Bad policy decisions could push the US into a 'lost decade' and put the eurozone into recession, warns IMF

Bad policy decisions could condemn the US to a "lost decade", tip America and the eurozone back into recession, and lead to "stagnation" in the world's major economies, the International Monetary Fund (IMF) has warned.

Philip Aldrick | Telegraph | Published: 09/21/2011 05:54

Cutting its global forecasts sharply, the world's economic watchdog said the global economy had entered a "dangerous new phase" and urged policymakers to tread a careful line between aggressive deficit reduction and growth. Central banks should stand ready to restart the printing presses to aid the recovery, it added in its twice-yearly World Economic Outlook.

"The recovery has weakened considerably. Strong policies are needed to improve the outlook and reduce the risks," Olivier Blanchard, the IMF's chief economist, said. "Markets have clearly become more sceptical about the ability of many countries to stabilise their public debt. Fear of the unknown is high."

Europe's leaders came under scathing criticism over the escalating debt crisis. "Europe must get its act together," Mr Blanchard said, adding that there was "widespread perception policymakers are one step behind the action". Urging a speedy implementation of the July 21 agreement to bolster the single currency area's €440bn bail-out fund, he said: "The eurozone is a major source of worry. This is a call to arms."

The warning came as Portugal's prime minister Pedro Passos Coelho said his country may need fresh aid if Greek defaults.

"In the case of a default of Greece, this aid could be necessary and it is important that our partners are convinced that it is worth helping Portugal, and in this case, Ireland, too," he said.

Weaker than expected growth in the US, the persistence of Europe's "sovereign debt and banking sector problems", high oil prices and the Japanese tsunami conspired to dramatically worsen the outlook since June. Global growth for this year has been revised down from 4.5pc to 4pc in the past three months – led by a one percentage point downward revision in US growth for this year to 1.5pc.

Source

IMF | USA | Business | economy

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Bad policy decisions could push the US into a 'lost decade' and put the eurozone into recession, warns IMF

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