IMF financial fear

International Monetary Fund warns the world is in 'a dangerous new phase'

AAP
September 21, 2011 7:39AM

International Monetary Fund cuts global growth forecasts
Warns global economy is in a "dangerous new phase"
Small business staff left depressed and uninspired


THE International Monetary Fund (IMF) has cut its world growth forecasts and warns the global economy has entered a "dangerous new phase", although the Asia Pacific region is in a better position to face the risks.

In its latest World Economic Outlook, the IMF says global activity has weakened and become more unstable, confidence has fallen sharply, and downside risks are growing.

"Strong policies are urgently needed to improve the outlook and reduce the risks," the IMF's economic counsellor Olivier Blanchard says.

The Washington-based institution has cuts its world growth forecast to four per cent for both 2011 and 2012, down from its June predictions of 4.3 per cent and 4.5 per cent respectively, and having grown at 5.1 per cent in 2010.

Advanced economies are expected to grow by an anaemic 1.6 per cent this year and 1.9 per cent next year.

Even then, this assumes that European policymakers contain the crisis in the Euro area, that US policy makers strike a judicious balance between support for the economy and medium term fiscal consolidation, and that volatility on global financial markets does not escalate.

However, the Asia Pacific region is in a better position to face current global risks.

Last summer's natural disasters had only temporarily slowed Australia's economic growth, and despite earthquakes, New Zealand's recovery had gained traction, "supported by strong terms of trade and positive trade spillovers from the region", it said.

Still, the IMF has slashed Australia's growth forecast to 1.8 per cent for 2011, from a 3.0 per cent prediction made in April, and to 3.3 per cent for 2012, from 3.5 per cent.

New Zealand is now expected to grow by two per cent this year and by 3.8 per cent next year, compared with previous forecasts of 0.9 and 4.1 per cent.

The IMF also welcomed Australia's planned return to a budget surplus in 2012/13, saying it would increase the economy's "fiscal room", while taking pressure off monetary policy and the exchange rate.

"The mining boom also provides an opportunity to build fiscal buffers further over the medium term and contribute to national saving," it says.

New Zealand's fiscal balances have been adversely affected by the earthquakes, but its planned medium term consolidation will help contain its current account deficit and put the budget in a stronger position to deal with costs related to ageing and health care.

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