IMF Downgrades Global Economic Outlook

The International Monetary Fund has lowered its global growth outlook through next year, saying the global economy has entered a “dangerous new phase.”

The IMF released excerpts from the latest edition of its World Economic Outlook on Tuesday ahead of its fall meeting set to take place in Washington, D.C., this weekend. The IMF now expects the world’s economic output to increase by 4% in both 2011 and 2012, compared to 5.1% growth in 2010. The IMF had previously forecast growth of 4.3% for this year back in June.

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The IMF’s report also includes a large downgrade in its outlook for U.S. economic growth, reducing June’s projections of 2.5% growth for the year to just 1.5%, while lowering its 2012 economic outlook from 2.7% to 1.8%.

The IMF expects the global economy to continue to grow, but warns that there are a number of risks that could send the United States and Europe back into recession. “The advanced countries in particular are facing an anemic and bumpy recovery, with unacceptably high unemployment,” said IMF managing director Christine Lagarde in a speech last week in which she urged global leaders to take “collective, bold action” to prevent their economies from stalling.

In its report, the IMF is calling on European Union policymakers to implement the measures proposed in July to contain the euro-zone debt crisis, meanwhile urging the U.S. not to harm its own economic recovery with excessive cuts to public spending.

While certain austerity measures are required of euro-zone countries receiving bailout funds, “There is a serious risk that hasty fiscal cutbacks will further weaken the outlook without providing the long-term reforms required to reduce debt to more sustainable levels,” said the IMF in its report, also warning that, “Deep political divisions leave the course of U.S. policy highly uncertain.”

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Meanwhile, the the developing world, the rapid expansion continues, with the IMF expecting economic growth to remain robust. China, the world’s second-largest economy, is forecast to grow at an astonishing 9.0% rate this year, and that’s after the IMF lowered its outlook from 9.5%, citing declining foreign demand and roadblocks posed by government policies intended to stabilize the economy.