IMF warns over Europe debt crisis
12:49 • 03.08.12
Failure of euro-zone policy makers to tame their growing debt crisis would likely trigger a severe regional economic contraction, force a fire sale of financial industry assets and trim the growth prospects of major world economies by several percentage points, the International Monetary Fund warned in new report Thursday.
"What stands between the current situation and the playing out of the scenario is the residual public confidence that policy makers will ultimately act to avert the spread of the crisis," the IMF said in its 2012 Spillover Report.
The report, published after US and European markets closed, quantifies the potential global effects from problems in the so-called systemic five economies: the euro area, the US, the UK, Japan and China, Fox Business reported.
If EU authorities don't act in time, the IMF said output in the euro area could be cut by five percentage points. Further, around two percentage points would be lopped off U.S. growth prospects, and output in China, Japan and the rest of the world would take a hit of around 0.5 to 2.5 percentage points.
The IMF said its simulation models may even understate the potential impacts because they don't, for example, take into account the fact that effects could be amplified amid a weak banking system and feedback loops.
Last year the IMF said that, provided the debt crisis doesn't spread from the peripheral euro area countries, any stresses in the monetary union would only have modest impacts on the rest of the world.
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