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“U.S. legislators must soon remove the threat of the fiscal cliff and raise the debt ceiling––if they fail to do so, the U.S. economy could fall back into recession, with deleterious spillovers to th..

09 Oct 2012

WASHINGTON, D.C(Commodity Online): Unless the fiscal cliff issue in the US is addressed and debt levels not raised by policy makers, the nation could fall back into yet another recession, warns the IMF in its latest World Economic Outlook.

“U.S. legislators must soon remove the threat of the fiscal cliff and raise the debt ceiling––if they fail to do so, the U.S. economy could fall back into recession, with deleterious spillovers to the rest of the world. Furthermore, policymakers in the United States urgently need to specify strong medium-term fiscal plans.” the Bank said in a report.

Speaking on QE measures adopted by various countries, the IMF also said, “in many advanced economies, injections of liquidity are having a positive impact on financial stability and output and employment, but the impact may be diminishing.”

On the eurozone crisis, the Bank said:

“The crisis in the euro area remains the most obvious threat to the global outlook. The ECB has put in place a mechanism to improve the transmission of low policy rates to borrowing costs in the periphery, where investors’ fears about the viability of the euro have pushed market rates to very high levels. The periphery economies need to continue to adjust. Governments must meet their commitment to make the euro area firewall more flexible. Specifically, the ESM must intervene in banking systems and provide support to sovereigns, while national leaders must work toward true economic and monetary union.

This requires establishing a banking union with a unified financial stability framework and implementing measures toward fiscal integration, on the principle that more area-wide insurance must come with more area-wide control.”

Meanwhile, in emerging market and developing economies, activity has been slowed by policy tightening in response to capacity constraints, weaker demand from advanced economies, and country-specific factors, bank added.

The projected global growth, at 3.3 and 3.6 percent in 2012 and 2013, respectively, is weaker than in the July 2012 WEO update, which was in turn lower than in the April 2012 WEO, bank warned.


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