IMF report: Global economy looks grim for 2012

Reply Tue 24 Jan, 2012 02:18 pm
IMF report: Global economy looks grim for 2012
By Howard Schneider - Washington Post
January 24, 1012

The world economy is slowing sharply, and the euro region is headed for recession this year, the International Monetary Fund predicted Tuesday in a bleak update of global conditions.

Overall, the world economy is expected to expand 3.25 percent in 2012 — down from the 4 percent projected by the IMF in the fall.

Leaders aim to hammer out a plan to save the euro, while demonstrators take to the streets to show opposition to austerity measures in cash-strapped countries.

That figure includes 8.2 percent growth in China, still the world’s most quickly expanding economy, and 7 percent in India. U.S. growth is forecast at 1.8 percent, the same as the fund projected in the fall.

In those cases and for the rest of the world, the IMF said growth was being crimped by the world’s major economic risk — the ongoing financial crisis in the euro zone.

In a trio of reports released Tuesday morning, the IMF forecast a “mild recession” for the 17-nation euro zone this year and warns that the situation could easily worsen.

In its “downside scenario,” the fund said that increasingly higher European government borrowing rates and worsening problems with the region’s banks would push the world into recession.

“The current environment ... provides fertile ground for self-perpetuating pessimism,” the fund wrote.

The agency is pressing Europe to do more to resolve its financial problems, and Tuesday’s projections bolster its case.

The forecast envisions sharp contractions in Italy and Spain, the two countries that are the main focus of efforts to stop the spread of a crisis that has already required international bailouts of three smaller nations.

In Greece, which is suffering from such crippling debt that European leaders fear the nation could default, a bailout deal remains hung up in negotiations. On Monday, euro zone leaders hit a standoff with Greek bondholders over interest rates, the Associated Press reported. Banks holding Greek debt have been asked to take a 50 percent loss and are calling for lower rates on those investments. European finance ministers, however, are insisting that Greece pay only 4 percent interest to its investors to help the nation avoid disaster.

Europe’s debt crisis has caused growing concern among IMF officials that efforts to bring the continent back to economic stability are too slow and insufficient. Also Monday, the agency’s managing director, Christine Lagarde, warned of a “1930s moment” for the world economy if Europe falls deeper into crisis, and she pressed Germany — the region’s largest economy — to contribute more money to rescue efforts.

World markets dropped on fears over the Greek deal. Euro Stoxx was down 0.95 percent; the German DAX dropped 0.77 percent; and the FTSE was down 0.76 percent.

On Wall Street, markets had dropped slightly by late morning. The Dow Jones index was down 0.35 percent, the Nasdaq down 0.45 percent, and the Standard &Poor’s was down 0.10 percent.
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Reply Tue 9 Oct, 2012 08:58 am
Risks Of Global Economic Slowdown Are 'Alarmingly High,' IMF Warns
October 9, 2012
by Mark Memmott - NPR

In China's Anhui province, a worker unloads steel bars at a factory. A slowdown in China and other major nations threatens to pull the global economy into recession, the International Monetary Fund warns.

Saying that the global economic recovery "has suffered new setbacks, and uncertainty weighs heavily on the outlook," the International Monetary Fund today warned that the probability of "recession in advanced economies and a serious slowdown in emerging market and developing economies" next year have gone up.

The fund said its research indicates the risk of those things occurring in 2013 "has risen to about 17 percent, up from about 4 percent in April 2012."

The IMF trimmed its forecast for next year's global economic growth by 0.3 percentage points, to 3.3 percent. By the IMF's definition, the global economy can be in recession if growth is so weak that it doesn't support healthy growth in key indicators such as employment and production.

It also warned that things could be even worse if policymakers don't properly handle two looming potential crises. In a statement, it said that:

"The IMF said that its forecast rested on two crucial policy assumptions—that European policymakers get the euro area crisis under control and that policymakers in the United States take action of tackle the 'fiscal cliff' and do not allow automatic tax increases and spending cuts to take effect. Failure to act on either issue would make growth prospects far worse.

"The forecast said that monetary policy in advanced economies was expected to remain supportive. Major central banks have recently launched new programs to buy bonds and keep interest rates low. But the global financial system remains fragile and efforts in advanced economies to rein in budgetary spending, while necessary, have slowed a recovery."

The Wall Street Journal notes that:

"The latest report cites particular domestic issues as part of the reason that growth is slowing. That makes it difficult to revive growth through global policy measures. In China, for instance, growth is expected to slow to 7.8% this year, rather than hit its customary 10%-plus pace, because government authorities are looking to deflate a housing bubble and build a social-safety net rather than ramp up growth through a stimulus splurge."

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