George Osborne has warned that world leaders fear a worsening of the global economic crisis as growth slows and pressure intensifies on indebted governments and weak banks.

Speaking in Tokyo George Osborne on Friday, the chancellor said the immediate danger of another financial disaster had receded but the prospect of a seismic shock to the global economy in the next few years was heightened by "a triple threat", which could come from a further economic downturn in Europe, the US or emerging economies.

Coming only days after the International Monetary Fund downgraded the growth forecasts for the majority of developed countries, including the UK, Osborne's view chimes with most policy-makers across the world.

He said: "There is less of an immediate sense of crisis at these meetings than there was at last year's annual meetings, but there is a greater concern about what lurks behind the next corner, a greater concern about the medium-term risks."

The IMF has warned the US, Europe and Japan that a lack of action to refashion the financial system in the wake of the banking crisis has created problems for the future. In a report earlier this week it said the actions of the European Central Bank had lifted the immediate prospect of a eurozone country going bankrupt, but that risks remain next year unless there are moves to spur growth.

Osborne said: "You have the eurozone, the looming US fiscal cliff and an emerging market slowdown as triple threats to global recovery.

"What has been stressed at these meetings in Tokyo is the importance of delivery in all these areas: in the eurozone, delivering an effective implementation of what has been talked about; in the US, resolving the problem after the election of the fiscal cliff; and in emerging markets, continuing the structural reforms and openness that they require."

Osborne is under pressure to relax Britain's austerity programme after more than two years of low or no growth. Economists expect to see the UK economy exit recession when GDP figures appear later this month, though the overall trend will remain flat.

The IMF has given the UK the green light to delay some austerity measures in favour of a boost to investment and tax cuts.

Vicky Redwood, UK economist at Capital Economics, said the IMF's analysis that austerity measures could be more damaging for the economy than previously assumed gives Osborne the excuse he needs should he miss his deficit reduction targets later this month.

"This seems to give the go-ahead to the chancellor to defer some of his spending cuts until the economy is stronger," she said.

The IMF calculated the impact of tax rises and spending cuts could lead to bigger reductions in GDP, effectively doing more harm than good to the economy and forcing the government to borrow more.

Osborne is expected to miss his borrowing target for 2012-13 by as much as £25bn after a fall in tax revenues and a rise in social security costs linked to high unemployment.

He hinted in his speech to the Tory party conference earlier in the week that the global slowdown could encourage him to be more flexible in his approach.

But at the IMF meeting he repeated his stance that countries needed to push ahead with spending cuts and structural reforms, saying: "In general, western countries face a sink or swim question which the prime minister posed or, as he also put it, do or decline.

"In UK we are doing rather than declining. We are confronting our problems and the reforms that are required and tackling our debts."

Contributor

Phillip Inman in Tokyo

The GuardianTramp

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