The global economic outlook has become more worrisome over the past few months with deteriorating investment, employment and manufacturing in Europe, the U.S., Brazil, China and India, International Monetary Fund Managing Director Christine Lagarde said Friday. She also said the lender will downgrade the global growth forecast in its upcoming report.
Delivering the Nikkei Symposium Keynote Speech in Tokyo, Lagarde said, "In the IMF's updated assessment of the world economy, to be released ten days from now, the global growth outlook will be somewhat less than we anticipated just three months ago."
"And even that lower projection will depend on the right policy actions being taken," she added. In the April World Economic Outlook report, the lender forecast 3.5 percent global economic growth this year and 4.1 percent next year.
The IMF Chief's comments come just a day after three major central banks unleashed monetary stimulus amid growing signs of economic slowdown. While the European Central Bank and the People's Bank of China cut interest rates, the Bank of England opted to boost the size of its quantitative easing.
Regarding Europe, Lagarde said some extraordinary efforts have already been made. "Further progress will continue to be needed to overcome the crisis decisively and avoid the damaging effects on stability and growth," she pointed out.
"There are risks in all corners of the globe—Europe, the United States and, here too, in Asia and Japan."
Though Asia has contributed more than half of total global economic growth since 2008, the region is not immune to the economic crisis, she warned.
"The spillovers from Europe are increasingly visible here," Lagarde said. "Lower stock prices, capital outflows, and higher spreads have already affected a number of Asian countries."
She urged Asian policymakers to work to guard against a crisis. The two major risks specific to Japan are the upward pressure on the yen from the continued flight to safety and the adverse impact from a deeper European crisis on the country's exports, she said.
The IMF advocates collective policy action to benefit all, Lagarde said. In Europe, more is needed in addition to last week's EU summit that put in place the first building block of a banking union, she said. Fiscal cooperation must reach new heights, she added.
"There will be hurdles to implementation," Lagarde said. "But there is no question that pushing ahead with these coordinated actions will help restore longer term confidence in the Euro area."
Lagarde urged all countries to deal decisively with the issue of public debt that is hurting growth in many advanced economies. The U.S. must do everything to avoid driving over the 'fiscal cliff' she said.
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