MercoPress. South Atlantic News Agency

IMF cuts global growth estimates; calls for clear political leadership to restore confidence

Downward risks “depend whether decisive political steps are taken in the Euro zone and the US to stabilise confidence”

The IMF has cut its global growth forecasts for this year and 2013 and called on politicians in the Euro-zone and the US to take “decisive” steps to restore confidence, a German newspaper said Friday.

Citing excerpts from the IMF' World Economic Outlook to be released early next week, the Handelsblatt business daily said that the Washington-based body predicted world economic growth of 3.3% in 2012 and 3.6% in 2013.

 

In July, the IMF issued forecasts of 3.5% and 3.9%, respectively.

The German-language paper quoted the report as saying that the “further cooling of growth in the world economy this year and next goes along with a clear increase in downward risks.”

The forecast depends in particular on “whether decisive political steps are taken in the Euro zone and the US to stabilise confidence,” the paper quoted the report as saying.

The IMF forecasts a shrinking of the Euro zone economy of 0.4% this year and a small positive growth of 0.2% in 2013. The IMF cut its forecast for China to 8.2%, for India to 6% and for Brazil to 4%, according to Handelsblatt.

The IMF also saw a “further drop in inflation” given the sluggish global economic output and recommended additional cuts in interest rates to stimulate activity.

Three leading European economic institutes have estimated meanwhile that the Euro zone economy will remain in recession until the end of this year.

The French institute INSEE and its German and Italian counterparts IFO and ISTAT forecast a contraction in business activity of 0.2% in the third quarter, they said in a joint statement. That is the same rate of decline as in the second quarter of the year.

A further contraction of 0.1% in the last three months would be followed by zero growth in the first quarter of 2013, the institutes said. Euro zone domestic demand is being undermined by economic uncertainty and the impact of budget consolidation across the 17-nation bloc, the three institutes underlined.