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CITING EURO CRISIS, IMF REDUCES ESTIMATES FOR GLOBAL GROWTH

New York Times

WASHINGTON - The International Monetary Fund warned Tuesday that global growth prospects had dimmed as the sovereign-debt crisis in the eurozone entered a "perilous new phase."

Releasing quarterly updates of three reports on the outlooks for the economy, debt and global financial stability, the fund cut its estimates of global growth this year to 3.25 percent, from the 4 percent it forecast in September, on "sharply escalated" risks emanating from Europe.

In light of that market uncertainty and sluggish growth, the fund is seeking to raise up to $500 billion in additional lending capacity. It is also calling on the European Union to expand its bailout fund to at least $1 trillion from its current capacity of about $570 billion, the New York Times reported Tuesday, citing an unnamed person with knowledge of the negotiations.

Jose Vinals, director of the IMF's monetary and capital markets department, told reporters that the IMF is seeking to build a "global fire wall" - both to help ease the euro crisis and to ensure that no bystanders to it find themselves locked out of the global financing markets.

"The longer we wait, the worse it will get. The only solution is to move forward together," Christine Lagarde, the managing director of the IMF, said in a speech in Berlin on Monday.

The IMF cited continued high financing costs for European countries and weakness in European banks as two risks that had the capability to intensify each other and lead to "sizable contractions" in economic activity. The IMF said other risks include investor fear over the debts of big countries like the United States, a "hard landing" in emerging economies, and spiraling oil prices.

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