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Euro Crisis in 'Perilous New Phase': IMF

Tuesday, 24 Jan 2012 | 10:00 AM ET

The International Monetary Fund on Tuesday lowered its forecasts for global growth, saying it sees global activity decelerating but not collapsing, with most advanced economies falling back into recession and developing economies slowing from a high pace of growth.

It its January 2012 World Economic Outlook report, the IMF said growth prospects had dimmed since September 2011 — when its previous update was published — and downside risks had escalated “as the euro crisis entered a perilous new phase”.

It cut its forecast for 2012 global growth by 0.7 percent to 3.3 percent.

“This is largely because the euro area economy is now expected to go into a mild recession in 2012 as a result of the rise in sovereign yields, the effects of bank deleveraging on the real economy, and the impact of additional fiscal consolidation,” the report said.

The IMF said positive developments in the third quarter of 2011, including a stronger-than-expected bounce back from the supply chain disruptions caused by the March tsunami in Japan, were not expected to sustain significant momentum.

“Lately, the near-term outlook had noticeably deteriorated,” the report said.

The IMF now expects growth in the euro zone to contract by 0.5 percent, a downward revision of 1.6 percentage points since September.

Growth in the United States is seen at 1.8 percent for 2012. Meanwhile emerging and developing economies are expected to see growth slow to 5.4 percent in 2012.

IMF Cuts Global Growth Forecasts
The factors that are pointing to a deceleration in global growth, with Olivier Blanchard, IMF economic counselor/director of research.

“The adverse effects (of the euro crisis) are expected to be largest for central and eastern Europe, given the region’s strong trade and financial linkages with the euro area economies.

The impact on other regions is expected to be relatively mild, as macroeconomic policy easing is expected to largely offset the effects of slowing demand from advanced economies,” the report said.

The IMF also noted that geopolitical risks to oil prices had risen again, and said these were expected to remain elevated for some time.

“Oil prices will ease only marginally in 2012 despite less favourable prospects for global activity,” the IMF said in the report.

It expects oil prices for 2012 to $99 a barrel.

Contact Europe: Economy

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