WASHINGTON – The International Monetary Fund predicted Europe would fall into a mild recession this year, helping drag down global economic growth to a sluggish 3.3 percent, significantly lower than projected just four months ago.
U.S. economic growth will be 1.8 percent in 2012, much higher than the -0.5 percent projected for the eurozone, the IMF said Tuesday in an update to its World Economic Survey figures released in September. But the European debt crisis entered a “perilous new phase” at the end of last year, causing the global recovery to stall and forcing the IMF to lower its projection of worldwide economic growth from the earlier estimate of 4 percent.
“Given the depth of the 2009 recession, these growth rates are too sluggish to make a major dent in very high unemployment,” the IMF said. The projection of a eurozone economic contraction is down from the September projection of 1.1 percent growth. Things will improve somewhat in 2013, with the IMF projecting 0.8 percent growth.
Despite the troubles in Europe, the projection for the U.S. economy in 2012 remains the same as in September, though the growth rate is anemic. The recovery will improve in 2013 to a 2.2 percent annual growth rate, but that is down from the IMF’s September projection of 2.5 percent.
The IMF said countries needed to take comprehensive steps to restore financial stability, but warned of the economic risks of tightening fiscal policy too quickly.
Other risks include investor fear over the debts of big countries like the United States and Japan, a “hard landing” in emerging economies and spiraling oil prices as the European Union and United States confront Iran.
Jose Vinals, director of the IMF’s monetary and capital markets department, told reporters that the fund sought to build a “global firewall” – both to help ease the euro crisis and to ensure that no bystanders to it find themselves locked out of the global financing markets.
“The longer we wait, the worse it will get. The only solution is to move forward together,” Christine Lagarde, the managing director of the fund, said in a speech in Berlin on Monday, calling on the world to help bolster the IMF’s resources and on Europe to bolster its own. “The world must find the political will to do what it knows must be done.”
The Los Angeles Times and The New York Times contributed to this report.
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