IMF: Euro crisis could derail global economy

The eurozone debt crisis is escalating and could derail the global economic recovery, the International Monetary Fund warned yesterday as it called for urgent action to restore confidence.

The IMF chopped its 2012 forecast for global growth to 3.3% from 4% just three months ago, saying the outlook had deteriorated in most regions. It projected world growth would strengthen to 3.9% in 2013.

However, it warned that growth this year would come in about 2 percentage points lower if Europe let the crisis fester.

“The world recovery, which was weak in the first place, is in danger of stalling,” IMF chief economist Olivier Blanchard said. “The world could be plunged into another recession” if the European crisis intensifies.

While the Washington-based lender said global activity was decelerating, not collapsing, it said the 17-nation eurozone would likely slip into a mild recession this year, with output contracting 0.5%.

“The most immediate policy challenge is to restore confidence and put an end to the crisis in the euro area by supporting growth while sustaining adjustment, containing deleveraging, and providing more liquidity and monetary accommodation,” the IMF said in its latest World Economic Outlook report.

The IMF maintained its 1.8% growth forecast for the US in 2012, but cut its projection for Japan to 1.7% from 2.3% in September.

It said economic activity in advanced economies would expand by 1.5% on average in 2012 and 2013, too sluggish to make a major dent in high unemployment rates.

The IMF said advanced economies would not be likely to escape unharmed if Europe’s crisis escalated further.

IMF managing director Christine Lagarde has called on Europe to bolster its rescue funds to erect a wall against financial contagion.

The fund projects growth in emerging economies to reach 5.4% in 2012, down from the 6.1% it forecast in September. It cut China’s growth figure to 8.2% for 2012, down from 9%. In Africa, the global slowdown is likely to be limited to South Africa, with the region as a whole expanding by 5.5% this year.

The IMF said global oil prices would only ease slightly in 2012 despite slowing world growth.