October 9, 2012 - 12:21 AMT
PanARMENIAN.Net - The global economic recovery is weakening as government policies have failed to restore confidence, the International Monetary Fund has said, according to BBC.
It said the risk of further deterioration in the economic outlook was "considerable" and had increased.
The IMF downgraded its estimate for global growth in 2013 to 3.6% from the 3.9% it forecast in July.
The IMF's report said that overall, "[economic] output is expected to remain sluggish in advanced economies but still relatively solid in many emerging markets and developing economies".
It said much would depend on action taken by policymakers in Europe and the U.S.
It highlighted the importance of the European Stability Mechanism (ESM), the eurozone's new permanent fund to bail out struggling economies and banks launched on Monday, Oct 8. The fund added that greater integration of taxation and spending policies across the eurozone was needed, as well as measures to begin the process of banking union.
"The ESM must intervene in banking systems and provide support to sovereigns, while national leaders must work toward true economic and monetary union," the IMF said.
The ESM will be able to lend directly to governments, but it will also be able to buy their sovereign debts, which could help reduce the borrowing costs of highly-indebted countries such as Italy and Spain.
In the U.S., growth depended on a deal to avoid the so-called fiscal cliff, when automatic spending cuts and tax increases will kick in at the beginning of next year, the IMF said.
If policymakers fail to agree to delay these measures and increase America's debt ceiling, "the U.S. economy could fall back into recession", with serious knock-on effects for the rest of the world, it added.
Assuming agreement is reached, the US economy will grow by 2.1% next year, the IMF said, down from its forecast of 2.3% made in July. This year, the economy will actually grow by more than previously forecast - by 2.2% rather than 2%.
The IMF also said actions taken by governments already had not gone far enough.
The fund also called for further action to address long-term unemployment. "In advanced economies, growth is now too low to make a substantial dent in unemployment," it said.
Despite relatively strong growth compared with advanced economies, the IMF also downgraded growth prospects for emerging nations.
China, the world's second-largest economy, would grow by 7.8% this year, down from its previous forecast of 8%, and by 8.2% next year, down from 8.5%. It also revised dramatically its growth forecasts for India, which would grow by 4.9% this year and 6.1% next, the IMF said.
Weaker demand for exports would also impact on Latin American economies, as would lower domestic demand due to government policy tightening, the fund said. As a result, Brazil's economy would grow by 1.5% this year, down from the previous forecast of 2.5%.