The International Monetary Fund has cut its growth forecasts for the UK and global economies in its latest World Economic Outlook.

The IMF has also said that the world’s economy is suffering ‘…from the confluence of two adverse developments’.

The first of these is that recovery in the developed world has been much slower than expected since the beginning of the year ‘…a development we largely failed to perceive as it was happening’.

The second says the report is the large increase in both fiscal and financial uncertainty, especially since August this year.

This puts the global economy ‘in a dangerous place’ made worse by the deepening Euro-zone debt crisis and the USA’s ‘over-hasty’ attack on its budget deficit.

The report also pointed to the Japanese tsunami disaster and developments in the Middle East and North Africa as contributors to the overall economic instability.

"Global activity has weakened and become more uneven, confidence has fallen sharply recently, and downside risks are growing." was the stark message from the IMF.

To combat this, the IMF is calling for strong policies to be urgently implemented.

The world economy would now grow at 4% in both 2011 and 2012, a cut from the previously forecast figures of 4.3% and 4.5% made just three months ago.

The UK is expected to grow at just 1.1% this year and 1.6% in 2012, this is a significant drop from June’s report, which had growth forecasts of 1.5% and 2.3% respectively.

There are ‘three legs’ on which the ‘strong policies’ called for must stand on.

  • The first is the right pace of fiscal consolidation in each country; too fast and growth is killed, too slow and credibility is killed.
  • Second is strengthening the banks.
  • The third is rebalancing the world’s economy with regard to imports and exports.

But while the IMF looks to repair the world’s financial problems and urges all to follow suit, the domestic politicians will rightly be looking to further the interests of their own nests. And the two are not compatible.

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