LONDON (MNI) – The looming US fiscal cliff is the number one risk
globally at present, followed by the Eurozone and then the threat of
another oil price surge, IMF head Christine Lagarde says.
Lagarde, speaking at the Global Investment Conference here, said
the Eurozone is clearly at the epicentre of the crisis right now but is
far from the only risk at present.
“Risk number one … is clearly the fiscal cliff in the United
States of America, where the deficit and debt to GDP ratios are actually
worse than in the Eurozone,” she said.
Although the US does not face the Eurozone’s challenge of trying to
secure accords with a host of states, its legislators are also
struggling to take action.
“There is great uncertainty as to how Congress is going to actually
deal with this fiscal cliff,” she said.
If the US does go over the cliff it could have an initial
contractionary effect on growth of 1 percentage point, the IMF
estimates.
The fiscal cliff refers to the risk of some current fiscal policies
being allowed to expire around the year end, resulting in a de facto
tightening of policy irrespective of conditions at the time.
Lagarde said her ‘number two’ risk is the interlinking of sovereign
and bank health in the Eurozone.
The third risk is the oil price could rise yet again as it “is
clealy linked to geo-political risks and that could resurface again.”
–London Bureau; Tel: +4478627491; email: drobinson@marketnews.com
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