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IMF's Lagarde Calls For 'Gradual' Deficit Cuts, Focus On Growth

International Monetary Fund Managing Director Christine Lagarde urged governments to cut budget deficits only 'gradually' with a larger focus on reforms aimed at growth and jobs.

She said most advanced countries are proceeding with fiscal consolidation at a "prudent" pace. For countries mired in recession, this will only help to worsen the economic conditions.

"Fiscal austerity holds back growth, and the effects are worse in downturns," she noted. This calls for "well paced, country-specific credible fiscal adjustment combined with reforms aimed at increasing growth and jobs."

"Countries need to keep a steady hand on the wheel. This means that if growth is worse than expected, they should stick to announced fiscal measures, rather than announced fiscal targets," she added.

The ratio of debt to GDP among the advanced economies is expected to hit 109 percent in 2013, the largest ratio since World War II. "This has to come down," Lagarde said.

In euro area, large-scale product market, labor and pension reforms could boost GDP by 4.5 percent over five years, Lagarde said citing a preliminary analysis by the IMF.

The IMF currently estimates global growth to be about 3.5 percent this year. Growth in advanced countries is expected to be much weaker at 1.5 percent in 2012, including a mild recession in the euro area.

Emerging markets and developing countries are expected to grow 5.75 percent.

by RTT Staff Writer

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