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The International Monetary Fund (IMF) has issued a stern warning to global policymakers that if they don’t put their act together, the world economy will face more troubles. The fund said that the global downturn is worsening and cut the growth forecasts for the second time since April, delivering a special warning to the US and European leaders that a failure to cure their economic ills could deepen the crisis.
The weak forecast came one day after the World Bank cut its estimate for growth in China, the world’s second-largest economy, and for developing countries across Asia. The IMF forecast that the world economy will expand 3.3 percent this year, down from the estimate of 3.5 percent growth it issued in July. Its forecast for growth in 2013 is 3.6 percent, down from 4.1 percent in April. The news depressed investors and stocks fell on Tuesday, while policymakers remained stuck in the same groove where they were, unable to find an exit route.
The IMF report has ominous portents. The most important question it poses is: will the current crisis persist beyond the next couple of years? If the answer is yes, it means the potential for global growth will be severely affected, deepening the misery of people and that of the governments. As Europe struggles to emerge from the crisis it’s mired in, there has been a hope that the worst is over and the region could be slowly entering the road to recovery. The IMF has dampened that hope and by predicting slower growth, it has raised doubts about the efficacy of the reform measures already adopted. The fund warned that it’s not only G7 countries which are vulnerable to slower growth, other global giants like China, Brazil and India too are in different stages of financial sickness. That almost all the leading economies are under the throes of crisis makes the prospects of recovery bleak.
At same time, the IMF has been careful not to sound too pessimistic and said that China, India and Brazil, which were engines of growth in the past few years, are unlikely to suffer ‘hard landing.”
The report is essentially a warning to world leaders not to fall into a sense of complacency. Such periodic reports help the policymakers to assess where they have reached, and measure the distance that lies ahead.
Despite the warnings which the Fund issues, the corrective measures taken would always depend on the political and social reality in each country. For example, in the case of Greece, its leaders have said that they are left with no options to further shore up the economy as lives of ordinary people have been upended.
There is a realisation that the current slump should not continue, but the solutions too are tough.