Global uncertainty looms large: IMF wonders if policymakers will deliver on their promises

The global economy is still fraught with uncertainty and still far from where it needs to be, Christine Lagarde, managing director of the International Monetary Fund (IMF), said here on Monday. Speaking at an event hosted by the Peterson Institute for International Economics, a Washington-based think tank, Lagarde said, "We continue to project a gradual recovery, but global growth will likely be a bit weaker than we had anticipated even in July, and our forecast has trended downward over the last 12 months."

"A number of factors are weighing the global economy down. At the centre of them all is the element of uncertainty; uncertainty about whether policymakers can and will deliver on their promises," Xinhua quoted her as saying.

The global economic growth was confronted with a number of challenges including the ongoing eurozone debt crisis, a tepid recovery in the US, the economic slowdown in emerging markets, and concerns in low-income countries about rising food prices and volatile commodity prices, added the IMF chief.

The global economic recovery hinges on delivering on the policy commitments that have been made, she stressed.

'World set for slower growth'

While lowering its outlook for global growth over the next two years, the International Monetary Fund (IMF) has warned that Europe’s financial crisis and slower expansion in China and India have weakened the world economy.

According to a quarterly update to its World Economic Outlook, the IMF said it expected the world economy to expand 3.5% this year, slightly down from its previous estimate of 3.6% in April. The IMF also cut its forecast for global growth to 3.9% in 2013, from 4.1% three months ago. It also cut its US growth forecast to 2% this year from its previous estimate in April of 2.1%

Speaking in Washington, IMF Chief Economist Olivier Blanchard said threats to the health of the global economy had increased, from the impact of the euro zone, as well as politics in the US.

"The main risk is obvious,” The Telegraph quoted him, as saying, adding: "It is that the vicious cycles in Spain and Italy become stronger, that output falls even more than it does. He said that if either Spain or Italy were to lose access to markets that could "easily derail the world recovery", the report said

According to the report, he said that European leaders need to ensure that borrowing costs for Spain and Italy do not get so high that they are unable to borrow from private lenders, possibly necessitating another bail-out

The IMF also warned that the US could fall back into a recession next year if Congress does not deal with the fiscal crisis.