IMF Cuts Back Growth Forecasts – Warns on Excessive Deleveraging
Date: 24 January 2012
Source: IMF
In its updated World Economic Outlook the International Monetary Fund (IMF) has mirrored private sector forecasts and cut back its growth expectations. Compared to its September forecasts it now looks for 1.2% expansion in the industrialised world for 2012 rather than 1.9%. This is mainly due to a big change for the euro area with a mild recession of -0.5% expected this year instead of the previous forecast of +1.1%. The emerging world is now seen as growing by 5.4% this year rather than September’s expectation of 6.1%. The reasons cited by the IMF for the revisions are higher sovereign yields, bank deleveraging and additional fiscal consolidation. Indeed, the IMF warns of the dangers of “excessive” deleveraging and says that the focus of financial supervisors should continue to be higher capital instead of deleveraging, which could lead to a devastating credit crunch. This is bound to be a contentious issue in the coming months. The Global Financial Stability update also points to the need to maintain a sufficient flow of capital to the economy.