world's economy is "deeply into the danger zone" because of risks from the eurozone

Rayleigh Taxis

The world's economy is "deeply into the danger zone" because of risks from the eurozone, the International Monetary Fund (IMF) has said.

The IMF predicts the global economy will grow by 3.25% in 2012, down from an earlier forecast of 4%.

The growth forecast for the UK economy has been cut to 0.6% from 1.6%.

But the eurozone is set for a "mild recession" in 2012, with GDP expected to shrink by 0.5%, compared with a previous forecast of 1.1% growth.

Shadow chancellor Ed Balls called for the government to rethink its austerity plan in the light of the IMF estimates.

"Last year the IMF was clear that if growth undershot expectations then the British government should reconsider the pace of spending cuts and tax rises which choked off our recovery well before the recent eurozone crisis, pushed up unemployment and has seen borrowing forecasts soar," said Mr Balls.

"Now the IMF has slashed their growth forecasts and confirmed that growth in Britain will indeed be much lower than they expected. And they have called on countries with low interest rates, like the UK, to reconsider the speed of their spending cuts and tax rises."

In response, the government said the IMF predictions matched those made by the independent Office of Budgetary Responsibility, which informs government economic policy.

"The IMF has downgraded its growth forecasts for all the major economies, reflecting the deterioration in the global outlook since their last forecasts in September," said a Treasury spokesperson.