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IMF downgrades global growth forecast for 2012

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The International Monetary Fund has warned that the global economy is “deeply in the danger zone” because of risks from the eurozone.

The IMF has revised its global growth forecast for 2012 down to 3.25 per cent from an earlier forecast of 4 per cent, while the outlook for the UK has been downgraded for the UK economy from 1.6 to 0.6 per cent.

The IMF has said the eurozone faces a “mild recession” this year, having forecasted a fall of 0.5 per cent for GDP, compared to a previous forecast of 1.1 per cent growth. It has cut Germany’s forecasted GDP from 1.3 to 0.3 this year as well as cutting France’s outlook from 1.4 to 0.2 per cent.

The IMF also warns that Eastern europe and Asia could also be hit by the eurozone crisis, citing recent indicators weakening markedly and the general business climate deteriorating.

The group has called for  world economies to produce “decisive and  consistent policy action” to improve the current financial environment.

The IMF says: “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.”

Yesterday, the head of the IMF Christine Lagarde (pictured) called for the eurozone to have a larger bail-out fund to prevent the likes of Italy and Spain ending up in default.

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