Europe ‘must get its act together’, says IMF expert
The IMF said that both Europe’s debt woes and a painfully slow recovery in the US could undermine global growth, and it warned that without action those economies could tip back into recession.
The top economist at the global lender, however, singled out Europe as “a major source of worry” as he released the IMF’s latest World Economic Outlook report.
“There is a wide perception that policymakers are one step behind markets,” IMF chief economist, Olivier Blanchard, told reporters. “Europe must get its act together,” he added.
The IMF cut its 2011 and 2012 global growth forecast to 4%, slashing projections for almost every region of the world and saying risks remained tilted to the downside. Just three months ago it had projected an expansion of 4.3% for 2011 and 4.5% for 2012.
The IMF’s message to European leaders was that 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.
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.
Finance officials from around the world gather in Washington later this week for semiannual meetings of the IMF and World Bank, but they appear to have no clear road map for how to deal high debt levels and a creaky global recovery.
At the centre of Europe’s crisis stands Greece, which has vowed to shrink its public sector and improve tax collection to avoid running out of money within weeks, hoping global lenders release a fresh tranche from an emergency loan.
Senior IMF economist Jorg Decressin said that Greece’s debt problems were in fact “eminently manageable” and its government was fully committed to staying in the eurozone. He also dismissed talk of a possible eurozone break up.
“I still think it’s a crazy proposition to think about, a break up of the euro area,” he told reporters.
The fund cut its growth forecast for the 17-nation eurozone by nearly half a percentage point to 1.6% in 2011 and even weaker conditions are seen for next year with growth of just 1.1%. Currently the single currency region is scarcely growing at a 0.25% annual rate.
The IMF cautioned that hasty budget cuts in the US could further weaken growth, and it said the US Federal Reserve should stand ready to ease monetary policy further. The Fed meets on Tuesday and Wednesday.
The IMF shaved its forecasts for US growth to 1.5% for 2011 and 1.8% for 2012, down from the June projection of 2.5% and 2.7%, respectively.
The IMF also said prospects for emerging market economies were growing more uncertain, although growth would likely remain fairly strong at about 6.4% this year, slowing to 6.1% in 2012.
Signs of overheating still warranted close attention in emerging market economies, it cautioned.
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