The International Monetary Fund (IMF) has warned the British Government that austerity plans will have to be delayed as the economy is under threat of facing of a slowing recovery. This comes after the IMF has revised and lowered its forecasts for the third time this year. The IMF also called on Europe and the US to switch to stimulus measures and abandon fiscal austerity.
Despite the intergovernmental organisation forecasting a 2% growth of the British economy last October, which was eventually revised to 1.5% in June, the forecasts have been slashed further down to 1.1% for 2011.
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.
IMF axes global forecasts
The UK’s downgrade was not the only projection to be axed, as much of the major global economies such as the US, Canada and much of Europe faced even greater revisions in forecasts. Global growth is expected to be 4% for 2011 and 2012, downgraded from the forecasts of 4.3% and 4.5% respectively made earlier in June.
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,” it said in its World Economic Outlook (WEO).
IMF promotes quantitative easing
The IMF has promoted quantitative easing and suggested that central banks should begin printing money in order to keep interest rates low and sustain the global recovery. It has also urged policymakers to draw up medium term deficit reduction programmes.
“Monetary policy can remain accommodative in many advanced economies,” it said.
“Given increasing risks to US growth, the Federal Reserve should stand ready to deploy new unconventional support for the economy, provided inflation expectations stay subdued. Unconventional policies should continue until there is a durable reduction in financial stress, including resolution of the sovereign debt crisis.”