6 0.2
Euro zone -3.2 0.1
Japan -5.0 0.0
United Kingdom -3.8 -0.2
Canada -2.0 1.2
G7 -3.2 0.2
Asia 3.6 5.8
Latin America -0.6 2.3