The International Monetary Fund (IMF) has issued a warning that the global economy is under threat of facing a “downward spiral” and called on Europe and the US to switch to stimulus measures and abandon fiscal austerity.
The head of the IMF, Christine Legarde, has said the global economy is not growing at a fast enough pace and faces a number of risks to recovery. This comes in reference to decisions by many of the world’s governments to reduce the amount of borrowing as a way to stabilise their economic growth.
Threat of global recession remains
Following on from the financial crisis of 2008, growth in Europe and the US remains slow, whilst the debt crises in both continue to impact market confidence.
“The global economy continues to grow, yet not enough. Some of the main causes of the 2008 crisis have been addressed, yet not adequately,” Ms Lagarde said.
“There remains a path to recovery, but we do not have the luxury of time.”
The comments come at the start of a dramatic week for the eurozone as Italy prepares to roll over record sums of debt and Germany’s constitutional court issues its long-awaited verdict on the legality of the EU’s bail-out. The Italian treasury must redeem €14.6bn of debts this week and €62bn by the end of September, the most ever in a single month. The Republic of Ireland joins the troubled Eurozone with the IMF has announcing that it is releasing almost 1.5 billion euros (£1.3bn) to the country as part of its financial aid package.
“Abandon short term austerity” – Legarde
Ms Lagarde said the US has the possibility to “abandon short-term austerity and introduce some measures to drive growth” provided the country lays out a credible debt strategy over the medium term. She said Europe needs to shift to “growth-intensive measures” until the danger has passed, insisting that Germany is in the position to “stimulate demand”.
She said the advanced economies which are struggling must ditch long-term plans for now to bring their debt under control, yet at the same time not introduce austerity measures so fast that it imperils recovery.