IMF Says Threat of Sharp Global Slowdown Has Eased

The probability of a sharp global slowdown has eased due to recent policy measures adopted in the euro zone to tackle its debt crisis, the International Monetary Fund said on Thursday, but it warned risks to world growth remain "squarely to the downside."

In a report to G20 finance ministers in Mexico over the weekend and only published on Thursday, the IMF said the euro zone should act decisively on multiple fronts to successfully resolve its sovereign debt crisis.

"The key risk remains that policies do not shift Europe toward a 'good equilibrium' and fail to break adverse feedback loops between real, fiscal, and financial sectors," the IMF said, urging euro zone policymakers to increase a firewall by about $500 billion to protect countries from financial contagion.

The IMF said the European Central Bank should continue injecting liquidity and stay fully engaged in securities purchases to help shore up financial stability.

Meanwhile, ECB monetary policy should focus on ensuring price stability, it said, adding that there was room to lower the target policy rate if needed.

In the United States, Britain and Japan, central banks should stand ready to expand unconventional measures if the outlook worsens, the IMF said.

In emerging markets, the IMF said growth had slowed more than expected, although risk perceptions had eased and capital flows had resumed into emerging Asia, Latin America and South Africa economies since the beginning of 2012.

In emerging countries with high inflation and public debt, including India and some economies in the Middle East, a "cautious stance" to policy easing was needed, the IMF said.

The IMF said higher oil prices were a risk to global growth and repeated an earlier warning that the impact of an oil supply shock in the Middle East "could be large" if supplies were not increased elsewhere.

In particular, a halt in Iran's oil exports could trigger an initial price increase of about 20 percent to 30 percent, the IMF warned.

Saudi Arabia assured G20 finance ministers over the weekend it was prepared to release more oil if necessary to make up for supply disruptions, IMF Managing Director Christine Lagarde told a news conference on Sunday.

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IMF Says Threat of Sharp Global Slowdown Has Eased

The probability of a sharp global slowdown has eased due to recent policy measures adopted in the euro zone to tackle its debt crisis, the International Monetary Fund said on Thursday, but it warned risks to world growth remain "squarely to the downside."

In a report to G20 finance ministers in Mexico over the weekend and only published on Thursday, the IMF said the euro zone should act decisively on multiple fronts to successfully resolve its sovereign debt crisis.

"The key risk remains that policies do not shift Europe toward a 'good equilibrium' and fail to break adverse feedback loops between real, fiscal, and financial sectors," the IMF said, urging euro zone policymakers to increase a firewall by about $500 billion to protect countries from financial contagion.

The IMF said the European Central Bank should continue injecting liquidity and stay fully engaged in securities purchases to help shore up financial stability.

Meanwhile, ECB monetary policy should focus on ensuring price stability, it said, adding that there was room to lower the target policy rate if needed.

In the United States, Britain and Japan, central banks should stand ready to expand unconventional measures if the outlook worsens, the IMF said.

In emerging markets, the IMF said growth had slowed more than expected, although risk perceptions had eased and capital flows had resumed into emerging Asia, Latin America and South Africa economies since the beginning of 2012.

In emerging countries with high inflation and public debt, including India and some economies in the Middle East, a "cautious stance" to policy easing was needed, the IMF said.

The IMF said higher oil prices were a risk to global growth and repeated an earlier warning that the impact of an oil supply shock in the Middle East "could be large" if supplies were not increased elsewhere.

In particular, a halt in Iran's oil exports could trigger an initial price increase of about 20 percent to 30 percent, the IMF warned.

Saudi Arabia assured G20 finance ministers over the weekend it was prepared to release more oil if necessary to make up for supply disruptions, IMF Managing Director Christine Lagarde told a news conference on Sunday.

Copyright 2012 Thomson Reuters. Click for restrictions.

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There's 'No Quick Fix' to Sharp Rise in Oil Price: Geithner

Lowering oil prices will require a long-term approach to exploration and production, though tapping domestic reserves is not out of the question, Treasury Secretary Timothy Geithner told CNBC.

Geithner attributed the rise in crude prices, which have sent gasoline above $4 a gallon in some parts of the country to two factors: Better growth expectations, along with "saber rattling" from Iran over its desire to advance its nuclear program.

Getting gas prices under control this year is critical for President Obama as he prepares for a contentious re-election campaign ahead.

"There's no quick fix to this, no short-term fix," Geithner said. "The best strategy for the country is to continue to make some long-term investments, to expand production in the United States, to reduce our dependence on foreign oil, to encourage Americans to use more efficient clean sources of energy, to encourage Americans to be more efficient in how they use energy."

At the same time, Geithner would not rule out tapping some of the U.S. strategic petroleum reserve to help bring down oil, which has surged past $105 a barrel.

"There's a case for the use of the (reserves) in some circumstances and we'll continue to look at that and evaluate that carefully," he said.

Rising oil prices are considered one of two key elements that could derail the U.S. economic recovery.

The other is Europe, where a sovereign debt crisis has played havoc with markets during the past year over concerns that troubles in Greece, Portugal and elsewhere could spread through Europe and ultimately make their way to the U.S. banking system.

Geithner repeatedly mentioned a "firewall" that will be necessary from the affected European governments. If the firewall is strong enough to prevent contamination, the U.S. will lend its support to the International Monetary Fund in an effort to help guide Europe, he said.

"Europe has made a lot of progress...that they are doing to do what is necessary to reduce the risk of a catastrophic failure in Europe," he said. "They've got some more work do, of course. The critical next step for them...is to build a stronger firewall that helps support the broader reforms that are necessary for growth over the long run."

Closer to home, the administration is grappling with ways to close a likely $1.3 trillion budget deficit and a national debt zooming towards $16 trillion.

Geithner asserted that the White House has proposals that cut at least $3 trillion from the debt and are targeted at addressing the housing sector, which remains the biggest drag on U.S. economic growth.

As such, he turned the onus on Congress to approve the administration's proposals.

"If Congress were to enact those proposals then it would put us much closer to a sustainable fiscal position for the next decade, and that would make broader confidence in the American economy stronger," Geithner said.

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