WASHINGTON, Nov 8 (Reuters) - Global growth appears to be stabilizing following recent efforts to tackle the debt crisis engulfing the euro zone although economic activity remains sluggish, the International Monetary Fund said on Thursday.
In a report prepared for the G20 finance ministers’ meeting in Mexico on Nov. 4-5 and published on Thursday, the IMF warned that the euro zone crisis and the threat of a political impasse in the United States over planned tax hikes and government spending cuts posed the biggest risks to the world economy.
“U.S. authorities should act early to avoid the fiscal cliff and raise the debt ceiling,” the IMF said in the report. “A last-minute deal that relies on suboptimal fixes or largely ‘kicks the can down the road’ may ultimately prove harmful,” the IMF added.
The IMF warned that the U.S. economy could fall back into recession if Congress fails to avert a package of tax hikes and spending cuts planned for the new year. Fears over the so-called “fiscal cliff” appear to be hitting the economy already through reduced business investment.
While some progress has been made in addressing the euro zone crisis, the IMF urged Euroepan policymakers to carry through on promises to tackle the bloc’s fiscal problems.
It also said that euro zone countries facing market pressures should implement fiscal adjustment plans and if needed request financial support from European emergency funds.
Spain is currently considering whether to ask for aid from the euro zone. However, promises of help from the EU and European Central Bank have brought Spain’s borrowing costs down from unsustainable levels in the past few months.