IMF sees risks to global growth, calls for collective action

REUTERS: The International Monetary Fund has warned of significant risks to the world economy from the European debt crisis and excessive fiscal tightening in some rich nations, urging collective action to lower unemployment.

In an umbrella report for the Group of 20 nations, the IMF said global growth appeared to be weakening and singled out the euro area crisis as the most immediate threat to financial stability.

It saw a risk of excessive fiscal tightening in the United States and in a few advanced economies next year, as well as a possible adverse supply shock from oil markets.

“Thus, achieving a durable and prompt exit from the euro area crisis, as well as avoiding the US ‘fiscal cliff,’ is crucial for sustained global recovery,” the report said.

“More attention is required to tackle stubbornly high unemployment in the near term in advanced economies, while doing more to ensure the soundness of public finances over time,” the IMF said.

For emerging economies, the IMF recommended more action to boost domestic demand by addressing market distortions.

Such mutually reinforcing action in all members would help secure stronger and healthier global growth, the fund argued. It estimated global output would be higher by about 2.5 per cent in five years and global imbalances would be lowered further by 0.75 per cent of gross domestic product.

Currently, the IMF expects global growth to accelerate only gradually from an annual 3.5 per cent in 2012 to about four per cent in 2013, driven by emerging and developing economies.