IMF warns about 'damaging cuts'

The head of the International Monetary Fund has urged countries to ease back on cuts because of the impact on growth. It has previously warned the global economic recovery was weakening as government policies have failed to restore confidence.

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World governments warned over 'damaging cuts'

The head of the International Monetary Fund has urged countries to ease back on financial cuts because of the impact they are having on growth.

 Christine Lagarde, International Monetary Fund managing director
Christine Lagarde, International Monetary Fund Managing Director Credit: Press Association

According to the Financial Times (£), Christine Lagarde warned against bringing in too many spending cuts and tax increases at once, saying: "It's sometimes better to have a bit more time."

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IMF: Greek to contract by 6%

The IMF has predicted a huge contraction in Greece for this year and for 2013. Predictions for GDP in the Eurozone are -0.4 this year and 0.4 next year, but Greece falls way below this with the worst estimates in the world.

The IMF predictions for Greece:

  • –6.9% actual GDP in 2011
  • –6.0% 2012 projection
  • –4.0% 2013 projection

The grim economic forecast comes as Germany's Chancellor Angela Merkel is due to make an unpopular visit to Greece.

Labour: 'IMF forecasts a blow to government credibility'

Coming just hours after George Osborne complacently insisted he would cling on to his failing plan, these downgraded IMF forecasts are another damaging blow to the government's economic credibility.

Twelve months ago the IMF forecast growth of 1.6 per cent in 2012 and said a plan B would be needed if growth were to be lower than expected. A year on, with Britain in a double-dip recession, borrowing rising as a result and growth forecast to be minus 0.4 per cent, there can be no question that a change of course is urgently needed.

– Labour shadow chancellor Ed Balls

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IMF downgrades global growth forecast

The International Monetary Fund (IMF) has said that the global economic recovery is weakening as it downgraded its global growth forecast to 3.3%, down from its July estimate of 3.5 %.

The IMF also cut its estimate for global growth in 2013 from to 3.6% from the 3.9% it forecast in July.

International Monetary Fund managing director Christine Lagarde
International Monetary Fund managing director Christine Lagarde Credit: REUTERS/Regis Duvignau

In its World Economic Outlook report, the IMF said:

"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 U.S policymakers deal proactively with their major short-term economic challenges."