The International Monetary Fund on Tuesday cut its forecast for global economic growth, mostly because of anemic growth in developed economies that the IMF estimates will grow a mere 1.5 percent this year.
But even that estimate could be optimistic, the IMF warned, because it assumes European policy makers will contain the sovereign debt crisis that has engulfed the continent's southern periphery and that U.S. officials will thread a policy needle between cutting its debts and stimulating growth.
The global economy is in a dangerous new phase, the IMF said in its World Economic Outlook. Global activity has weakened and become more uneven, confidence has fallen sharply recently, and downside risks are growing.
The IMF projected that global growth will moderate to about four percent through 2012, from more than five percent in 2010.
Real gross domestic product in the advanced economies will expand at an anemic pace of about 1.5 percent in 2011 and 2 percent in 2012, helped by a gradual unwinding of the temporary forces that have held back activity during much of the second quarter of 2011, the IMF said.
However, this assumes that European policymakers contain the crisis in the euro area periphery, that U.S. policymakers strike a judicious balance between support for the economy and medium-term fiscal consolidation, and that volatility in global financial markets does not escalate.
The forecast marks a one percentage point reduction of the agency's earlier outlook, released three months ago when it forecast growth of 4.3 percent for 2011 and 4.5 percent for 2012.