Belfast Telegraph

IMF cuts growth forecast over debt worries

By Ambrose Evans-Pritchard and Louise Armitstead

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".