IMF forecast IMF chief Christine Lagarde has warned of a ‘1930s moment’

The world’s economy is “deeply into the danger zone” because of risks from the eurozone, the International Monetary Fund (IMF) has said.

The IMF predicts the global economy will grow by 3.25% in 2012, down from an earlier forecast of 4%.

The growth forecast for the UK economy has been cut to 0.6% from 1.6%.

But the eurozone is set for a “mild recession” in 2012, with GDP expected to shrink by 0.5%, compared with a previous forecast of 1.1% growth.

Growth estimates have been reduced for the main eurozone countries, including Germany, which is widely seen as the powerhouse of the region.

Germany is forecast to grow 0.3% in 2012, down from the 1.3% originally predicted in September.

France is expected to show 0.2% growth in 2012, down from 1.4%.

However, the IMF stands by its 1.8% growth prediction for the US, based on recent strong domestic data on jobs and manufacturing.

Risk of ‘spillovers’

Emerging markets, such as central and eastern Europe and Asia, could also be hit by the eurozone crisis.

The IMF said: “While these markets have been quite resilient to shocks and developments in major economies in the past year, recent indicators have weakened significantly and the general business climate has deteriorated.”

The IMF said Europe’s most pressing challenge was to restore confidence and put an end to the crisis in the euro area.

It added that world economies needed “decisive and consistent policy action” to improve the current financial environment.

“There are three requirements for a more resilient recovery: sustained but gradual adjustment, ample liquidity and easy monetary policy, mainly in advanced economies, and restored confidence in policymakers’ ability to act.”

Separately, EU economic affairs commissioner Olli Rehn said he expected a “moderate recession” across Europe in the first half of this year.

On Monday, IMF chief Christine Lagarde warned the global economy could fall into an economic spiral reminiscent of the 1930s unless action was taken on the eurozone crisis.

In its update to its September report, the IMF warned that the “United States and other advanced economies are susceptible to spillovers from a potential intensification of the eurozone crisis”.

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