IMF tells US and Europe to up game or face recession
'Concrete measures' needed to beat crises
The International Monetary Fund (IMF) has warned politicians that the eurozone and US could slip back into recession if they don't take more concrete action to deal with debt crises engulfing both regions.
Cutting interest rates would also help, it said.
The Washington-based organisation yesterday predicted 4pc global growth for this year and for 2012, but said the eurozone and the US would both hugely undershoot this figure, with China racing ahead with 9pc growth. Ireland will grow next year by 1.5pc in GDP terms, the IMF said.
In an unusually frank remark, the IMF's chief economist Olivier Blanchard said that the EU needed to get "its act together".
The organisation also repeated its view that Europe needs to start a fresh round of capitalising for its banks.
The US is forecast to grow by 1.8pc next year, while the eurozone will expand by 1.1pc, but several risks are attached to these forecasts, the organisation makes clear.
"The first is that the crisis in the euro area runs beyond the control of policymakers,'' the IMF stated.
It said politicians needed to swiftly ratify all these measures, allowing the European Central Bank (ECB) to intervene in the sovereign debt markets in the meantime.
"Leaders must stand by their commitments to do whatever it takes to preserve trust in national policies and the euro,'' it said.
It also suggested the ECB cut rates. "Furthermore, given declining inflation pressure and heightened financial and sovereign tensions, the ECB should lower its policy rate if downside risks to growth and inflation persist,'' stated the IMF report.
How the US resolves its political difficulties will be key, it said.
"Activity in the United States, already softening, might suffer further blows -- for example, from a political impasse over fiscal consolidation, a weak housing market, rapid increases in household saving rates, or deteriorating financial conditions."
The further creation of money through quantative easing by the US Federal Reserve should not be ruled out, it stated.
"Given growing downside risks to US activity, the Federal Reserve should stand ready to deploy more unconventional support," it made clear.
"Risks related to commodity prices and social and political unrest in some parts of the world continue to loom large," it added.
The global economy is facing two new worrying trends, said the IMF.
"The first is a much slower recovery in advanced economies since the beginning of the year, a development we largely failed to perceive as it was happening.
"The second is a large increase in fiscal and financial uncertainty, which has been particularly pronounced since August," the report stated.
The global economy needs to re-balance itself, it added.
"What is needed is a shift from fiscal stimulus to private demand," it said.
Cuts in the public sector are happening, but the private sector is not picking up the slack, it said.