IMF Predictions Dire: ChanPark Report

FOR IMMEDIATE RELEASE
(Free-Press-Release.com) September 27, 2011 --

The International Monetary Fund warned on Tuesday that Europe's debt woes and a painfully slow recovery in the United States could undermine global growth, and it warned that without action those economies could tip back into recession. The IMF said financial volatility has increased dramatically as investors worried about an escalating debt crisis in the euro zone and a weakening U.S. recovery. In its World Economic Outlook bi-annual report, it predicts that global GDP will expand pace of 1.5% in 2011, and reduces its estimate of economic growth in 2012 from 2.3% to 1.6%. It believes global growth will shrink to 4% in 2012 from 5% in 2010 on factors such as "major financial turbulence in the eurozone". IMF chief Christine Lagarde last week urged global policy makers to find “collective resolve” as investors worry Greece may default and European banks will be forced to take losses on bonds sold by the region’s most indebted countries. Under an alternative to its growth scenario, the institution predicts the U.S. and Europe could fall back into recession. The forecasts are based on a “modest pickup of activity” in advanced economies and of “robust growth” in emerging counterparts on the premise that European policy makers implement the measures to reinforce their bailout mechanism agreed on in July.

In its Global Financial Stability Report, the IMF said it seeks to "approximate the increase in sovereign credit risk experienced by banks over the past two years." The report said political differences among European policymakers on providing support for crisis-hit countries in the euro zone periphery slowed Europe's crisis response and rattled confidence. It also said there were growing doubts that political leaders in the United States could agree on ways to lower U.S. budget deficits over the medium-term, which it called critical for global financial stability because of the status of the U.S. dollar as a reserve currency. The report cites the Japanese tsunami and the rise in oil prices prompted by the unrest in north Africa and the Middle East as two of a "barrage" of shocks to hit the international economy in 2011. It said it now expected the global economy to expand by 4% in both 2011 and 2012, cuts of 0.3 points and 0.5 points since it last published forecasts three months ago. Strong performance of the leading emerging nations is expected to be the main driving force behind growth in the world economy of 4% in 2012, 0.5 points lower than it had been anticipating three months ago. China's growth rate is forecast to ease back slightly, from 9.5% in 2011 to 9% in 2012, while India is predicted to expand by 7.5% in 2012 after 7.8% growth in 2011.

The IMF's message to European leaders was they should do whatever it takes to preserve confidence in national policies and the euro, and it urged the European Central Bank to lower interest rates if risks to growth persisted. The euro-zone debt crisis is now preoccupying policy makers worldwide, with the US in particular pushing for more dramatic action. Investors have questioned Europe's ability to come up with a convincing solution to its festering sovereign debt crisis, which has rattled confidence and roiled financial markets.

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