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Euro zone weakens

Thursday, 26 January 2012 06:04 Written by MD. Sakib Chowdhury

Global economy at risk as euro zone weakens

On Tuesday, the International Monetary Fund said that Euro zone’s debt crisis could trip the global economy into a recession. It also said that a larger firewall is immediately needed to keep the damage from scattering. The IMF predicted growth in 2012 to be approximately 3.3 percent. Previously, it had predicted the economic growth to be 4 percent in 2012. Furthermore, it warned that the global growth could fall as low as nearly 1.3 percent if Euro zone lets the crisis worsen for a longer time. The IMF has predicted 2013 growth to be approximately 3.9 percent. Olivier Blanchard, International Monetary Fund’s chief economist said that despite the fact the debt crisis is in central Europe, the whole of the global economy is increasingly suffering. Adding further, he said that the global economy may slide into a double dip recession if Euro zone debt crisis worsens.

He said that euro zone leaders should take right measures to resolve the debt crisis. Blanchard said that this is a serious issue which immediately needs to be addressed. It can’t be ignored. The economy of the single currency zone is likely to contract by 0.5 percent in 2012. Moreover, top IMF officials including Blanchard stressed repetitively that Europe needs to strengthen its rescue funds to prevail market confidence and lower yields on sovereign bonds so that nations like Spain and Italy can borrow at reasonable rates. On Monday, Christine Lagarde, IMF Managing Director cautioned that a malfunction to rigid a bigger wall against financial infection could lead
to a 1930s moment.

On the other hand, IMF’s director of Monetary and Capital Markets Department, Jose Vinals said that it is vital to amplify the size of Europe’s current 500 billion euro rescue fund and its elasticity. Adding further, Vinals said that it is also necessary to be able to take direct stakes in distressed banks. International Monetary Fund maintained its growth forecast at approximately 1.8 percent for the U.S. in 2012.The IMF also slashed its projection for Japan to approximately 1.7 percent. Previously, in September this figure was at 2.3 percent.