London – The International Monetary Fund (IMF) has slashed its growth forecast for large parts of the world economy, and warned of a ‘full-blown’ global slump if policymakers in Europe or the US mishandle serious threats.
“Risks for recession in the advanced economies are ‘alarmingly high'”, the IMF said in its latest World Economic Outlook.
“The intensity of the euro area crisis has not abated as assumed in previous projections,” it added.
According to the Telegraph, Spain’s economy is expected to contract by 1.5 percent this year and 1.3 percent next year as austerity bites.
Italy will shrink by 2.3 percent this year and 0.7 percent next year, pushing the debt ratio to an all-time high of 128 percent, the IMF said.
The report said that fiscal austerity in Europe was doing more damage than ‘expected’.
According to the report, the IMF said ‘weakness is spreading from the periphery to the whole of the euro area’, with even Germany collapsing.
The IMF said that failure to act in time could lead to a full-blown crash, with contraction near 7 percent next year in Southern Europe and a deep recession in the North.
It warned that ‘rising social tensions and adjustment fatigue in the South could reignite the crisis in any case’.
According to the report, Europe’s economic woes have combined with a credit cycle downturn in Asia and Latin America. Growth this year has been cut to 1.5 percent in Brazil and 5.4 percent in India.
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