WASHINGTON: The International Monetary Fund stepped up its warnings yesterday on risks to the global economy, mainly from the crisis-mired eurozone, as it trimmed its growth forecast for the rest of the year.

IMF economists said that the frail situations in Spain and Italy especially could quickly turn worse amid market doubts over eurozone leaders' resolve in implementing pledged reforms.

But they also pointed to the US "fiscal cliff" trajectory which, if not corrected, could crunch the US economy and heavily impact the rest of the world.

"In the past three months, the global recovery, which was not strong to start with, has shown signs of further weakness," the fund said in its quarterly economic forecast.

"Financial market and sovereign stress in the euro-area periphery have ratcheted up," it said, while growth has fallen below expectations in a number of major emerging-market economies.

If policy reactions in major economies remain inadequate or too slow, the IMF said, fissures could deepen, they added. "The main risk is obvious," IMF chief economist Olivier Blanchard told reporters.

"It is that the vicious circle in Spain and Italy becomes stronger, that output falls even more than it does, that one of these countries loses its financial access to markets," he told reporters.

"The implications of such an event could easily derail the world recovery."

The IMF said that largely due to sharper-than-expected slowdowns in newly industrialized Asia and in large emerging economies like China, India, and Brazil, it had cut 0.1 percent off its April forecast for global growth, to a rounded 3.5 percent. For 2013, the forecast is 3.9 percent, down from 4.1 percent.

Emerging economies were generally taking correct measures to deal with slowdowns, the IMF said. But many "have also been hit by increases in investor risk aversion and perceived growth uncertainty, which have led not only to equity price declines, but also to capital outflows and currency depreciation."

The Daily Sun/Bangladesh/ 18th July 2012