THE world economy has entered a “dangerous new phase,” the chief economist of the International Monetary Fund said yesterday. As a result, the international lending organization has sharply downgraded its economic outlook for the United States and Europe through the end of next year.

The IMF expected the US economy to grow just 1.5 percent this year and 1.8 percent in 2012. That’s down from its June forecast of 2.5 percent in 2011 and 2.7 percent next year.

To achieve even that still-low level of growth, the US economy would need to expand at a much faster rate in the second half of this year than its 0.7 percent annual pace in the first six months.

Most economists expected growth of between 1.5 percent and 2 percent in the final two quarters. Though an improvement, it wouldn’t be enough to lower the unemployment rate. The rate has been 9 percent or higher in all but two months since the recession officially ended more than two years ago.

“The global economy has entered a dangerous new phase,” said Olivier Blanchard, the IMF’s chief economist. “The recovery has weakened considerably. Strong policies are needed to improve the outlook and reduce the risks.”

The IMF has also lowered its outlook for the 17 countries that use the euro. It predicts 1.6 percent growth this year and 1.1 percent next year, down from its June outlooks of 2 percent and 1.7 percent.

The gloomier forecast for Europe was based on worries that euro nations won’t be able to contain their debt crisis and keep it from destabilizing the region.

“Markets have clearly become more skeptical about the ability of many countries to stabilize their public debt,” Blanchard said. “Fear of the unknown is high.”

Overall, the IMF predicted global growth of 4 percent for both years. Stronger growth in China, India, Brazil and other developing countries should offset weaker output in the US and Europe.

Financial turmoil and slow growth are feeding on each other in both the US and Europe, IMF officials said.

Source:cnbusinessnews