The International Monetary Fund says the global recovery has stalled and the risk of things getting worse has intensified.
The Fund blames the problems of the eurozone for pulling down the prospects for global growth and says risks to financial stability have increased, despite various steps to contain the eurozone debt crisis and banking problems.
It urged EU states to increase the size of the bailout fund by boosting the resources available to it and by incorporating it into the existing EFSF facility, which it says is insufficient, even with additional leverage.
The IMF forecasts global growth of 3.25% this year, slower than the 4% pace it projected in September.
It says a series of measures are urgently needed to deal with the eurozone banking and sovereign debt problems, including a central bank guarantee scheme, a facility that could buy stakes in troubled banks and top level co-ordination to stop a disorderly sell off of bank assets.
The IMF warns against steep budget cuts, which it says will slow growth further and undermine market confidence. The global lending organization's message runs counter to the push for budget cuts advocated by German Chancellor Angela Merkel.
It says the eurozone will go into a mild recession in 2012 because of the rise in sovereign borrowing costs, the effects of bank deleveraging and the impact of additional fiscal consolidation.
It also says the ECB should cut interest rates, and even be prepared to engage in quantitative easing, to support growth, as long as unemployment is high and inflation low.
In particular, it says targeted programmes to boost lending to households and companies in countries where monetary transmission is impaired, such as in Ireland, would be useful.
IMF Managing Director Christine Lagarde said yesterday that the world economy faced the risk of a painful recession this year and called on policymakers to avoid the stalemates that prevented Europe and the US from resolving difficult budget and economic problems last year.
"It is not about saving any one country or any one region," she said. "It is about saving the world from a downward economic spiral."
- Keywords:
- imf,
- christine lagarde,
- germany,
- ireland,
- eurozone
