IMF to cut global growth forecasts on euro crisis

The International Monetary Fund (IMF) will probably cut its forecast for global economic growth as the European debt crisis worsens, Managing Director Christine Lagarde said.

The Washington based-fund will publish revised forecasts on January 24 or 25 that are “consistent with reality,” Lagarde told reporters in South Africa’s capital, Pretoria, during a two-day visit to the country. “We should all be prepared for a 2012 that will not be a walk in the park,” Lagarde said.

Euro area leaders are struggling to solve a sovereign debt crisis that began with Greece in 2009 and has spread to Italy, threatening to push Europe into recession. Standard & Poor’s placed the ratings of 15 euro nations, including AAA rated Germany and France, on review for possible downgrades on December 5.

The IMF in September cut its forecast for global growth to four per cent in 2012, predicting “severe” repercussions if Europe failed to contain the debt crisis.

Lagarde said the euro currency is “strong” and will survive even as risks of debt defaults increase in the region.

‘Euro won’t vanish’
“You have within the zone, not in relation to the currency, serious pressures concerning sovereign debt, concerning the strength of the banking system, which are being addressed,” Lagarde said. “But the currency itself is not one that would vanish or disappear in 2012.”

Lagarde held talks with Finance Minister Pravin Gordhan and is scheduled to meet with Reserve Bank Governor Gill Marcus later on Friday and President Jacob Zuma tomorrow in Bloemfontein, where the ruling African National Congress is holding its centenary celebration.

“African countries are a critical part of the global economy,” Lagarde said. “There is a strong potential for growth.”

South Africa has taken “adequate” steps to address the impact of the global economic slowdown and is “very attentive” to any spillover from the debt crisis, she said.

The government has “serious concerns” about currency volatility as investors pull funds out of emerging markets on concern the global economy is slowing, Gordhan told reporters at the press conference.

The rand dropped 18 per cent last year to 8.09 rand per US dollar, the worst performer of 16 major currencies tracked by Bloomberg. The currency fell as much as 0.5 per cent to 8.2144 against the dollar on Friday and was trading at 8.2029 as of 1.12 pm in Johannesburg.