Belfast Telegraph

UK growth forecasts cut as IMF warns of euro risk

By Jamie Grierson

The International Monetary Fund (IMF) has slashed its growth forecasts for the UK, but the country is still expected to outperform its struggling eurozone neighbours.

Britain is expected to grow at just 0.6% this year, down from previous forecasts of 1.6%, and grow 2% in 2013, down from 2.4%, the IMF said, as "intensifying strains" in the euro area drag on the rest of the world.

The IMF warned that global output will expand at 3.25% this year, a downward revision from 4%, as the likes of Italy and Spain see their economies shrink and pull the rest of the single-currency bloc into recession.

The UK economy will come under increased focus today when GDP figures for the fourth quarter of 2011 are published.

The IMF said the greatest challenge was putting "an end to the crisis in the euro area by supporting growth" while restoring public finance balance sheets.

The UK is still expected to outperform Germany and France in 2012, which are expected to grow by 0.3% and 0.2% respectively, but will fall behind the US and Japan, which are expected to grow 1.8% and 1.7% apiece.

The significant downward revision to forecasts in the euro comes as the cost of financing sovereign debt surges and eurozone governments try to clamp down on spending, the IMF said.

The biggest risk to the economic outlook is the impact the eurozone crisis will have on bank funding and the downward spiral or "feedback loop" effect that can have.

Elsewhere, austerity measures in Japan and the US pose a threat to the global outlook in the medium term, the IMF said.

Meanwhile, in a separate report, the IMF said risks to financial stability have increased, despite steps taken by European policymakers to address the issues.

The organisation said further action was needed to restore market confidence, which will require larger "backstops" for countries' financing and a sufficient flow of credit to the economy.

3.25%

The IMF forecast for global growth in 2012, revised down from 4%

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