THE GLOBAL ECONOMIC recovery is slowing, the International Monetary Fund has said as it warns Eurozone leaders that they must contain the area’s debt crisis to the so-called periphery countries.

In its latest World Economic Outlook (WEO), the IMF also said that euro area banks must be made stronger with additional capital buffers.

World growth is now projected at 4 per cent for both 2011 and 2012, down from over 5 per cent last year.

Growth projections for the euro zone have also been revised down to just 1.6 per cent in 2011 and 1.1 per cent in 2012. Last June’s WEO predicted 2 per cent growth this year and a 1.7 per cent increase in GDP next year.

However, the Fund also warned that these projections are counting on “a lot going well”.

It could be worse

Global growth could be much lower if the Eurozone fails to contain its debt crisis, if the US does not strike a balance between support for its economy and medium-term fiscal consolidation and if the ups-and-downs in the financial markets get worse.

“The global economy is in a dangerous new phase. Global activity has weakened and become more uneven, confidence has fallen sharply recently, and downside risks are growing,” explains the IMF in its September 2011 WEO.

“Strong policies are urgently needed to improve the outlook and to reduce the risks,” added chief economist Olivier Blanchard. “Only if governments move decisively on fiscal policy, financial repairs, and external rebalancing, can we hope for stronger and more robust recovery.”

As for Ireland, growth predictions remain the same as in June’s forecast. The IMF sees 0.4 per cent GDP growth in 2011 and 1.5 per cent growth in 2012.

As for unemployment, it expects the rates to stay high at about 13.9 per cent in 2012.