IMF warns of possible euro zone recession

| October 5, 2011

The Washington based International Monetary Fund (IMF) has warned that a recession in Europe next year “can’t be ruled out”.

Its comments come in its latest 100-page report on the economic outlook for Europe, in which it said the UK, Germany and France should “consider delaying” cuts, if economic conditions deteriorate.

The report comes after it emerged that the Greek debt crisis claimed its first banking victim in Dexia.

It also comes a day after euro zone finance ministers postponed the approval of Greece’s next instalment of its bailout loan.

A meeting was scheduled for October 13, at which time finance ministers were expected to approve the next tranche but this has now been cancelled.

There are fears of contagion as Italy battles with its own debt crisis and it sovereign debt rating was cut for the second time in just as many weeks.

Greece, Ireland and Portugal have all been forced to seek financial bailouts and there are fears that Italy, and possibly Spain, could be next in line for aid.

In its report, the IMF said: “Finding a durable solution to the euro area sovereign crisis has become more than overdue.

“(This) will require some difficult decisions to improve crisis management and a demonstration of unity behind the project of economic and monetary union that will convince markets.

“The pursuit of nominal deficit targets should not come at the expense of risking a widespread contraction in economic activity,” the IMF added.

However, the Fund is still forecasting growth of 1.1% for the euro zone in 2012 but said any standstill in growth by the end of 2011 would demand a reversal of 2011 fiscal policy where possible.

GDP figures for Europe are due tomorrow with many economists expecting growth to be heading towards a negative figure.

Yesterday, credit rating agency Standard & Poor’s lowered its growth forecasts for the euro zone next year and warned that “the chances of Europe plunging into a new recession now appear more likely.”

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