IMF Warns of Second Recession
On Tuesday, the International Monetary Fund (IMF), alongside the World Bank, warned that global economic growth is due to be substantially weaker than thought. This comes even though better economic data and market conditions have been reported, indicating improved business activity this month. The fund has forecast that weak momentum from the late 2011 sovereign crisis will push economies in the eurozone into recession, whether they they avert a new crisis or not. The financial organisation is urging the eurozone to break the cycle of retrenching falling lending, banks and governments, and recession.
The IMF and World Bank warn that a failure of the euro will begin another worldwide recession much like the one in 2008 that followed the collapse of Lehman Brothers. To avoid the crisis escalating, it has recommended a solution that the European Central Bank (ECB) and creditor nations aren’t likely to favour. For the first time, the fund is putting its weight to back eurobonds to keep some nations from getting a free ride on cheap financing. It also supports centralisation and stronger fiscal discipline.
Additionally, the IMF has called on the ECB to ease monetary policy more and to keep buying sovereign debt of peripheral nations through its securities markets scheme, which has taken on some €219 billion already. For now, the organisation is asking peripheral economies in the eurozone to push ahead with austerity measures and structural reforms. However, it’s also encouraged Europe to go along with funding a significant amount to operate a firefighting fund, which will go beyond the European Financial Stability Facility and the European Stability Mechanism.