IMF cuts forecasts for global growth

The IMF warns that the US and Europe could fall back into a recession as it reduces global expansion forecasts.

Italian Premier Silvio Berlusconi reacts prior to the start of a voting session in parliament. AP Photo

The IMF cut global growth forecasts yesterday while warning that the US and Europe could slump back into recession unless they contained the sovereign-debt crisis.

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The outlook in the Middle East and North Africa (Mena) was also clouded by "large uncertainties" stemming from the Arab Spring uprisings and the prospect of a fall in global oil demand.

"Global activity has weakened and become more uneven, confidence has fallen sharply recently, and downside risks are growing," the IMF wrote in its World Economic Outlook.

The organisation also scolded global policymakers for dithering about how to fix their economies.

"Policy indecision has exacerbated uncertainty and added to financial strains, feeding back into the real economy," the report said.

The world economy would grow by 4 per cent this year and next, lower than June's forecast of 4.3 per cent for this year and 4.5 per cent for next year, the IMF said.

Its growth projection for the US was lowered to 1.5 per cent this year, from 2.5 per cent in June. The 17-nation euro zone would expand by only 1.6 per cent this year, nearly half a percentage point lower than the June forecast.

The IMF gave a similarly gloomy outlook for oil-importing nations in the Mena region whose economies were disrupted by unrest this year. GDP would grow by only 1.5 per cent among oil importers this year, the report said. Syria's economy would contract by 2 per cent. Tunisia's economy would neither grow nor contract, the report said.

In contrast, regional oil exporters would expand at a rate of 5 per cent this year and 4 per cent next year, the IMF said. GDP in the UAE would accelerate 3.3 per cent this year and 3.8 per cent next year, it said, the same as its earlier forecast.

In a further sign of weakening growth hitting global economies, Standard & Poor's cut Italy's credit rating, citing political uncertainty and poor growth prospects.

Silvio Berlusconi, the Italian prime minister, reacted angrily yesterday to the downgrade by the US credit rating agency, saying the move was prompted more by "newspaper stories than by reality".

S&P's action appeared "to be negatively influenced by political considerations", he said.

S&P cut Italy's credit rating from "A plus" to "A with negative outlook", citing political uncertainty and poor growth prospects. The move keeps Italian debt at investment grade but puts policymakers under more pressure to engineer a lasting solution for the euro's instability.

Asian markets fell on the news of the Italian downgrade, and the euro came under some early pressure, but most European stock markets, including Italy's, shrugged off the report.

Italy's MIB Index was 1.8 per cent higher in afternoon trading, while the German Dax was up 2.7 per cent, and London's FTSE 100 was 1.9 per cent higher.

The euro zone's third-largest economy has been dragged into the debt crisis over the past three months as concerns mount about its ability to handle debt that is equal to 120 per cent of its GDP.

Under mounting pressure to cut Italy's debt, the Berlusconi government pushed a €59.8 billion (Dh300bn) austerity plan through parliament last week, pledging a balanced budget by 2013.

But there has been little confidence that the much-revised package of tax increases and spending cuts will do anything to address the country's underlying problem of feeble growth.

* with Reuters