Britain's economy may barely escape recession this year and will likely grow slower than forecast in 2013, according to a startlingly sober reassessment of the global economy published Monday by the International Monetary Fund.
In a sharp downgrade to its previous appraisal, used by Chancellor George Osborne to defend his much-attacked program of austerity, the IMF predicted in its latest quarterly forecast that Britain's economy will only grow by 0.2 percent this year and 1.3 percent in 2013, a 0.6 percent reduction from the previous estimate published in April.
Adding pressure to the government's program of spending cuts and tax increases, the Fund said Britain's budget deficit would likely come in at 7.1 percent of GDP this year, as opposed to the 6.6 percent figure from its last estimate.
The growth figures chime with the IMF's newest evaluation of the global economy, in which it shaved 0.2 percent from its last estimate and now expects and expansion of 3.9 percent in 2013. It left its 3.5 percent growth target unchanged for this year. The biggest risk to the overall forecasts, the ongoing sovereign debt crisis in Europe, will pare growth in the region to 0.7 percent next year. The IMF is keeping its assumption of a 0.3 percent expansion for this year but warns that Spain's banking crisis remains a key risk and that its recession will stretch well into 2013.
"Downside risks to this weaker global outlook continue to loom large," the IMF said. "The most immediate risk is still that delayed or insufficient policy action will further escalate the euro area crisis."
The IMF pegs China growth at 8 percent for this year, down from 8.2 percent, and 8.5 percent next year, down from 8.8 percent. India's economy will also show far more sharply than expected, to 6.1 percent from 6.9 percent this year and 6.5 percent from 7.3 percent next year.
The IMF downgrade is the second of the day for Britain after the influential Ernst & Young ITEM Club downgraded its April forecast for the UK economy to "no growth" this year before a mild turnaround delivers a 1.6 percent recovery in 2013.