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Eurozone crisis live: UK economic growth takes centre stage

Davos summit gets underway while in the UK all eyes are on the fourth-quarter GDP figures

7.51am: IMF chief Christine Lagarde reiterated this morning that combining the European Union’s temporary EFSF rescue fund with the permanent ESM mechanism would help restore confidence and create a firewall to stop the Greek crisis spreading to Italy and Spain.

She told Europe 1 radio:

If the two of them could make a common European pot, that would send a very strong sign of confidence in Europe.

Lagarde, a former French finance minister, said the next few weeks would be crucial for the world economy, after the IMF slashed its global growth forecast to 3.3% for 2012 yesterday. She called for measures to boost growth and competitiveness, as well deficit reduction plans in some countries.

If the right decisions are taken in the coming weeks, not only at the heart of the eurozone – which is essential – but also in the United States, Japan, in the major emerging economies, then the end of 2012 will be better than the beginning. But only if the right decisions are taken.

7.22am: Good morning and welcome back to our rolling coverage of the world economy and European debt crisis. The Davos summit in Switzerland gets underway today, while in the UK the main event is the release of the fourth-quarter GDP numbers.

City economists reckon the economy slipped back to a 0.1% decline between October and December, following 0.6% growth in the previous quarter. The International Monetary Fund slashed its 2012 growth forecast for the UK yesterday to a paltry 0.6%, from 1.6%. However, even so Britain is set to outperform other major European economies – beating Germany (0.3%) and France (0.2%).

Minutes from the last Bank of England meeting a fortnight ago are also out this morning, and could shed some light on how much debate there was with regard to further asset purchases. In the US, following last night’s State of the Union address by Barack Obama we have the first FOMC meeting of 2012.

Michael Hewson, market analyst at CMC Markets, said:

The three more hawkish dissenters to “operation twist” have left the committee and have been replaced with arguably slightly more dovish members. This meeting will give markets the opportunity to determine the credentials of each new member, as well as how much more dovish this committee will be relative to the old one.

At his press conference Bernanke is expected to outline the Fed’s new communication strategy to markets with respect to the future direction of the Fed Funds rate forecasts. The last few policy statements have referred to rates remaining low until mid 2013. This could well change and it will be key to future rate expectations as to how far further out this date gets pushed.

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