The International Monetary Fund warned on Tuesday that global growth prospects had dimmed as the sovereign debt crisis in the euro zone entered a “perilous new phase.”
Releasing quarterly updates of three reports on the outlooks for the economy, debt and global financial stability, the fund cut its estimates of global growth this year to 3.25 percent, from the 4 percent it forecast in September, on “sharply escalated” risks emanating from Europe. . .
The I.M.F. also warned that the United States might turn to austerity budgeting too soon, imperiling its own recovery. Carlo Cottarelli, the director of the fiscal affairs department, cited such premature fiscal tightening as a “concrete risk.” He noted that the steep, automatic budget cuts put into place by Congress last year would lead to the biggest hit to spending in four decades. He called for a more “gradual decline in the deficit.”
The same advice applies to the rest of the world, the fund said. Mr. Cottarelli warned that “both too little and too much adjustment will be bad for growth. Both extremes will be bad for growth.” The main risk is that too many countries will cut their budgets too deeply, too soon, sapping demand from the still-weak global economy.