IMF cuts growth forecast over debt worries
The International Monetary Fund has slashed its global growth forecast for this year and exhorted the European Central Bank to boost liquidity to stave off a deeper eurozone crisis.
"The global recovery is threatened by the growing tensions in the euro area," the IMF said Global GDP growth is to be cut from 4% to 3.3%, with drastic revisions for an arc of countries in southern Europe.
Britain will muddle through with growth of 0.6%, marginally below the 0.7% forecast of the Office for Budget Responsibility. It will rebound to 2% next year.
The US and China will remain the two main growth blocs in the world economy. The IMF predicts the US will grow at an unchanged rate of 1.8%, and China will motor ahead at 8.2%, down from 9%.
Italy's economy is expected to contract by 2.2% and Spain's by 1.7% as fiscal austerity measures bite harder and banks curtail lending.
The eurozone as a whole will shrink by 0.5%, down from growth of 1.1% in the IMF's last forecast in September.
The new figures are an admission that the IMF has been caught off guard by fast-moving events. It appears to misjudged the gravity of the crisis in southern Europe.
"The most immediate political challenge is to re-establish confidence and put an end to the euro area crisis, supporting growth," the IMF has stated.
The IMF encouraged the ECB to continue moving to a "more accommodative monetary policy" as European banks shrink their balance sheets to meet tougher capital ratios by June. The ECB said there is no sign yet of a "sizeable curtailment of credit".