IMF: New global recession risk increases

Oct. 9, 2012 at 12:25 PM
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TOKYO, Oct. 9 (UPI) -- The world risks a new recession before fully pulling out of the last one, the International Monetary Fund warned Tuesday, forecasting 2.2 percent U.S. growth.

"Risks for a serious global slowdown are alarmingly high," said the IMF's World Economic Outlook report, released in Tokyo ahead of the fund's annual fall meeting.

The chance of global growth falling below 2 percent in 2013 was now 17 percent, up from about 4 percent in April, the report said. This would likely mean advanced economies would suffer a recession and developing economies would be in "a serious slowdown," the Washington-based organization said.

The global economy grew 3.8 percent in 2011 and 5.1 percent in 2010.

At the IMF meeting, officials from the fund's 188 member countries are widely expected to press the United States and Europe to speed up their recovery efforts amid the downturn threat.

"Many market participants have a bimodal view of global prospects -- the recovery could be set back if European and U.S. policymakers fail to live up to expectations, but it could also be stronger if they deliver on their commitments," the report said.

The U.S. "fiscal cliff" threatens to plunge the world's No. 1 economy into recession, the IMF warned, referring to painful tax rises and spending cuts that will automatically begin Jan. 2 unless the newly elected president and Congress can quickly agree to a compromise.

Assuming politicians avoid the cliff, the U.S. economy is expected to grow 2.75 percent next year after this year's average 2.2 percent growth, the IMF said. This year's growth is 0.1 percentage point higher than the IMF earlier estimated.

"U.S. authorities must now urgently deal with the debt ceiling and the fiscal cliff," the report said.

The eurozone economy is projected to contract 0.4 percent this year and grow 0.2 percent next year.

The fund called on eurozone governments to support the European Central Bank's plan to buy sovereign debt by committing to economic reform and closer integration.

The report noted it didn't have a simple unified message for averting another global downturn. Unlike 2009, when it pressed for aggressive fiscal stimulus to limit the recession, its advice now is more complex, it said.

It encouraged some overextended nations to cut their budgets, others to engage in politically thorny economic overhauls and still others -- including Germany and the Netherlands, which have surplus economies -- to increase inflation rates to about 3 percent or 4 percent from the current 2 percent to help make struggling eurozone countries more competitive.

Growth in Japan is expected to decelerate from 2.2 percent this year to 1.2 percent in 2013 as post-earthquake construction slows, the report said.

China is expected to grow 8.2 percent, up from 7.8 percent this year, while sub-Saharan African growth -- except for South Africa, hampered by strong links with Europe -- is expected to remain above 5 percent this year and next, the report said.

Brazil is forecast to pick up in 2013 to 4 percent from this year's 1.5 percent.

In general, emerging economies are expected to fare better than developed nations.

"Fundamentals remain strong in many economies that have not suffered a financial crisis, notably in many emerging market and developing economies. In these economies, high employment growth and solid consumption should continue to propel demand and, together with macroeconomic policy easing, support healthy investment and growth," the report said.

On the other hand, growth rates are expected to be slower than previously forecast.

In developing Asia, economic growth adjusted for inflation is expected to average 6.7 percent in 2012 and to even pick up speed in the second half of the year to 7.25 percent growth.

China's infrastructure spending will be a clear influence in the region, the IMF said.

The Middle East and North Africa, meanwhile, have the aftermath of the Arab Spring to has yet to run its course.

Real GDP is expected to slow to 1.25 percent in the region in 2012 with a moderate rebound in 2013.

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