IMF sees global economic growth shrinking and warns of EU threat

1. Wide shot of economists walking into briefing 2. Cutaway of media 3. SOUNDBITE: (English) Olivier Blanchard, International Monetary Fund (IMF) Chief Economist: "The world recovery which was weak in the first place is in danger of stalling. The epicentre of the danger is Europe, but the rest of the world is increasingly affected. There is an even greater danger namely that the European crisis intensifies. In this case, the world could be plunged into another recession." 4. Cutaway of media 5. SOUNDBITE: (English) Olivier Blanchard, IMF Chief Economist "With the right set of measures, the worst can definitively be avoided and the recovery can be put back on track. These measures can be taken, need to be taken and need to be taken urgently." 6. Cutaway of media 7. Wide of panel 8. SOUNDBITE: (English) Jose Vinals, Director of the IMF's Monetary and Capital Markets department: "The global financial system remains fragile and this makes it urgent to restore confidence in the Euro area and beyond. Otherwise, we run the risk of a deepening of the crisis with far reaching global economic and social consequences. Fortunately, it's not too late to put in place the right policies that take us out of the danger zone, but for this, we need good politics and the collective determination to reach now a cooperative solution both within Europe and at the global level. Thank you." 9. Wide shot of news conference STORYLINE: The International Monetary Fund issued a grim assessment of the global economy Tuesday, cutting forecasts for growth and warning about the escalation of downside risks. The IMF predicted a recession in Europe will slow the global economy this year, and forecast a global growth of 3.25 percent, down from the 4 percent pace it had projected in September. The IMF urged world leaders to focus on growth more than on budget cuts, which it said would slow growth further and undermine market confidence. And it warned inaction could force the euro-zone economy to shrink over the next two years, potentially leading to a global economic crisis. "The world recovery which was weak in the first place is in danger of stalling. The epicentre of the danger is Europe, but the rest of the world is increasingly affected. There is an even greater danger namely that the European crisis intensifies. In this case, the world could be plunged into another recession," said the IMF's Chief Economist Olivier Blanchard. While Blanchard said the fact that world markets remain very vulnerable is the "bad news," he said there is "good news," as well, which is that with the right policies and urgent action, the global economy can be put back on track. "With the right set of measures, the worst can definitively be avoided and the recovery can be put back on track. These measures can be taken, need to be taken and need to be taken urgently," he said. The IMF said in light of the weaker growth, European governments should avoid extreme austerity measures - spending cuts and tax increases. And it said healthier European countries whose governments are facing lower interest rates "should reconsider the pace" of their short-term budget cuts. The global lending organisation's message runs counter to the push for budget cuts advocated by German Chancellor Angela Merkel. European banks, meanwhile, are cutting back on lending in order to boost their capital reserves, the fund said. That's likely to hammer Central and Eastern European economies this year, which depend heavily on European bank loans. The cutbacks will also slow growth in many Asian economies, the IMF said, where European banks finance a big chunk of the region's exports. Europe's recession should have only a modest impact on the United States. You can license this story through AP Archive: http://www.aparchive.com/metadata/youtube/69d5ded39f9c78469c5488017a64a856 Find out more about AP Archive: http://www.aparchive.com/HowWeWork