News Column

Lagarde: Eurozone, Fiscal Cliff Threaten US Economy

October 2, 2012
Global Economy

The head of the International Monetary Fund said in an interview broadcast Monday that uncertainty over the Eurozone's fiscal crisis and the so-called fiscal cliff in the U.S. are reasons why the world economy has been slowing.

In Europe the question is how and when the crisis will be addressed and resolved, and in the United States it is how and when the fiscal cliff will be addressed, Christine Lagarde told CBS News.

She also noted long-term factors for economic policies developed in countries such as the US and Japan.

"Those are factors of uncertainty that really prevent people from making the investment decisions, the hiring decisions, the foreign direct investment decisions that would otherwise help growth and the world over," Lagarde said.

The former French finance minister also said the United States faces the risk of sliding back into recession.

Congress last month avoided action on the complicated debate of the pending fiscal cliff - the description being used for 600 billion dollars worth of automatic budget cuts and tax increases that will occur on December 31 if no action is taken.

Debate has been postponed until after the November 6 elections.

Economists say there could be devastating impact including increased unemployment and a possible downgrade of the government's debt.

"The fact that the housing market is picking up is in our view a clear sign the situation is improving," Lagarde said.

The IMF is expected to announce next week that it is lowering the forecast for world economic growth to 3 per cent this year, CBS said.

Source: Copyright 2012 dpa Deutsche Presse-Agentur GmbH

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