WASHINGTON (Reuters) – Next year Europe and the United States may plunge into recession unless addressed quickly to economic problems that could contaminate the rest of the world, said the International Monetary Fund publishing its growth forecast revised downward on Tuesday.
The IMF lowered its forecast for global growth to 4.0% this year and in 2012, against 4.3% for 2011 and 4.5% for 2012 projected three months ago. The fund lowered its forecast for almost all regions of the world and warned that the trend was to reduce further.
According to the IMF, financial instability has increased dramatically, as investors increasingly anxious about the evolution of the crisis of sovereign debt in the euro area and the weakening of growth in the United States.
These two areas pose the biggest risks to the global economic outlook and political confrontations may hamper efforts to remedy the situation, said the IMF, which also calls for Japan to be more ambitious in terms of reducing public debt .
“The uncertainty has exacerbated the uncertainty and added to financial stress, which has affected the real economy,” said the IMF in its latest World Economic Outlook.
The IMF urged the European Central Bank (ECB) to lower interest rates if the risks to growth persist, and calls on countries in the euro area to do whatever is necessary to protect the euro.
The fund reduced its growth forecast for the euro area by almost a half-point to 1.6% in 2011, growth would be only 1.1% in 2012.
The IMF also notes that the early cuts in the budget of the United States may weaken a little more growth and again recommends that the U.S. central bank, the Federal Reserve, to stand ready to further relax its monetary policy .
The IMF lowered its growth forecast for the United States in 2011 to 1.5% and 1.8% in 2012 against 2.5% and 2.7% respectively, projected in June.
For Japan, it expects a contraction of 0.5% this year, not as great as what was previously anticipated, and a 2.3% growth in 2012. He foresaw a growth of 2.9% in June next year.
Tthe economies of the United States, Japan and the eurozone would grow by 1.6% this year and 1.9% in 2012. In June, it provided 2.2% and 2.6% respectively.
The IMF also notes that the outlook for some emerging economies have become more uncertain, but with a strong overall growth projected at 6.4% this year and to 6.1% next year.
It should also be closely monitored for signs of overheating in the emerging economies and in some of these countries, higher commodity prices and social unrest and political threats are significant, says the Fund.
Consequence of the global economic slowdown, the IMF also cut its growth projections for China and other Asian economies. “The growth (Asian) is still strong but it is tempered because of tensions began to appear on the capacity and declining external demand,” said the IMF.
It expects China to grow by 9.5% in 2011 and 9.0% in 2012. It provided 9.6% in June and 9.5% respectively.
The IMF notes that the last inflation, excluding volatile or general, was recently extended to increase in several countries. Inflationary pressures remain relatively high in the rising economic powers but lose intensity in the traditional economic powers.