IMF: Beware This Ominous Warning

The International Monetary Fund has cut its global economic growth forecasts and warned that U.S. and European policymakers need to address continuing challenges quickly. The slowdown in the global economy will persist unless several short-term economic challenges were addressed, the IMF said in its World Economic Outlook report.

“A key issue is whether the global economy is just hitting another bout of turbulence in what was always expected to be a slow and bumpy recovery or whether the slowdown has a more lasting component,” the global body wrote. “The answer depends on whether European and U.S. policy makers deal proactively with their major short-term economic challenges.”

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The IMF cut forecasts for both the current year and the coming one based on current crisis conditions in Europe, the sluggish economic growth in the U.S., and the weakening demand in emerging markets. It now expects the world economy to grow 3.3 percent this year, down from the 3.5 percent growth it predicted in July and the slowest since the 2009 recession. Growth in 2013 is now predicted at 3.6 percent, down from an earlier estimate of 3.9 percent.

Forecasts were lowered significantly for both Brazil and India this year, though emerging markets as a whole are expected to grow at 5.3 percent. Brazil saw the biggest cut, with growth seen at 1.5 percent this year from an earlier prediction of 2.5 percent. India is expected to grow 4.9 percent this year, lower than the previous forecast of 6.2 percent. U.S. will be among the fastest growing developed markets at 2.2 percent growth, while Europe is expected to contract 0.4 percent, 0.1 percentage point worse than forecast in July.

However, even those forecasts come with the expectation that European policymakers will work on creating a more integrated monetary union and policymakers in the U.S. will find an alternative to planned automatic tax increases and spending cuts. Unless both conditions were met, “global activity could deteriorate very sharply,” the IMF warned. “Confidence in the global financial system remains exceptionally fragile.”

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