World economy in 2012 'may be worse'

Updated: 2011-12-22 04:32


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WASHINGTON - With downside risks in advanced economies increasing and policy environment uncertain, the world economy may see worse conditions in the coming year, warned chief economist Olivier Blanchard of the International Monetary Fund (IMF) on Wednesday.

In an IMF blog, Blanchard wrote that the global economy in 2011 started in recovery mode with hope. However, it is ending with growth standstill and confidence loss.

"As the year draws to a close, the recovery in many advanced economies is at a standstill, with some investors even exploring the implications of a potential breakup of the euro zone, and the real possibility that conditions may be worse than we saw in 2008," he said.

His article released at a time when IMF Managing Director Christine Lagarde said that the Washington based international financial institution is almost certain to cut its world growth forecast for 2012 due to the euro zone debt crisis.

"I am almost certain... that the forecasts will be revised down" in January, Lagarde said during her visit in Africa on Wednesday.

In its September World Economic Outlook report, the IMF projected that global economy would grow 4 percent in 2012.

As the debt crisis in the euro area worsening and decision making in major advanced economies becoming more uncertain, the world economy prospect seemed much less optimistic.

The IMF called for further actions to tackle the challenges in order to avoid another global meltdown.

"If nothing is done, the crisis in confidence... and this sort of spiral of doubt, will just get worse in all countries... all the countries of the world will suffer the consequences without exception," Lagarde said.

Blanchard also noted that "incomplete or partial policy measures can make thing worse."

He warned that "putting the recovery back on track will be harder than it was a year ago." It will need bold and stronger policies, including credible but realistic fiscal consolidation plan, liquidity provision, implementation of announced plans, and much more effective collaboration among all involved.

The chief economist said he hoped that the proper actions will be taken. "The alternative is just too unattractive," he added.