Bankers beware: World economy faces catastrophic 2012

Europe stands poised to drag the world into another recession.

Newly appointed First Deputy Managing Director David Lipton of the International Monetary Fund told Asian finance and banking chiefs who met recently in Hong Kong that the world economy is in trouble.

"At the global level, the pace of economic activity is weakening, and the risks for Europe and the world are high," he said.

He noted that Europe needs bold action to avert a "downward spiral" that could drag the world economy into "catastrophe".

"Rather than allow ourselves to be paralysed by pessimism, it is time to focus on the more hopeful perspective of working our way through this crisis."

Lipton said the "good news" is that "we know what policies are needed, and we are busy trying to muster the finance to support those policies".

Without bold and concerted international action, however, "Europe could be swept into a downward spiral of collapsing confidence, stagnant growth, and fewer jobs”.

"And in today’s interconnected global economy, no country and no region would be immune from that catastrophe. This is especially true for Asia," Lipton added.

Asia's relatively strong economies have already been hit by the fallout from Europe. Asian exports continue to shrink and higher capital reserve requirements are forcing European banks to sell assets and pull cash out of emerging markets.

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