PARIS (MNI) – Sharply downgraded forecasts by the International
Monetary Fund show the Eurozone economy contracting this year before
recovering meekly in 2013, with Italy’s GDP shrinking for two
consecutive years, the Italian news agency Ansa reported Thursday.

Citing a copy of the new forecasts to be published next Tuesday in
the IMF’s World Economic Outlook, Ansa said the Fund is now projecting
that the Eurozone’s GDP will drop by 0.5% this year – a downward
revision of 1.6 percentage points from its previous forecasts last
September. Growth will return in the Eurozone in 2013, but not robustly:
the IMF is projecting a growth rate of 0.8% for next year.

Italy will fare far worse than the Eurozone average, however, with
GDP set to plummet 2.2% this year — a downward revision of 2.5
percentage points from the last forecast. Italy’s economy will then
continue to shrink in 2013, dropping another 0.6% on the year, according
to the IMF projections, Ansa reported.

The Fund makes clear that in its view, the Eurozone is the sickest
region in the world economy today. The single currency bloc is the
“principal reason” for the deterioration of the world’s economic outlook
and the reason why downward economic risks have increased, it says.

“The global recovery is threatened by the growing tensions in the
euro area,” the IMF writes in its report, according to Ansa.

The main factors cited by the IMF for the euro area’s expected drop
into recession this year are the runup in yields on sovereign debt, a
constriction of bank lending to the real economy, and the impact of
deficit-cutting measures in many of the EMU states.

The most immediate political challenge,” the Fund writes, “is to
re-establish confidence and put an end to the euro area crisis,
supporting growth.” Budget cutting must be “sustainable,” a credit
squeeze must be contained, and more liquidity must be provided, “thanks
to a more accommodative monetary policy,” Ansa reported the IMF report
as saying.

Among the world’s largest economies, U.S. GDP is projected to grow
by 1.8% this year, unrevised from the previous forecast, and then by
2.2% in 2013 (a downward revision of 0.3 point). China should continue
to grow at a brisk pace, but still considerably slower than the IMF
previously forecast. It now sees Chinese GDP growing 8.2% this year (a
downward revision of 0.8 point) and 8.8% in 2013 (-0,7 point).

Germany’s economy should eke out a meager increase of 0.3% this
year, a downward revision of a full point. It is then projected to grow
by 1.5% next year, unrevised from the September forecast.

Japan is set to grow by 1.7% (a downgrade of 0.6 point from the
last forecast) and by 1.6% in 2013 (-0.4 point).

The IMF sees the UK economy expanding a sluggish 0.6% this year
(downwardly revised 1 percentage point) before accelerating to +2.0%
next year (-0.4 point from previous forecast).

France will barely grow this year, with GDP seen just 0.2% higher
(1.2 percentage points below the previous forecast), followed by a still
feeble 1.0% in 2013 (-0.9 point).

The IMF also expects the emerging economies to slow down, because
of the worsening international environment and slowing domestic demand,
Ansa reported.

–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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