IMF Warns Of Double Dip Recession Risk
The International Monetary Fund has warned there is a 17% chance of a ‘double dip’ recession in the UK.
The IMF’s twice yearly World Economic Outlook report also said the world economy has “weakened significantly” and in a rebuke to politicians, said that “policy indecision… has added to financial strains”.
It also said that the UK economy will grow at a slower pace than it had previously predicted.
Its UK growth forecast for 2011 has been revised downwards 1.5% to 1.1%.
For 2012, it has reduced its estimate of economic growth from 2.3% to 1.6%.
The government’s official forecast for 2011 growth remains at 1.7% although the Chancellor has acknowledged this will be reduced when it is next reviewed.
Growth in the United States is forecast to slow to 1.5% in 2011 and 1.8% in 2012.
Christine Lagarde, the recently appointed IMF chief, has made repeated warnings that excessive austerity measures could cause another recession and urged European and US leaders to act to prevent a further deterioration in growth.
The IMF – which has been involved in bail-outs for Greece, Ireland and Portugal over the past 18 months – has blamed instability in Europe and the US for a lack of business and consumer confidence.
It notes that: “Sovereign debt and banking sector problems in the euro area have proven much more tenacious than expected.”
“Policy indecision has exacerbated uncertainty and added to financial strains, feeding back into the real economy.”
It also said that the impact of the Japanese tsunami on global manufacturing and the spike in oil prices caused by unrest in the Middle East could have wiped 0.05% off growth in advanced economies in the second quarter of 2011.
However, it expects the rebound of activity in Japan and a decline in oil and food prices will help reignite the recovery in the near future.
Separately, the head of the World Bank has warned that the drop in investor confidence is feeding through to developing nations and called on governments in the advanced economies to take “co-operative action”.
Robert Zoellick said: “A new and larger risk looms. The drop in markets and confidence could prompt slippage in developing countries’ investment and a pull-back by their consumers, too.”
In October 2008, the IMF predicted the UK was headed for recession and that the UK economy would shrink by 0.1% in 2009.
The economy actually shrank by 4.9% that year.