At its annual meeting in Tokyo, the IMF warned that the situation was grave and could escalate into a wider downturn unless national leaders ended their disputes with a long-lasting deal, reports The Guardian.
The IMF admitted that it, like many other forecasting organisations, had underestimated the negative impact on growth of steep cuts in public spending. It said: "Staff research suggests that fiscal cutbacks had larger than expected negative short-term multiplier effects on output, which may explain some of the output falls."
The IMF's first deputy managing director David Lipton blamed much of the instability and fear in the global economy on the US, which he said needs to do more to show it is trying to address the expiring tax cuts and automatic spending reductions that will hit early next year unless Congress acts. While most of the focus has been on Europe, Lipton stressed that the US fiscal problems also posed a significant threat.
"We would like to see the United States lower the level of uncertainty by embracing more specifically the need to avoid the fiscal cliff and deal with the medium-term problems," said Lipton, a former economic adviser to President Barack Obama.
Read the full article in The Guardian.