ECONOMY | 24.01.2012

Eurozone debt crisis drags down world economy, IMF report says

The global economy is facing a downturn

The International Monetary Fund says the eurozone looks set to slip into a mild recession this year with spillover effects for the global economy. Germany as Europe's powerhouse is likely to post minimal growth in 2012.

The eurozone economy as a whole will lose its footing in the course of this year and head into a mild recession, the International Monetary Fund (IMF) said on Tuesday in its World Economic Outlook.

The IMF's chief economist, Olivier Blanchard, said in Washington he expected global economic growth to slow down and thus hamper a faster recovery from the worst downturn in decades.

"The global recovery is threatened by intensifying strains in the euro area and fragilities elsewhere," the report said. The IMF sees the eurozone economies contracting by 0.5 percent this year, compared to 1.6 percent growth in 2011.

Germany might get away with a 0.3 growth rate this year - thus avoiding recession - but down one percent from what the IMF expected last autumn. In 2013, Germany is seen as capable of posting 1.5 percent growth.

But the overall situation in the eurozone stands to drag down the economies in many other regions too, the report maintains. The biggest impact of the slowdown may be felt in much of central and eastern Europe which has strong trade links with the eurozone economies.

The IMF's Olivier Blanchard urged the eurozone to overcome its crisisThe IMF revised down its 2012 global growth forecast to 3.3 percent - a 0.7 percent drop since its prediction in September of last year. It said that developed economies were likely to expand by an average of more than 1.5 percent between 2012 and 2013, but warned that this would not be enough to make a dent in the high jobless rate.

Act now, IMF says

The fund urged eurozone nations to get their act together swiftly.

"The most immediate policy challenge is to restore confidence by supporting growth while sustaining adjustment," the report said.

The survey noted that even the strongest emerging economies would be affected by the expected downturn in the eurozone. The IMF cut China's growth figure for instance to 8.2 percent for this year, down from 9.0 percent in 2011.

The IMF predicts growth in emerging economies to slow to 5.4 percent this year, compared to 6 percent in 2010 and 2011.

Apart from worries over the European debt crisis, the World Outlook Report also points to geopolitical concerns about global oil supplies amid escalating tension between the US and Iran.

Author: Hardy Graupner (dpa, Reuters)
Editor: Nancy Isenson

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