The outlook for the international economy has been downgraded significantly, raising fears that Australia's already bleak unemployment, revenue and growth forecasts will deteriorate further.
The latest outlook published by the International Monetary Fund last night says the global economy is expected to contract this year for the first time in 60 years.
It also backs the stimulus packages introduced by many governments, including the Commonwealth, but says recovery depends on further action.
"The estimated growth and employment effects from the fiscal stimulus announced so far … are estimated to be large," the IMF says.
In late January it forecast global growth to slow to 0.5pc this year - the worst result since World War II - before a possible recovery to 3pc next year.
Last night it revised growth to go backwards by 0.5-1pc this year and to stage a modest and heavily conditional recovery of 1.5-2.5pc next year.
The figures were given under embargo to finance ministers, including the Treasurer, Wayne Swan, at last week's Group of 20 summit in London.
They will underpin talks when the G20 leaders, including the Prime Minister, Kevin Rudd, assemble in the city on April 2.
Government insiders expressed fears the new report meant the forecasts contained in the mini-budget last month were no longer feasible.
The 7pc unemployment rate forecast for June next year is certain to be revised upwards, and more quarters of contraction - worsening an official recession and bigger deficits - would eventuate.
The IMF says advanced economies will suffer "deep recessions" this year, and forecasts growth in the US, Europe and Japan will be slower than it had predicted.
The Government will take political comfort from the IMF's view that recovery depends on further policy actions along the lines of those already taken in Australia, including measures to buttress the banks and stimulate the economy with packages equivalent to 2pc of GDP.
"Turning around global growth will depend critically on more concerted policy actions to stabilise financial conditions as well as sustained strong policy support to bolster demand," it says.
"However, in the event of further delays in implementing comprehensive policies to stabilise financial conditions, the recession will be deeper and more prolonged."
Mr Rudd was blunt when he cited Wednesday's World Bank report, which downgraded its growth forecast for China this year from 8pc to 6.5pc.
"There are very large numbers with a global significance," he told Parliament. "China is Australia's largest trading partner."
The Opposition stepped up its criticism of the Government's handling of the economy.
"Every step you have taken has made things worse," said the Opposition Leader, Malcolm Turnbull. "Your incompetence is a disgrace."
He likened the Australian Business Investment Partnership, or so-called Ruddbank - designed to plug funding gaps in commercial property - to a return to the Labor state bank fiascos of the 1980s that exposed taxpayers to failed commercial property ventures.
"Talk about a dog returning to its own vomit," Mr Turnbull said.
Mr Rudd said the IMF figures would expose his opponent as existing "in a universe completely disconnected with what is actually going on in the global economy and its roll-on consequences for Australians, their jobs, their families and their communities".
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