A notably interesting, if worrying, World Economic Outlook
update from the IMF today. Titled “New
Setbacks, Further Policy Action Needed” the document sounds several key
warnings:
- In the past three
months, the global recovery, which was not strong to start with, has shown
signs of further weakness.
- Financial market and
sovereign stress in the euro area periphery have ratcheted up, close to
end-2011 levels.
- Growth in a number of
major emerging market economies has been lower than forecast. …these developments
will only result in a minor setback to the global outlook, with global growth
at 3.5 percent in 2012 and 3.9 percent in 2013, marginally lower than in the
April 2012 World Economic Outlook.
- These forecasts,
however, are predicated on two important assumptions: that there will be
sufficient policy action to allow financial conditions in the euro area
periphery to ease gradually and that recent policy easing in emerging market
economies will gain traction.
- Clearly, downside
risks continue to loom large, importantly reflecting risks of delayed or
insufficient policy action. In Europe, the measures announced at the European
Union (EU) leaders’ summit in June are steps in the right direction.
- The very recent,
renewed deterioration of sovereign debt markets underscores that timely
implementation of these measures, together with further progress on banking and
fiscal union, must be a priority.
- In the United States,
avoiding the fiscal cliff, promptly raising the debt ceiling, and developing a
medium-term fiscal plan are of the essence. In emerging market economies,
policymakers should be ready to cope with trade declines and the high
volatility of capital flows.
Some growth forecasts snapshots of
the IMF update for 2012 and 2013:
- US gets downgraded on growth for
both years by 0.1% from 2.1% in April 2012 to 2.0 in July 2012, and for 2013
from 2.4% to 2.3%.
- Meanwhile, Euro zone
gets no change in 2012 forecast (at -0.3%) and a downgrade by -0.2% to 0.7% for
2013 forecast.
- Let’s recall that
Eurozone is Ireland’s ‘hope’ and ‘engine for growth’ according to our
Government. And it is expected to perform markedly worse than any other advanced
region in both 2012 and 2013.
- Note that the most
‘dynamic’ large euro zone economy – Germany – is now expected to grow by a
ridiculously low 1.4% in 2013 on top of an absurdly low 1.0% in 2012.
- Elsewhere, China and India
both got seriously downgraded in terms of growth prospects for 2012 and 2013
compared to IMF forecasts 3 months ago.
Chart below shows some
monetary and banking sides of the euro crisis.
“Overall, global growth is projected to moderate to 3.5 percent in 2012 and
3.9 percent in 2013, some 0.1 and 0.2 percentage point, respectively, lower
than forecast in the April 2012 WEO…
Growth in advanced economies is projected to expand by 1.4 percent in 2012
and 1.9 percent in 2013, a downward revision of 0.2 percentage point for 2013
relative to the April 2012 WEO. The downward revision mostly reflects weaker
activity in the euro area, especially in the periphery economies, where the
dampening effects from uncertainty and tighter financial conditions will be
strongest.”
“Growth in emerging and developing economies will moderate to 5.6 percent
in 2012 before picking up to 5.9 percent in 2013, a downward revision of 0.1
and 0.2 percentage point in 2012 and 2013, respectively, relative to the April
2012 WEO… Growth is projected to remain relatively weaker than in 2011 in
regions connected more closely with the euro area (Central and Eastern Europe
in particular).”