The International Monetary Fund (IMF) has revised its outlook for the global economy and predicted that economic growth will return quicker than previously thought.
In its April 2012 “World Economic Outlook” paper the IMF says that overall the global economy is expected to grow at 3.5 per cent in 2012, down from four per cent in 2011, and by 4.1 per cent in 2013.
The IMF revised up the UK’s growth prospects from 0.6 per cent to 0.8 per cent. However, it said the UK’s financial centre had been hit hard by the financial crisis and that “growth will be weak in early 2012.”
The IMF’s prediction for UK economic growth now matches that of the Office for Budget Responsibility (OBR) who upwardly revised their forecast for 2012 last week.
The report also warned on the austerity measures being followed by the government’s economic policy could hinder growth and recommended that higher government spending, possibly funded by tax increases could provide a solution to help aid growth.
The IMF had previously forecast that the world economy would grow at 3.3 per cent in 2012. The IMF said that unemployment is likely to remain high in many advanced economies and that the risk to Europe was still high from the debt crisis in Europe.
This is despite a recently agreed second bailout for Greece, which makes a default on its debt repayments from Greece less likely and the creation of a permanent rescue fund.
The statement from the IMF said: “Although action by policymakers in Europe and elsewhere has helped to reduce vulnerabilities, risks of a renewed upsurge of the crisis in Europe continue to loom large.”
IMF Chief Economist Olivier Blanchard said: “The risk of things turning bad again in Europe is high.
“The building of the firewalls, when it is completed, will represent major progress," he added.
The IMF raised its growth forecast for the United States in 2012 from 1.7 per cent to 2.1 per cent. This is in part due to improved labor market data from the US which has seen unemployment fall to 8.2 per cent, the lowest rate since 2009.
However, Europe’s economy as a whole is expected to contract in the first half of 2012 before recovering except in Spain, Italy, Portugal and Greece. These countries can expect to see a slight recovery in 2013, according to the IMF. Overall, the IMF says the economy in the eurozone will contract by 0.3 per cent, less than the previous forecast of 0.5 per cent.
Meanwhile, Japan has agreed to help the IMF’s efforts to prevent the euro debt crisis from spreading to other economies around the world. Japanese exports have suffered due to the lack of demand caused in part by the problems in the eurozone.
The Japanese Finance Minister Jun Azumi said that Japan will loan $60 billion from its foreign exchange reserves to the IMF for this purpose.
Japan is the first non-European country to contribute to the IMF’s fund and it is hoped that its commitment will encourage other non EU members to do the same.
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