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IMF Cuts Global Growth Forecast

The IMF slashed its global growth forecast for 2012 to 3.3 percent from 4 percent, set in September, saying the economic condition had greatly deteriorated in the past three months. It however expected global growth rate to strengthen to 3.9 percent in 2013. The epicenter of the crisis is Europe, and it warned that growth this year could fall by 2 percentage points if Europe doesn’t find a way out of the mess. According to the IMF, central and Eastern Europe, which has strong trade links with the euro zone economies, would feel the greatest impact of the slowdown. The IMF warned that the escalating euro zone debt crisis could severely hamper the global economic recovery if drastic and urgent steps were not taken to restore confidence. The IMF expectsUnited Statesto maintain its 1.8 percent growth, forecast for 2012, but is bearish on Japan and cut its projection to 1.7 percent from 2.3 percent in September. Emerging and developing countries are also likely to face a sharp slowdown in the pace of growth and the fund urged them to focus policies to rejuvenate their economies. It now projects emerging economies to clock a growth rate of 5.4 percent in 2012, down from the 6.1 percent it forecast in September. China was also in for some downgrade, and it cut its growth figure to 8.2 percent for 2012, down from 9.0 percent. It however maintained that Chinese growth should rebound to 8.8 percent in 2013.

Despite slowing world growth, the IMF expects global oil prices to ease slightly in 2012. It did not change the baseline oil price of $100 a barrel projected in September. Non-oil commodity prices face downside risks and are set to fall by 14 percent this year.

The IMF estimates that it will need €1 trillion to meet its commitments over the next few years, and announced plans to increase its own coffers by €500 billion, which includes a €200 billion commitment from the euro-zone.