IMF Slashes Its Global Economic Growth Forecast

Posted January 24th, 2012 at 12:05 pm (UTC-5)
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The International Monetary Fund has slashed its 2012 global economic forecast, saying Europe’s debt crisis threatens to plunge the world economy into a recession.

Just three months ago, the IMF projected a 4 percent advance in global growth for the year, but on Tuesday cut that to 3.3 percent. It forecast growth strengthening to 3.9 percent in 2013.

The Washington-based agency said that the “near-term outlook has noticeably deteriorated.”

It said the main threat to world economic fortunes is Europe’s unresolved two-year governmental debt crisis. The IMF predicted the eurozone economy would shrink one-half of a percentage point this year, down from a September projection of 1.1 percent expansion.

But the IMF’s chief economist, Olivier Blanchard, said that if Europe’s financial woes worsen, “the world could be plunged into another recession.”

The IMF estimated China’s growth at 8.2 percent this year, down from an earlier 9 percent prediction. The agency cut its estimate for India by half a percentage point to 7 percent, and dropped Japan from 2.3 to 1.7 percent. It said growth in the Middle East and North Africa would advance, especially since Libya’s nine-month civil war has ended.

The IMF maintained its 1.8 percent growth forecast for the United States, the world’s largest economy. But the IMF said that the U.S. and other advanced economies would likely not escape damage if the European crisis intensifies, such as if Greece were to default on its international financial obligations.

Europeans leaders have made a variety of attempts to contain the deficit spending of individual governments throughout the 17-nation bloc that uses the common euro currency. But Greece, Ireland and Portugal have already been forced to secure international bailouts, and now Greece is trying to negotiate terms of another aid package, its second in two years.

The European Union is drafting new rules to tighten controls over spending throughout the continent. But financial analysts are worried that Italy and Spain, with the eurozone’s third and fourth largest economies, could also need outside aid that could prove to be big for the continent to handle.