Luxembourg Prime Minister Jean- Claude Juncker said the euro area must find ways to boost economic growth while tightening government budgets because the region risks economic stagnation. “In the euro area, we are on the verge of a recession, albeit a technical one,� Juncker, who also heads the group of euro-area finance ministers, told reporters yesterday in Luxembourg. “There’s no alternative to an approach of budget consolidation, but attention also needs to be paid in Europe to a real policy of growth.� A potential euro-area recession threatens to exacerbate a slowdown in emerging-market economies, the World Bank said yesterday in cutting its global growth forecast by the most in three years. The world economy will grow 2.5 percent this year, down from a June estimate of 3.6 percent, the Washington-based institution said. The euro region may contract 0.3 percent, compared with a previous estimate of a 1.8 percent gain, according to the World Bank’s forecasts. European Central Bank President Mario Draghi said on Jan. 17 that the euro region’s growth prospects are “dismal� and that the situation is “very grave.� The ECB, which last week kept its benchmark rate at a record low of 1 percent, in December cut its 2012 growth forecast for the euro area to 0.3 percent from 1.3 percent. European confidence in the economic outlook fell to the lowest in more than two years this month, the European Commission said on Jan. 6. In an effort to insulate the global economy against any worsening of Europe’s debt crisis, the International Monetary Fund is proposing to raise its lending capacity by as much as $500 billion. The Washington-based lender is aiming to increase its resources after identifying a potential need for $1 trillion in financing in coming years, an IMF spokesman said yesterday in a statement. To contact the reporter on this story: Jonathan Stearns in Luxembourg at jstearns2@bloomberg.net To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

Source