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IMF slashes global forecast on eurozone crisis with sharp falls in Italy and Spain

20 January 2012: The International Monetary Fund IMF) has slashed its global growth forecast for 2012 and urged the European Central Bank to boost liquidity to prevent a deeper eurozone crisis. According to a leaked draft of its World Economic Outlook, the IMF states, “The global recovery is threatened by the growing tensions in the euro area.” Global GDP growth is to be cut from 4% to 3.3%, with sweeping revisions for countries in Southern Europe.  Italy’s economy will contract by 2.2% and Spain’s by 1.7% as a result of fiscal austerity which will lead to reduced lending by banks. Britain’s growth is forecasted at 0.6%, slightly below the 0.7% forecast of the Office for Budget Responsibility. It is expected to rebound to 2% next year. The US and China will remain the two main growth blocs in the world economy. The IMF predicts the US will grow at an unchanged rate of 1.8%, and China will forge ahead at 8.2%, down from 9%. The eurozone as a whole will shrink by 0.5%, down from growth of 1.1% in the IMF’s last forecast in September. The new, more ominous forecasts explain why the IMF is requesting  $600bn to enhance its capability.

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