IMF slashes global forecast, with drastic falls in Italy and Spain

Thursday, January 19, 2012
By Paul Martin

The International Monetary Fund has slashed its global growth forecast for this year and exhorted the European Central Bank to boost liquidity to stave off a deeper eurozone crisis.

By Ambrose Evans-Pritchard and Louise Armitstead
19 Jan 2012

“The global recovery is threatened by the growing tensions in the euro area,” the Fund said, according to a leaked draft of its World Economic Outlook which is due to be published next week.

Global GDP growth is to be cut from 4pc to 3.3pc, with drastic revisions for an arc of countries in Southern Europe.

Italy’s economy will contract by 2.2pc and Spain’s by 1.7pc as fiscal austerity measures bite harder and banks curtail lending, playing havoc with debt dynamics.

The eurozone as a whole will shrink by 0.5pc, down from growth of 1.1pc in the Fund’s last forecast in September, an even grimmer outlook for the region than growth revisions released by the World Bank earlier this week.

The new figures are an admission that the IMF has been caught badly off guard by fast-moving events. It appears to misjudged the gravity of the crisis in Southern Europe. The new forecasts explain why the Fund is requesting a $600bn (£388bn) boost to its firepower.

The Rest…HERE

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