The IMF has pointed out an additional threat to the world economy in the form of US fiscal cliff. The US being the largest debtor in the world is having a fiscal deficit of 14% of GDP, compared to India’s 6%. This is the first major warning by the Fund about the worsening US fiscal situation.
In its updated version of the GFSR, the fund has given clear indication that two of the world’s largest economies, the United States and Japan are facing fiscal crisis, whose scale is unsolvable by efforts from the rest of the world. Japan started recording untypical trade deficits from the last year indicating fast slowing of Asia’s first advanced economy.
The Fund’s observation about the world economy which appeared in its Global Financial Stability Report says that the emerging world will continue to receive the heat wave of the eurozone crisis.
Additional fund injection done by the European central banks may generate new species of problems like internal capital flight. Capital will fly from the poor European countries to the rich.