The International Monetary Fund is predicting a further slowdown in the global economy’s growth rate. The assessment comes in a closely-watched economic forecast in which the Fund blames the gloomy outlook on uncertainties with fiscal policies in the United States and Europe.
The Fund says there is an alarmingly high risk of a global slowdown with an 80 percent chance of recession in the Euro zone next year.
The global economy is predicted to rise 3.3 percent this year and 3.6 percent next year. In its previous forecast, three months ago, the Fund pegged growth this year at 3.5 percent and 3.9 percent in 2013.
“The new element is the uncertainty, the degree of uncertainty, about policy – both in Europe and in the United States,” said economist Olivier Blanchard, the Fund’s research director. “That’s what worries us. At the same time it is sufficiently well identified that if the measures which have been promised are delivered in the case of Europe and if the U.S. avoids a fiscal cliff one can be optimistic or relatively optimistic about the future.”
The fund recommends that after next month’s presidential and congressional elections, America will have to act quickly or economic recovery will be derailed.
At the beginning of 2013, a number of significant tax cuts expire and automatic spending cuts go into effect unless U.S. policy-makers act.
While there is strong concern about Europe, the United States and Japan, the Fund also expects an economic slowdown in China and India, two countries whose economic booms helped the world recover from the most recent recession.
The latest IMF report cautions that overall “confidence in the global financial system remains exceptionally fragile.”