IMF alerts on world economy

IMF boss Christine Lagarde.

IMF alerts on world economy

The world's economy is "deeply into the danger zone" because of risks from the eurozone, the International Monetary Fund (IMF) has said.

The IMF predicts the global economy will grow by 3.25% in 2012, down from an earlier forecast of 4%.
The growth forecast for the UK economy has been cut to 0.6% from 1.6%.

But the eurozone is set for a "mild recession" in 2012, with GDP expected to shrink by 0.5%, compared with a previous forecast of 1.1% growth.

he IMF's economists says that growth prospects dimmed and risks sharply escalated at the end of last year.

They are now predicting a recession in the Eurozone, quite a pronounced one in the case of Italy and Spain.

The IMF expects some impact on the rest of the world, but the adverse effects will be strongest in central and eastern Europe, where there are strong trade and financial links with the Eurozone.

The report calls for decisive action by governments. It says most rich countries are now doing enough to strengthen their government finances, although it says that the United States and Japan do need credible plans.

But it also calls for some countries to think again about how fast they are cutting. It doesn't name countries, but it does look like the IMF is suggesting that Germany is trying to curb government borrowing too quickly.

Emerging markets, such as central and eastern Europe and Asia, could also be hit by the eurozone crisis.
The IMF said: "While these markets have been quite resilient to shocks and developments in major economies in the past year, recent indicators have weakened significantly and the general business climate has deteriorated."

The IMF said Europe's most pressing challenge was to restore confidence and put an end to the crisis in the euro area.

It added that world economies needed "decisive and consistent policy action" to improve the current financial environment.

"There are three requirements for a more resilient recovery: sustained but gradual adjustment, ample liquidity and easy monetary policy, mainly in advanced economies, and restored confidence in policymakers' ability to act."

BBC/Ugo