In Tokyo last night the international Monetary Fund ahead of the IMF-World Bank 2012 Annual Meetings downgraded its estimates for global growth – but what does this actually mean?
What have the IMF actually said?
The IMF Chief Economist Oliver Blanchard said: “Low growth and uncertainty in advanced economies are affecting emerging market and developing economies through both trade and financial channels, adding to homegrown weaknesses.”
The IMF also added: "In advanced economies, growth is now too low to make a substantial dent in unemployment."
What does this mean?
It means global growth has stunted and the IMF now predict the global economy to grow by 3.6 per cent instead of 3.9 per cent as previously estimated in July. One of the most significant downgrades was in the UK, where the IMF expects the economy to shrink by 0.4 per cent this year.
What factors have contributed to this new rating?
Continued economic crises in the Eurozone, which is expected to shrink by 0.7 per cent this year, a credit cycle downturn in Asia and Latin America, slow growth in America and a significant slow down in growth from China.
What is the IMF’s advice for growth?
The IMF has said Europe must stand behind a summit pledge made in June to allow the European Stability Mechanism (bail-out fund) to stabilise struggling banks in Spain and other European Monetary Union (EMU) states. The US, the IMF has said, must increase its debit ceiling and delay automatic spending cuts and tax increases expected next year – otherwise the economy could fall back into recession and have a knock on effect to the rest of the world.
Jorg Decressin, a senior analyst at the IMF, also told Sky News: "The general mix of policy - which is to reduce large fiscal deficit, and to support growth through an accommodative monetary policy and through financial sector reform - is the right way to go.”