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Europe needs to “get its act together” and deal with its worsening sovereign debt crisis, the International Monetary Fund (IMF) said, according to TVNZ.

Warning of the risk of severe repercussions from Europe for global growth, the IMF said both Europe’s debt woes and a painfully slow US recovery could undermine global expansion, and it warned that without action those economies could tip back into recession.

The top economist at the global lender, however, singled out Europe as “a major source of worry” as he released the IMF’s latest World Economic Outlook report this week.

“There is a wide perception that policymakers are one step behind markets,” IMF chief economist Olivier Blanchard was reported saying.

“Europe must get its act together,” he added.

The Fund cut its 2011 and 2012 global growth forecast to 4%, shaving projections for almost every region of the world and saying risks remained tilted to the downside.

Just three months ago it had projected an expansion of 4.3% for 2011 and 4.5% for 2012.

Finance officials from around the world, who gather in Washington later this week for semiannual meetings of the IMF and World Bank, appear to have no clear road map for how to deal with high debt levels and a fragile global recovery.

The IMF’s message to European leaders was that they should do whatever it takes to preserve confidence in national policies and the euro, and it urged the European Central Bank to lower interest rates if risks to growth persisted.

Standard & Poor’s yesterday downgraded its ratings on Italy by one notch and kept its outlook on negative in mounting pressure to cut its debt.

Greece today pledged to shrink the country’s public sector to win more loans from international lenders like the IMF.

Greece, which stands at the centre of Europe’s crisis, is facing increasing pressure from the European Union and IMF to deliver on pledges to slash its deficit.

Senior IMF economist Jorg Decressin told reporters Greece’s debt problems were “eminently manageable” and its government was fully committed to staying in the euro zone.

More broadly, he said it was a “crazy proposition” to even talk about a possible break up of the 17-nation currency bloc because European leaders were fully committed to making the euro area work.

The IMF warned that uncertain politics in the United States could threaten recovery there if needed actions to bolster growth in the near-term were not taken.

It said a failure by Europe and the United States to act forcefully would undermine financial markets, which would lead to a sharp decline in world trade and capital flows and drag down growth in emerging and developing economies.

The fund cut its growth forecast for the euro zone by nearly half a percentage point to 1.6% in 2011 and said growth would likely register just 1.1% next year.

The IMF shaved its forecasts for US growth to 1.5% for 2011 and 1.8% for 2012, down from June projection of 2.5% and 2.7%, respectively.

Japan’s economy was forecast to shrink 0.5% this year, not quite as severely as previously thought, but to grow just 2.3% in 2012. In June, the IMF said Japan would likely grow 2.9% next year.

The IMF also said prospects for emerging market economies were growing more uncertain, although growth would likely remain fairly strong at about 6.4% this year, slowing to 6.1% in 2012.

Signs of overheating still warranted close attention in emerging market economies, it cautioned. In some countries, higher commodity prices and social and political unrest loomed large, it added.

The fund trimmed its forecasts for China and other emerging Asian economies, in part due to slowing global growth.

It said it expects China’s economy to grow 9.5% in 2011 and 9.0% in 2012. That’s down from its June forecasts of 9.6% this year and 9.5% in 2012.

The IMF also slashed its forecast for Australia’s growth outlook to 1.8% this year, down from its previously forecast 3%. According to the Sydney Morning Herald, the figure is way below the May budget forecast and only half the most recent Australian Reserve Bank forecast, suggesting it will be harder than expected to reach the promised budget surplus in 2012-13. Source: TVNZ and Sydney Morning Herald

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