IMF cuts global growth estimate

WASHINGTON: The International Monetary Fund cut its forecast for global growth and predicted "severe" repercussions if Europe fails to contain its debt crisis or US policy makers deadlock over a fiscal plan. The world economy will expand 4% this year and next, the IMF said on Tuesday, compared with June forecasts of 4.3% in 2011 and of 4.5% in 2012. The US growth projection for 2011 was lowered to 1.5% this year from 2.5% in June.

In the euro area, where the IMF cut its prediction to 1.6% from 2% this year and to 1.1% from 1.7% next year, injecting capital into banks and restructuring or closing down others is "essential," the IMF said. "Global activity has weakened and become more uneven, confidence has fallen sharply recently, and downside risks are growing," the IMF said in its World Economic Outlook report on Tuesday. In Europe "leaders must stand by their commitments to do whatever it takes to preserve trust in national policies and the euro" while in the US "deep political divisions leave the course of US policy highly uncertain."

"When could things go wrong? Anytime," IMF Chief Economist Olivier Blanchard told reporters in Washington. "Policymakers don't have the luxury of time," he said, urging Europe to "get its act together."

The IMF predicts growth of 6.4% in developing economies this year and 6.1% next year, down from 6.6% and 6.4% forecast in June. Richer nations will grow 1.6% this year instead of the 2.2% expected in June, and 1.9% next year instead of 2.6%, the IMF said. Japan was the only Group of Seven economy to have its forecast raised for this year, with the IMF now predicting a 0.5% contraction, compared with a 0.7% decline in June. Growth in 2012 should reach 2.3%, 0.6%age point less than in June.