The IMF has sharply cut its growth forecast for the global economy this year and reason number one is the euro area. Just last September, in its World Economic Outlook, the IMF had projected world output to grow by 4 percent in 2012, now because of the euro zone debt crisis it expects growth of just 3.3 percent. The organization made clear what this dramatic reassessment means.
“Given the depth of the 2009 recession, these growth rates are too sluggish to make a major dent in very high unemployment,” the IMF said.
In September's report the IMF projected the euro zone to grow by around 1 percent in 2012. Now, because of the acute crisis the euro zone entered in the last quarter of 2011, that is revised to a recessionary -0.5 percent. The IMF says Italy's economy will contract by 2.2 percent and Spain's 1.7 percent.
Britain will avoid recession, the report claims, although just barely, and certainly will not grow enough to make much of a dent in its national debt - which, as I blogged earlier, has just passed £1 trillion for the first time.
But it is not just Europe whose growth figures have been revised downward since September. China's growth is expected to contract by 0.8 percent this year and 0.7 percent in 2013.
No wonder the IMF has been warning that a return to global recession is possible if the euro zone doesn't complete its fiscal house cleaning while generating a bit of growth. The IMF's Economic Counselor Olivier Blanchard offered some hope, “The worst can definitely be avoided, and the recovery can be put back on track," provided the EU takes the hard decisions. "These measures can be taken, need to be taken, and need to be taken urgently,” he added.
Needless to say European stock markets went negative on news of the IMF projections- although not violently downhill. London's FTSE 100 fell 0.53 percent, Paris's CAC lost 0.47 percent and Frankfurt's DAX slipped 0.27 percent
Other news from Europe is that there is still no news about Greece and her creditors reaching agreement on how big a haircut bondholders will take.
The Daily Telegraph reports that the "Lessons from Greece" session at the World Economic Forum meeting getting underway at Davos has been canceled ... (supply your own pithy aside).