View the article online at http://citywire.co.uk/money/article/a582609
IMF ups global forecast amid enduring eurozone threat
International Monetary Fund cautiously upgrades global economic outlook, but says renewed eurozone crisis is biggest of many risks.
Another acute eurozone crisis remains the biggest of an array of threats to the world economy, the International Monetary Fund (IMF) has warned, even as it upgraded its global economic forecast for 2012.
The high oil price 'which could be pushed up 20% to 30%' and prohibitive, or ‘tight’ economic policies count among a list of concerns for the IMF, but the biggest risk remains ‘that further escalation of the euro area crisis will trigger a much more generalized flight from risk,’ the fund said in its latest world economic outlook.
IMF's economic counsellor Olivier Blanchard described the eurozone crisis as the one 'overwhelming' risk.
The warning comes amid rising government bond yields in eurozone countries such as Spain. After a strong market rally at the start of the year, since the middle of March and April many stock markets started to fall. Amid resurgent fears over the eurozone, a survey today revealed that the number of global fund managers with overweight cash positions quadrupled in the past month to 24% in April.
The IMF’s report describes markets as ‘schizophrenic’, demanding austerity measures from indebted developed world governments, but then reacting badly when they lead to lower economic growth.
The IMF has, however, upgraded its forecast for the world economy to 3.5% in 2012. This is down from 4% growth in 2011, but higher than the fund’s January forecast of 3.3% growth for 2012.
Amid debate as to whether the US Federal Reserve plans to extend its quantitative easing programme, the IMF says ‘more easing would also be needed in the United States if activity threatens to disappoint’. However, it has upgraded its outlook for US growth to 2.1% for 2012.
The UK will grow at 0.8% this year, the fund says, a slight improvement on its January forecast.
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