The International Monetary Fund had stern advice for the euro zone and other major economies on Tuesday in its periodic update on the health of the world economy. The following are the highlights from the IMF’s latest World Economic Outlook:

EURO ZONE

• ECB rate cuts: European monetary policy should stay very accommodative and there is scope for further interest rate cuts as inflation is forecast to fall below the European Central Bank’s inflation target in the medium term.
• Widen ECB’s program of Outright Monetary Transactions to other countries that are delivering on adjustment promises to keep sovereign debt spreads low.
• Maintain a “credible” pace of fiscal consolidation with targets set in structural, rather than nominal terms. Swiftly adopt a single supervisory mechanism to strengthen financial stability to ensure the ECB can quickly implement.
• Press on with balance sheet repair and structural reform at national level.
• Southern Europe needs to boost competitiveness, the north needs to make national service sectors more vibrant.

UNITED STATES

• The Federal Reserve may need to hike interest rates earlier than the IMF forecasts if growth surprises on the upside. IMF currently projects the first Fed rate hike in early 2016.
• Comprehensive deficit reduction needed to reverse the climb in public debt ratio, including both entitlement reform and changes to raise tax revenues.
• Fiscal consolidation should be gradual to avoid undercutting a fragile recovery. Also, because the Fed has already cut interest rates almost to zero, not much more can be done if fiscal policy tightens too fast.

JAPAN

• Reinforce the Bank of Japan’s monetary policy actions with “ambitious” growth and fiscal reforms to ensure sustained recovery and curb fiscal risks.
• Strong medium-term measures to arrest and reverse rising public debt ratios.

CHINA

• Accelerate financial sector reform to contain risks after rapid expansion of credit and prevent further excess capacity.

LATIN AMERICA

• Use flexible exchange rates to limit the vulnerability of domestic economies to heavy and volatile capital inflows and curb speculation. Bolster regulation of banks and ensure adequate capitalization.
• Invest more in infrastructure to lift productivity and competitiveness.

(Reporting by Alister Bull)