Global economy in danger zone

Tue, January 24, 2012 - 1:12 PM

The world's economy is "deeply into the danger zone" because of risks from the eurozone, the International Monetary Fund (IMF) has said.

The IMF predicts the global economy will grow by 3.25 per cent in 2012, down from an earlier forecast of 4 per cent.

The growth forecast for the UK economy has been cut to 0.6 per cent from 1.6 per cent.

But the eurozone is set for a "mild recession" in 2012, with GDP expected to shrink by 0.5 per cent, compared with a previous forecast of 1.1 per cent growth.

Shadow chancellor Ed Balls called for the government to rethink its austerity plan in the light of the IMF estimates.

"Last year the IMF was clear that if growth undershot expectations then the British government should reconsider the pace of spending cuts and tax rises which choked off our recovery well before the recent eurozone crisis, pushed up unemployment and has seen borrowing forecasts soar," said Balls.

"Now the IMF has slashed their growth forecasts and confirmed that growth in Britain will indeed be much lower than they expected. And they have called on countries with low interest rates, like the UK, to reconsider the speed of their spending cuts and tax rises."

In response, the government said the IMF predictions matched those made by the independent Office of Budgetary Responsibility, which informs government economic policy.

"The IMF has downgraded its growth forecasts for all the major economies, reflecting the deterioration in the global outlook since their last forecasts in September," said a Treasury spokesperson.

"Their expectations for UK growth are in line with those of the Office of Budgetary Responsibility, and stronger than for the other major European economies."

Growth estimates have been reduced for the main eurozone countries, including Germany, which is widely seen as the powerhouse of the region.

Germany is forecast to grow 0.3 per cent in 2012, down from the 1.3 per cent originally predicted in September.

France is expected to show 0.2 per cent growth in 2012, down from 1.4 per cent.

However, the IMF stands by its 1.8 per cent growth prediction for the US, based on recent strong domestic data on jobs and manufacturing. (BBC)