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IMF down on Europe

News Business 21.09.2011 Aaron Grunwald
Photo: Stephen Jaffe/IMF

Outlook: “The global economy is in a dangerous new phase,” and “Europe must get its act together,” the International Monetary Fund said.

The agency issued its world economic outlook on Tuesday, saying it expects global economic growth to be four percent in 2011 and 2012, down from its April forecast of 4.5%.

However there is a notable gap between the rich and developing world. The IMF expects emerging economies to grow 6.4% this year, Olivier Blanchard, economic counsellor and research director at the IMF, said during a press conference in Washington (photo).

On the other hand, the fund calculates that advanced economies will only see growth of 1.6% in 2011, and that is assuming “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.”

Blanchard, a French economist, then blasted euro zone governments for lagging leadership: “policy makers are one step behind the action in markets.” He added: “I think we are very explicit in our messages... in saying that Europe must get its act together; that they met in July, took a number of decisions as to, for example, the role of the EFSF [the Luxembourg-based temporary euro area bailout agency], and it is absolutely essential that they do what is needed so that this is operational very soon. It is indeed a major source of worry.”

During the same press conference, Jorg Decressin, a senior adviser in the IMF’s research department, praised the European Central Bank’s performance. “We see no signs that the ECB is losing any credibility. Inflationary expectations are very well anchored. Inflation itself in our forecast is expected to decline well below 2 percent in the year 2012.”

He continued: “in our view they're essential in order to maintain orderly conditions in sovereign bond markets that facilitate a pass through of monetary policy to the real economy.” Decressin concluded that “the ECB is doing absolutely the right thing.”

economy ECB EFSF euro euro zone forecast growth IMF outlook sovereign debt