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IMF Cuts Global Growth Estimates

It is apparent that the global economy is sluggish this year. This has led the IMF to cut its growth projections and cautions of a deeper recession unless Europe implements appropriate measures to control its debt crisis. The IMF project that the global economy may develop by 3.3%, in 2012, which is lower than 3.8% growth rate experienced in 2011(Ian 1).It is highly probable that Europe will experience a mild depression in 2012, but the consequences may be more severe if the leadership in the euro-zone fails to curtail the increasing state borrowing expenditure and growing pressure on bank credit.

The IMF projects that, if the appropriate measures are not taken, it would lead to an average of a 4% drop in the euro-zone economy in 2013 and 2014. It would also lead to a 2% points drop in regard to global productivity this year.

The global economy has not yet fully recovered, following the recent financial meltdown, and continues to warn of potential stalling of the global economy. According to the chief economist at the IMF, the global economy may experience another meltdown in the event that the European economic crisis deepens (Ian 1). It is apparent that there is a high degree of apprehension at the IMF in regard of a potential collapse of the global economy, if appropriate measures are not put in place. The euro-zone leadership ought to enhance the magnitude of the region’s debt-crisis firewall, execute pro-growth policies and integrate the IMF more closely.

In some of the euro-zone biggest economies, funding costs are realizing levels that have never been witnessed since the launching of the European Economic and Monetary Union. In the event that Europe speedily adheres to the recommendations provided by the IMF, it is expected that the region may experience a 0.5% reduction this year. The IMF sliced off 1.6% points from its previous projection for this year in September. This reflects the worst-case scenario, which is envisaged following sharp escalation of risks in the last three months of the year, when the debt crisis experienced a risky new phase. In this context, the IMF expects the region to experience growth next year (Ian 1).

Greece is expected to default in due course. Italy and Spain are currently in the market’s target, while the IMF cut its 2012 projections for the two countries. The IMF alleges that Italy is experiencing a 2.2% reduction while Spain, a 1.7% plummet. The two countries are projected to persist in recession through out 2013. The IMF has commended the initiatives of several euro-zone members in reducing their debt burdens as well as bloated budgets. It has however cautioned against further near-term reductions that could degenerate their economic problems (Ian 1). Governments ought to keep away from responding to any unforeseen recession in growth by tightening their policies further considering the huge adjustment anticipated this year. The advanced economies, such as Japan, the U.S., the U.K. as well as the euro zone, are estimated to develop by 1.5% on average up to 2013. This kind of growth rate is too slow to accomplish any major impact, in regard to the high levels of unemployment.

Economic growth in the developing and emerging economies has become sluggish as the banks in Europe spend less overseas. The IMF anticipates that those countries will develop as a bloc. The growth rates are given as 5.4% in 2012 and 5.9% in 2013, cutting more than 0.5% point off their growth projections. However, emerging economies may experience a major upset to growth. This would materialize if the credit as well as real-estate markets unwind. In a nut shell, the IMF anticipates that global economic growth would slow down but not collapse, and several advanced economies will avoid a second depression. However, this is forecasted on the postulation that in the euro region, the policy makers will strengthen their efforts to deal with the crisis (Ian 1).

According to the IMF the euro zone should double its crisis bailout fund, referred to as the European Financial Stability Facility. The IMF expects the G twenty group of industrialized as well as developing countries to enhance the fund’s lending capacity to above $1 trillion. In this way, Europe may utilize its bailout fund to assist in boosting the banks’ cash levels as well as sustain its euro-zone costs of financing down while the IMF bails out failing economies (Ian 1).

Discussion

This paper is categorically opposed to the IMF cuts in global growth estimates. The fundamental role of the IMF is to recognize the contingent dangers that would threaten global financial and economic stability as well as to develop appropriate policy responses. However, the austerity programs initiated by the IMF are usually controversial, since they tend to generate adverse impact on the low income segments of a country’s population. In numerous situations, these programs are executed by countries that were formerly under despotic regimes. This leads to a scenario whereby the populace is forced to refund the debts of their f despotic regimes.

It is on record that in 2009, through to 2011, students and workers in Greece the euro-zone demonstrated against these cuts as a result of government austerity measures. This paper is of the opinion that, these IMF measures are inclined towards depressing economic growth. This would finally cause countries to lose extra funds in tax revenues. In order to substantiate these points, it would be vital to reflect on the impact of such measures in Spain and Ireland. In these two countries, such measures were established in response to financial meltdown in 2009. However, they proved futile in fighting public debt, and placed the two countries at risk of default late 2010.

Works Cited

Ian, Talley. “IMF, Warning on Debt Crisis, Cuts Global Forecasts.” Wall Street Journal. 25 Jan. 2012. Web. 25 Jan 2012.