But Germany, the economic engine of Europe, is afraid it could get stuck paying much of the cost to bail out its weaker European neighbors. It is pushing instead for budget cuts, which the IMF says could weaken growth further and undermine market confidence.
The IMF is already lending to the region’s bailout fund and has a lead role in monitoring the progress that nations such as Greece make in reducing their government deficits. Germany, meanwhile, is also a large contributor to the bailout fund.
“There is a fundamental divergence in points of view,’’ said Eswar Prasad, a former IMF official and economics professor at Cornell University. The IMF’s emphasis on growth is “a subtle but important shift in the prioritization of the reforms.’’
On Tuesday, the IMF reduced its forecasts for global growth this year to 3.3 percent. That’s below the 4 percent pace that the IMF projected in September. It’s also lower than the estimated 3.8 percent growth for 2011 and the 5.2 percent in 2010, the year after the U.S. recession ended.
The 17 nations that share the euro will shrink 0.5 percent this year. In September, the IMF had predicted 1.1 percent growth for the region.
Europe’s recession should have only a modest impact on the United States. The IMF projects 1.8 percent growth for the year in the U.S., unchanged from its September forecast and equal to its 2011 estimate.
If Europe doesn’t take several steps recommended by the IMF, such as reducing its emphasis on budget cuts, the 17 nations that share the euro could contract at a much faster pace, the fund said. That could possibly plunge the rest of the world into recession.
“The world recovery, which was weak in the first place, is in danger of stalling,’’ Olivier Blanchard, the fund’s chief economist, said at a news conference. “The epicenter of the danger is Europe, but the rest of the world is increasingly affected.’’
