15 Dec 2011

Lagarde warns of return to the great depression

The head of the IMF, Christine Lagarde, warns that immediate action needs to be taken to prevent a global depression not seen since the 1930s, as eight of the world’s biggest banks are downgraded.

Speaking at the US State Department, the IMF Managing Director said the outlook for the world economy is “quite gloomy”.

“There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super advanced economies that will be immune to the crisis that we see not only unfolding but escalating,” she said.

“It is not a crisis that will be resolved by one group of countries taking action. It is going to be hopefully resolved by all countries, all regions, all categories of countries actually taking action.”

Hours after her speech, eight of the world’s biggest banks were downgraded by credit ratings agency Fitch, including Barclays, Goldman Sachs, Deutsche Bank and Bank of America, all of which had their ‘Viability Rating’ cut.

Ratings agency Standard and Poor’s also downgraded 10 Spanish banks by applying new ratings criteria on Thursday.

The IMF has warned that it is likely to cut its 2012 growth projections, as the economy is struggling with a worsening two-year eurozone debt crisis and sluggish growth in the US.

Recent signs from China also indicate that manufacturers are struggling with lessening global demand and tighter credit conditions.

Ms Lagarde called on the world’s leaders to put every effort into addressing systemic weaknesses in their economies, adding that conflict between market expectations and polticial reality must be resolved.

“It is going to require efforts, it is going to require adjustment, and clearly it is going to have to start from the core of the crisis at the moment, which is obviously the European countries and in particular the countries of the euro zone,” she said..