THE US economy will fall off the ‘fiscal cliff’ when automatic spending cuts and tax increases kick in at the beginning of next year, the IMF has warned.
Unless it delays these measures ‘the US economy could fall back into recession’, plunging the world into deep slump.
The IMF also found that the UK economy will shrink by 0.4% this year.
This is a radical revision downwards of its previous forecast of a 0.2% growth for the year, made just three months ago in July.
Olivier Blanchard, IMF chief economist, said of the UK: ‘The financial system is still not functioning efficiently.’
The UK will also miss its commitment, made at the G20 2010 Toronto meeting, to at least halve its deficit by 2013, he added.
The global economic recovery is weakening as governments’ policies have failed to restore confidence, the IMF has said.
It added that the risk of further deterioration in the economic outlook is ‘considerable’ and has increased.
The IMF downgraded its estimate for global growth in 2013 to 3.6% from the 3.9% it forecast in July.
Its report said: ‘Output is expected to remain sluggish in advanced economies’.
Measures to relieve ‘chronic household debt burdens’ did not address the scale of the problem, it said, while ‘efforts to strengthen the regulatory framework for financial institutions and markets have been patchy’.
While there had been some success in rebuilding capital bases of banks, not enough had been done to address ‘excessive risk taking’ risking further collapses in financial markets.
Brian Strutton, GMB National Secretary for public services, commented: ‘Many economists and organisations like the GMB have repeatedly warned that austerity cuts would choke the economy to death.
‘Now the IMF has demonstrated that not only is the medicine not working, it’s killing the patient.
‘The IMF shows that cutting public spending has an impact far greater than the scale of the cut itself and this is reducing demand and stopping growth.
‘The IMF says we are facing more contraction in the UK economy this year and unless government changes tack we are heading for a triple-dip recession.’
l Thousands of Greek workers defied a ban on demonstrations when German Chancellor Angela Merkel arrived in Athens yesterday.
The chief of the Athens area police had invoked a 1971 decree from the time of the military junta, banning demonstrations all day in a large part of Athens, including the airport, yesterday.
In the centre of Athens on Syntagma Square banners read ‘Merkel out, Greece is not your colony’ and ‘This is not a European Union, it’s slavery’.
Demonstrators were attacked by baton-wielding riot police and many were injured and arrested.
