IMF to cut global growth forecast on Europe crisis

The International Monetary Fund, or IMF, is set to cut its forecast for global growth next month with uncertainty over whether European policymakers will keep promises to address the eurozone crisis weighing on confidence, the head of the IMF said. “We continue to project a gradual recovery, but global growth will likely be a bit weaker than we had anticipated even in July, and our forecast has trended downward over the last 12 months,” IMF Managing Director Christine Lagarde said. In July, the IMF cut its global growth projection for 2013 to 3.9 per cent but left its 2012 forecast at 3.5 per cent. Lagarde said the eurozone debt crisis posed the greatest risk to the world economy but that the US fiscal cliff also presented a “serious threat.” The uncertainty over whether officials would effectively address those main trouble spots was now affecting economies in the rest of the world, she said. Lagarde said emerging market economies were now clearly slowing and there was “great concern” in poor countries about rising food prices and volatile commodity prices. There were also signs of growing frustrations with political transitions in the Middle East, she added. She said financial markets have been buoyed by recent decisions taken in Europe to address the debt crisis and now want to see eurozone policymakers working together to implement the measures. “But we have seen positive market responses before that turned out to be short-lived,” Lagarde cautioned. “This time we need a sustained rebound, not a bounce.” Greek aid write-off Meanwhile, the IMF pushed European policy makers to consider writing off some aid to Greece, widening the fight to keep the 17-nation eurozone from splintering. “The Greek debt will have to be addressed,” Lagarde said in Washington. The IMF has indicated that additional aid for Greece will have to come from Europe, suggesting that the euro area may need to consider losses on bonds held by the European Central Bank or loans extended by governments. Greece’s financing gap won’t be solved with the budget measures being discussed because its growth prospects are too weak, Lagarde said at the Peterson Institute for International Economics in Washington. Financial system unwell Banks are getting round new rules intended to make a still vulnerable industry safer while countries are distracted by the continuing financial crisis, the IMF said on Tuesday. The IMF’s latest Global Financial Stability Report said banks will adjust to new costs from tougher regulation to curb excessive risk taking, with deep-pocketed lenders likely to consolidate market share at the expense of smaller rivals. From : Khalij