IMF forecasts slowed global growth amid grip of European recession

A recession in Europe will slow the global economy this year, the International Monetary Fund predicts in a forecast released today, while urging world leaders to focus on growth more than budget cuts. The IMF forecasts global growth of 3.25% this year—slower than the 4% pace it projected in September. The 17 nations sharing the euro will shrink 0.5% this year, it says now; in September, the agency had predicted 1.1% growth for the region. However, the IMF says Europe’s recession should have only a modest impact on the United States. It projects 1.8% U.S. growth for the year, unchanged from its September estimate. The IMF warns against steep budget cuts, which it says will slow growth further and undermine market confidence. European banks, meanwhile, are cutting back on lending in order to boost their capital reserves, the fund says. That’s likely to hammer Central and Eastern European economies this year, which depend heavily on European bank loans. The cutbacks will also slow growth in many Asian economies, the IMF says, where European banks finance a big chunk of the region’s exports. Still, the hit to China will be relatively modest: It is forecast to grow 8.2% this year, down from the fund’s earlier projection of 9%. U.S. policymakers should take steps to rein in the long-term costs of government health programs and Social Security, the IMF says. But those cuts should be phased in gradually. Immediate cuts could slow the economy further. Check out the full story here.