WASHINGTON, September 20, 2011 (AFP) – The global economy has entered “a dangerous new phase,” with a recovery that is much weaker than was predicted just months ago, the International Monetary Fund warned Tuesday. Emerging market economies that have been the recovery’s driving force, such as China and India, will not escape unscathed from the weakness in the advanced economies, the Washington-based lender said.
“Many emerging economies need to make faster progress in strengthening fiscal fundamentals before cyclical factors or spillovers from advanced economies… turn against them,” it said in an accompanying analysis.
“Anemic” consumption in advanced economies and spiking financial volatility over worries about US and eurozone public debt have put the brakes on growth, originally forecast a half percentage point higher for this year.
The slowdown in advanced economies was “a development we largely failed to perceive as it was happening,” Blanchard acknowledged.
Fiscal and financial uncertainty gathered steam in August, roiling financial markets as investors watched political gridlock in Washington over US debt and deficits and the spreading Greek debt crisis in the eurozone.