Christine Lagarde, chief of the International Monetary Fund, likened current economic conditions to the Great Depression overnight, with new IMF figures predicting a downturn in global growth.

The world faces “a 1930s moment, in which inaction, insularity and rigid ideology combine to cause a collapse in global demand,” said Lagarde. “This is a defining moment. It is not about saving any one country or region. It is about saving the world from a downward economic spiral,” said Lagarde. “The world must find the political will to do what it knows must be done.”

Last year the IMF predicted global growth of 4% this year, an increase of 3.8% growth last year. But the new report slashes 2012’s growth to just 3.25%. Europe is predicted to enter a mild recession. The news came as Britain’s national debt rose above one trillion pounds for the first time, 64.2% of its GDP.

The IMF will now attempt to raise up to $500 billion for additional lending capacity to build a “global firewall”. It’s likely that Australia will contribute to this fighting fund, with Treasurer Wayne Swan already agreeing with the IMF’s predictions and the need for countries to work together to help protect further financial crisis.

Shadow Treasurer Joe Hockey questioned the need for Australia to contribute financially: “…the government must explain to taxpayers whether it would be in Australia’s national interest to contribute, and from where it plans to fund any such contribution.”

A Swan spokesperson was quick with a zinging response: “Mr Hockey would be better off working out how he will pay for the $70 billion budget crater that he announced on breakfast television, rather than undermining half a century of Australian governments meeting their responsibilities.”

Lagarde’s dire predictions are partly about bringing the IMF into line with the private sector’s gloomy warnings, argues Jessica Irvine in The Sydney Morning Herald:

“You can’t say she didn’t warn us – and therein lies the main purpose of the dire economic prognosis of the International Monetary Fund chief, Christine Lagarde.

Lagarde’s warning of ‘a 1930s moment’ and rejection of knee-jerk budget austerity measures are as much about protecting the Fund’s own legacy as they are about spurring political leaders to solve the euro zone crisis.”

The IMF predictions might not please German Chancellor Angela Merkel, says Karen Maley in Business Spectator.

“The International Monetary Fund has cranked up the pressure on German Chancellor Angela Merkel to water down her demands for tough new austerity measures in the eurozone, warning that these could cause the region to contract sharply.”

Countries need to cut their way back to health, writes Alan Wheatley for Reuters.

“What do Nobel Prize-winning development economist Amartya Sen and IMF chief Christine Lagarde have in common? They both oppose the prevailing orthodoxy that all heavily indebted governments must cut their way back to prosperity as soon as they can.

And they are not alone.”

The optimism of previous World Economic Forums has gone, notes Larry Elliott in The Guardian:

“The forecasts from the International Monetary Fund captured the air of gloom perfectly as members of the World Economic Forum gathered before the start of their annual meeting in Davos. This is the fifth meeting of the global policy elite since the start of the financial crisis in 2007 and each has had its own mood: concern in early 2008, total panic in the dark winter of 2009, tentative optimism in 2010 that the worst was over, confidence in 2011 that better times were just around the corner, and now the sense that recovery will be longer and tougher than most of the Davos crowd ever envisaged.”