IMF seen forecasting 5 percent trade drop before G20

By Jonathan Lynn

GENEVA (Reuters) - The International Monetary Fund will forecast a contraction in world trade this year of five percent or more in the run-up to the April 2 G20 summit of rich and emerging nations, a senior trade source said on Monday.

And even that figure -- much steeper than the IMF's previous forecast less than two months ago -- is likely to turn out to be far too conservative, as trading powers continue to announce double-digit declines in exports, the source said.

The steep fall in trade -- the first contraction since 1982 -- is not just a reflection of the recession but shows how the economic interdependence known as globalization is unravelling under the impact of the financial crisis that burst last year.

The IMF is likely to present a new economic forecast on March 25 or 26, and this will show trade contracting this year by five percent or more, said the source, who asked not to be identified.

"This is just an indication we've had from them," said the source.

In its previous forecast at the end of January, the IMF forecast a 2.8 percent decline in world trade.

In Washington the IMF declined to comment. The next official update to its World Economic Outlook is due in late April, and the IMF typically provides interim updates to meetings such as the G20 or G7, but does not necessarily publish them.

Several countries have reported sharp falls in exports, the latest being Taiwan, which announced on Monday a 28.6 percent drop in exports in February after January's record fall of more than 40 percent, and Chile, unveiling a 42 percent export drop.

The new IMF forecast will be studied closely by the G20 leaders, meeting in London early next month to tackle the financial and banking crisis and look at ways of boosting demand, including trade, to pull the world out of recession.

In Geneva, the World Trade Organization (WTO) has not yet issued a forecast for this year. WTO Director-General Pascal Lamy cited a 3 percent decline, in line with the last IMF forecast, in Australia and New Zealand last week.

The WTO too plans to issue a forecast in time for the G20 meeting, on March 31, a WTO official said.

The WTO estimates that trade grew by 4 percent in 2008.

Trade typically expands faster than overall output when the world economy is growing. But in the same way the trade contraction can be much greater than the overall decline in the world economy in a recession.

(Editing by Dominic Evans)