World Economy of risks ahead - Warning

The head of the International Monetary Fund, Christine Lagarde, warned on Wednesday that Europe's debt crisis risked dipping, the global economy into a ''lost decade'' and said it was up to rich nations to accept the burden of restoring growth and confidence.

Lagarde told a financial forum in the Chinese capital that European plans to bolster a rescue package for Greece were a “step in the right direction”, but that the outlook for the world economy remained dangerous and uncertain.

Lagarde said, “There are clearly clouds on the horizon and the clouds on the horizon particularly in the advanced economies and particularly so in the European Union and the United States”.

“Our sense is that if we do not act boldly and if we do not act together, the economy around the world runs the risk of downward spiral of uncertainty, financial instability and potential collapse of global demand. We could run the risk of what some commentators are already calling the lost decade,” the IMF chief said, referring to echoes of Japan’s experience of persistent deflation, mounting debts and economic impotence through the 1990s and beyond after its real estate bubble burst, an outcome many analysts fear could be repeated given the debt and property origins of Europe’s problems.

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