IMF expects eurozone to shrink by 0.5% in 2012

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The Independent Online

The International Monetary Fund will next week forecast a return to recession for the eurozone in 2012, a move likely to increase the pressure on governments to contribute to its latest $600bn (£388bn) fundraising drive.

The IMF is scheduled to release its revised World Economic Outlook estimates on Monday, with analysts expecting a sharp reduction because of the continuing eurozone crisis. According to the Italian agency Ansa, citing a leaked draft of the estimates, the IMF will forecast that the eurozone economy will contract by 0.5 per cent this year, with Italy shrinking by 2.2 per cent and Spain by 1.7 per cent.

At the IMF's meeting in September 2011, it forecast eurozone growth in 2012 of a comparatively healthy 1.1 per cent. The eurozone's economic engine, Germany, is projected to grow by just 0.3 per cent this year while France is pencilled in for growth of 0.2 per cent.

Global growth estimates are also likely to be slashed by the IMF on the back of a eurozone recession. According to Ansa, the IMF now estimates that global GDP will rise by 3.3 per cent in 2012, rather by 4 per cent, as previously forecast.

The estimates for 2013 are also predicted to show GDP growth of 4 per cent, compared with a previous forecast of 4.5 per cent growth.

In its review of Ireland's public finances, the Troika – made up of the European Union, the European Central Bank and the IMF – cut its growth forecasts for Ireland to just 0.5 per cent in 2012, down from 1 per cent in October.

The IMF said this week that it anticipated calls on its resources over the next two years by distressed member states of up to $1 trillion, and that it would need a $600bn increase in its funding. The European Commission welcomed the IMF's fundraising push. "This would send a clear signal to the market," said Amadeu Altafaj, a European Commission spokesman.

But some other large potential donors, including the US, warned that the IMF could not be expected to rescue the euro.