Bloomberg News

IMF to Cut Growth Forecasts on Debt Crisis, Lagarde Says

January 07, 2012

(Updates with comment from Lagarde in eighth paragraph.)

Jan. 6 (Bloomberg) -- The International Monetary Fund 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 Jan. 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 Dec. 5.

The IMF in September cut its forecast for global growth to 4 percent 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 today 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 percent last year to 8.09 rand per U.S. dollar, the worst performer of 16 major currencies tracked by Bloomberg. The currency fell as much as 0.5 percent to 8.2144 against the dollar today and was trading at 8.2029 as of 1:12 p.m. in Johannesburg.

--Editors: Nasreen Seria, Ben Holland

To contact the reporter on this story: Andres R. Martinez in Johannesburg at amartinez28@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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