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IMF cuts global economic forecasts

By GILLIAN WHITE, MEDILL NEWS SERVICE, Written for UPI   |   Oct. 9, 2012 at 3:04 PM   |   Comments

WASHINGTON, Oct. 9 (UPI) -- The International Monetary Fund's decision to cut global growth forecasts for 2012 and 2013 came as no surprised to experts in the economic community who say that without strong fiscal policies to address increasing debt, some countries may be on the path to another recession.

The IMF's latest World Economic Outlook report, released Tuesday, lowered estimates for global growth to 3.3 percent in 2012 and 3.6 percent in 2013, from previous estimates of 3.5 percent and 3.9 percent. The report cited the debt crises in the eurozone and uncertainty over the "fiscal cliff" in the United States as drivers of the reduced forecast.

"In cutting the forecast the IMF is taking into account these developments in Europe and the likelihood that the U.S. can't continue to act as a motor. It's providing a signal that the times are going to be difficult," said Alan Gelb, a senior fellow at the Center for Global Development, a non-profit think tank.

Along with the reduction of global growth forecasts came more bad news from the IMF, a warning that the chance of a global recession in developed nations has increased to about 17 percent for 2013.

The combination of expansive fiscal policy and slow economic growth has put some countries in a precarious position with mounting debt and concrete resolutions to stabilize their financial position yet to be reached.

The impending "fiscal cliff" in the United States is one such example, with more than $500 billion in tax hikes and sharp budget cuts set to kick in at the start of 2013 if Congress fails to enact new fiscal legislation.

Gelb and Chad Stone, chief economist at the Center on Budget and Policy Priorities, another non-profit, both said the actual fiscal cliff deadline is less concerning than the lack of long-term planning surrounding the deficit.

"If we go over the cliff it doesn't mean that we won't put policies in place for the whole year," said Stone, adding that tax breaks and other policy tools can still be implemented after the January deadline.

"The problem in the U.S. starts not so much with immediate fiscal cliff but with the credibility to deal with the longer-term problem," Gelb said.

Despite what can be seen as a major warning from the IMF, experts say that it's unlikely any decisive action regarding the fiscal cliff will be taken in the near term.

"I think you'd have to have much more turmoil than you're seeing right now for U.S. policymakers to really come to an agreement about what should be done," Stone said.

© 2012 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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