IMF cuts global growth forecast and warns on eurozone outlook
THE International Monetary Fund on Monday cut its global growth forecast and warned that the outlook could dim further if policymakers in Europe do not act with enough force and speed to quell their region's debt crisis.
In a mid-year health check of the work economy, the IMF also cautioned the productive capacity in a number of emerging market economies, such as China, India and Brazil, may be lower than previously believed and future growth could disappoint.
The IMF shaved its 2013 forecast for global economic growth to 3.9pc from the 4.1pc it projected in April, trimming projections for most advanced and emerging economies.
It left its 2012 forecast unchanged at 3.5pc.
"Downside risks to this weaker global outlook continue to loom large," the IMF said in an update of its World Economic Outlook. "The most immediate risk is still that delayed or insufficient policy action will further escalate the euro area crisis."
The global lender said advanced economies would only grow 1.4pc this year and 1.9pc in 2013.
It chopped its forecast for growth in emerging economies this year and next, projecting they will expand 5.9pc in 2013 and 5.6pc in 2012.
Both figures are 0.1pc point lower than in April.
The IMF cut its growth forecast for the crisis-hit euro zone to 0.7pc in 2013, while maintaining its projection of a 0.3pc contraction this year.
It said it now believes Spain's economy will shrink both this year and next.
The IMF sharply revised down its growth projections for the United Kingdom to 0.2pc this year and to 1.4pc in 2013.
In April, the fund said the UK economy would expand 0.8pc in 2012 and 2pc next year.
The fund praised measures adopted by European leaders at a summit in June as "steps in the right direction" but called for more fiscal and banking integration. It urged the creation of a pan-European deposit insurance guarantee program and a mechanism to resolve failing banks.
"The utmost priority is to resolve the crisis in the euro zone," the IMF said.
It urged the ECB to provide ample liquidity to support banks under "sufficiently lenient conditions" and nudged the central bank to further ease monetary policy.
It made clear, however, that Europe was not the only risk to the outlook.
The IMF, which trimmed its U.S. forecasts slightly, said concerns were rising over a political battle brewing in Washington over how to avoid painful automatic spending cuts and tax increases at the start of next year.
The United States faces what economists are calling a "fiscal cliff" with the scheduled expiration of Bush-era tax cuts and $1.2 trillion in automatic spending reductions - enough fiscal tightening to knock the still-weak U.S. economy back into recession.
The nation is also expected to run into the statutory $16.4 trillion cap on its debt before the end of the year, raising the prospect of a default absent congressional action to raise it.