Halloween’s on the way and even Freddy Krueger would be impressed by the IMF’s recent slashing spree. The International Monetary Fund hit Chancellor of the Exchequer George Osborne where it hurts and dramatically lowered the UK’s growth outlook.
The international lender now forecasts that the British economy will contract by 0.4 per cent in 2012 before making a timid return to growth of 1.1 per cent in 2013 (down 0.9 per cent from July’s prediction).
The IMF twisted the knife by stating that the budget deficit for the UK would total 8.2 per cent of GDP in 2012 rather than the 7.9 per cent previously thought. Figures for 2013 were similarly revised, from 6.6 per cent of GDP to 7.3 per cent.
The IMF recommended that the Bank of England should relax monetary policy if the UK hopes to staunch the fiscal blood flow.
Now, as the Eurozone debt crisis shows little sign of abating and economic slowdowns in China and the US intensifying the IMF has also slashed its global growth forecasts. According to the IMF the risks of a more dramatic slowdown appear to be ‘alarmingly high’ with a 16 per cent chance of growth dropping below 2 per cent.
Back in July the IMF estimated that in 2012 the world economy would expand by 3.5 per cent – that figure has now been negatively revised to 3.3 per cent. Similarly the prediction for 2013 of 3.9 per cent was dropped to 3.6.
In its World Economic Outlook report the IMF advocated confidence bolstering methods and stated: ‘Confidence in the global financial system remains exceptionally fragile. Bank lending has remained sluggish across advanced economies […] A key issue is whether the global economy is just hitting another bout of turbulence in what was always expected to be a slow and bumpy recovery or whether the current slowdown has a more lasting component. The answer depends on whether European and US policy makers deal proactively with their major short-term economic challenges.’
The report urged US policy makers to rethink the planned automatic spending cuts and tax hikes. The IMF also asserted that proposals to create a more integrated banking union in Europe must be acted upon.
A foreword to the report commented on the currently most pressing Eurozone’s issues: ‘Spain and Italy must follow through with adjustment plans that re-establish competitiveness and fiscal balance and maintain growth. To do so, they must be able to recapitalize their banks without adding to their sovereign debt. And they must be able to borrow at reasonable rates.’
Whilst growth forecasts for emerging markets like Brazil and India were cut predictions for economic contraction in the Eurozone were negatively revised and 2013 growth in the US was recorded as likely to come in lower than previously thought.
The IMF cited hiked oil prices and an inability to heighten the US debt ceiling as further risks to economic recovery on a global scale.
The Pound to Euro exchange rate is currently trading at 1.2373
The Pound to US Dollar exchange rate is currently trading at 1.6005
The Pound to Australian Dollar exchange rate is currently trading at 1.5680
The Euro to US Dollar exchange rate is currently trading at 1.2934
The Euro to Pound exchange rate is currently trading at 0.8079
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