Thu, Sep 22, 2011 page10

• Global economy in dangerous phase: IMF

  • AFP, Washington
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  The global economy has entered “a dangerous new phase,” with a recovery that is much weaker than was predicted just months ago, the IMF warned on Tuesday.

  Cautioning that Western economies could very well fall back into recession — with serious knock-on effects for the rest of the globe — the IMF cut its growth forecasts for the global economy to 4 percent for this year and next year.

  “The global economy has entered a dangerous new phase. The recovery has weakened considerably and downside risks have increased sharply,” IMF chief economist Olivier Blanchard said at a press conference. “Strong policies are needed both to improve the outlook and to reduce the risks.”

  

  IMF chief economist Olivier Blanchard, left, and research department senior advisor Jorg Decressin present the World Economic Outlook at IMF headquarters in Washington on Tuesday.

  Photo: EPA

  In its twice-yearly World Economic Outlook report, the IMF predicted growth would be patchy across the developed and developing world.

  The global economy, which rebounded last year following the recession in 2008 and 2009, has been dragged down by persistent debt and deficit problems in advanced economies, particularly the US and the eurozone, it said.

  Emerging market economies that have been the recovery’s driving force, such as China and India, will not escape unscathed from the weakness in the advanced economies, the Washington-based lender said.

  “Many emerging economies need to make faster progress in strengthening fiscal fundamentals before cyclical factors or spillovers from advanced economies ... turn against them,” it said in an accompanying analysis.

  “Anemic” consumption in advanced economies and spiking financial volatility over worries about US and eurozone public debt have put the brakes on growth, originally forecast at 0.5 percentage points higher for this year.

  The slowdown in advanced economies was “a development we largely failed to perceive as it was happening,” Blanchard said.

  Fiscal and financial uncertainty gathered steam last month, roiling financial markets as investors watched political gridlock in Washington over US debt and deficits and the spreading Greek debt crisis in the eurozone.

  “Markets have clearly become more skeptical about the ability of many countries to stabilize their public debt,” Blanchard said.

  The US, the world’s largest economy, suffered the most notable downgrade — about a percentage point — with GDP growth estimated at 1.5 percent this year and 1.8 percent next year.

  For the 17-nation eurozone, GDP growth was projected to slow by about half a point to 1.1 percent next year.

  Japan’s economy is rebounding from the March earthquake-tsunami disaster, the IMF said, and is expected to contract 0.5 percent this year, less than previously estimated, before clocking in 2.3 percent growth next year.

  For emerging and developing economies, the IMF said that capacity constraints, policy tightening and slowing foreign demand would result in slightly slower growth of 6.1 percent next year. China will continue to lead with a 9 percent expansion next year.

  The IMF cautioned that its growth projections “assume that policymakers keep their commitments and the financial turmoil does not run beyond their control, allowing confidence to return as conditions stabilize.”

  If they fail to do that, “the major advanced economies could fall back into recession,” it said. “Vulnerable sovereigns are prone to a sudden loss of investor confidence in their debt sustainability if fundamentals deteriorate sharply.”
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