Strong policies are urgently needed to increase global economic growth and reduce the risk of a double-dip recession in the developed world, the International Monetary Fund (IMF) said in its revised World Economic Outlook.
Governments around the world face a dilemma: how to reduce debts and deficits, and support growth and employment as anxious financial markets rattle the global economic recovery, the IMF said.
2011 Global Growth Estimate Lowered
What's more, the IMF said 2011 global growth will total only four percent, a reduction of 0.3 percentage points from its June 2011 forecast, with strong ripple-effects to the global economy if Eurozone nations do not strengthen their banking system and the U.S. fails to put its fiscal policy on a balanced-budget track.
By economy category, the IMF now sees the developed world growth at 1.6 percent in 2011 and emerging markets growing at a 6.4 percent pace.
Strong policies are urgently needed to improve the outlook and to reduce the risks, IMF Chief Economist Olivier Blanchard, said in a statement. Only if governments move decisively on fiscal policy, financial repairs, and external rebalancing, can we hope for stronger and more robust recovery.
The projected 2011/2012 growth rates for major economies are as follows: U.S., 1.5 percent/1.8 percent; United Kingdom, 1.1 percent;1.6 percent; Germany, 2.7 percent/1.3 percent; France, 1.7 percent/1.4 percent; Japan, minus 0.5 percent/2.3 percent; China, 9.5 percent/10 percent; India, 7.8 percent/ 7.5 percent; Brazil, 3.8 percent/3.6 percent; Mexico, 3.8 percent/3.6 percent; and Russia, 4.3 percent/4.1 percent.
U.S., Europe Face Possible Double-Dip Recession
Equally significant, the IMF said U.S. and European economies face a possible double-dip recession and a lost decade of growth -- roughly equivalent to Japan's experience in the 1990s -- unless policy revisions occur.
For the United States, that means less debt; for the Eurozone, a resolution of the sovereign debt crisis.
The IMF also noted concerns in emerging markets: China needs to increase its reliance on domestic demand; Brazil must cool an overheating economy.
The IMF added that all governments face difficult policy choices: many need to further develop their plans to reduce debts and deficits over the medium term, and then communicate them to investors and financial markets.
The appropriate pace of adjustment in the short run will depend, for each country, on the intensity of the market pressure it confronts, the magnitude of the risk to growth it faces, and the credibility of its medium-term program, Carlo Cottarelli, head of the IMF's Fiscal Affairs department said, in a statement.
In a speech last week in Washington, D.C., IMF chief Christine Lagarde said consolidating too quickly can hurt the recovery and worsen job prospects. In the short run, policy makers must focus on measures with the biggest bang-for-the-buck that create jobs and kick-start growth.
Public Policy/Economic Analysis: A sobering, revised 2011 economic forecast from one of the most thorough and respected macroeconomic forecasters -- and it contains a clarion call to implement the changes recommended. Most importantly, the U.S. has to find ways to increase demand, and Europe must eliminate the threat of contagion from sovereign debt. Each region must create the conditions conducive to economic growth to provide the boost the global economy needs; emerging market economies are doing their part for the global economy, although China can do more to increase domestic demand.