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IMF predicts mild European recession, lower global growth in 2012

The International Monetary Fund predicted Europe would fall into a mild recession this year, helping drag down global economic growth to a sluggish 3.3%, significantly lower than projected just four months ago.

U.S. economic growth will be 1.8% in 2012, much higher than the -0.5% projected for the euro zone, the IMF said Tuesday in an update to its World Economic Survey figures released in September. But the European debt crisis entered a “perilous new phase” at the end of last year, causing the global recovery to stall and forcing the IMF to lower its projection of worldwide economic growth from the earlier estimate of 4%.

“Given the depth of the 2009 recession, these growth rates are too sluggish to make a major dent in very high unemployment,” the IMF said.

The projection of a euro zone economic contraction is down from the September projection of 1.1% growth. Things will improve somewhat in 2013, with the IMF projecting 0.8% growth.

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Despite the troubles in Europe, the projection for the U.S. economy in 2012 remains the same as in September, though the growth rate is anemic. The recovery will improve in 2013 to a 2.2% annual growth rate, but that is down from the IMF’s September projection of 2.5%.

The IMF said countries needed to take comprehensive steps to restore financial stability, but warned of the economic risks of tightening fiscal policy too quickly.

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