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The International Monetary
Fund (IMF) presented a gloomier picture of the global economy than a few months
ago, saying prospects have deteriorated further and risks increased. Overall,
the IMF’s forecast for global growth was marked down to 3.3% this year
and a still sluggish 3.6% in 2013, down from previous forecasts of 3.5% and 3.9%
respectively. The Fund said the risks of a slowdown are “alarmingly high,”
primarily because of policy uncertainty in the United States and Europe. The IMF predicts Irish GDP (gross domestic product) will expand 0.4% this year and 1.4% next year.
In its latest
World Economic Outlook, unveiled in Tokyo ahead of the IMF-World Bank
2012 Annual Meetings, the IMF said advanced economies are projected to grow by
1.3% this year, compared with 1.6% last year and 3.0% in
2010, with public spending cutbacks and the still-weak financial system weighing
Growth in emerging market and developing economies was marked down compared
with forecasts in July and April to 5.3%, against 6.2% last year.
Leading emerging markets such as China, India, Russia, and Brazil will all see
slower growth. Growth in the volume of world trade is projected to slump to 3.2% this year from 5.8% last year and 12.6% in 2010.
“Low growth and uncertainty in advanced economies are affecting emerging
market and developing economies through both trade and financial channels,
adding to homegrown weaknesses,” said IMF chief economist
Annual Meetings in Tokyo
Release of the closely watched forecast opens a week of intense activity in
Tokyo, where more than 10,000 central bankers, ministers of finance and
development, private sector executives, academics, and journalists are gathered
to discuss global economic issues at the
World Bank-IMF annual meetings being held in the Japanese capital. Two other
key economic assessments will be issued, the
Global Financial Stability Report on the state of the financial sector
Fiscal Monitor, which examines public finances.
The IMF said that its forecast rested on two crucial policy assumptions
- - that
European policymakers get the
Eurozone 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.
Projections by region
The recovery is forecast to limp along in the major advanced economies, with
growth remaining at a fairly healthy level in many emerging market and
developing economies. The IMF said leading indicators do not point to a
significant acceleration of activity, but financial conditions have recently
improved in response to euro area policymakers’ actions and easing by the U.S.
In the United States, growth will average 2.2% this
year. Real GDP is projected to expand by about 1½% during the second half
of 2012, rising to 2¾% later in 2013. Weak household balance sheets and
confidence, relatively tight financial conditions, and continued fiscal
consolidation stand in the way of stronger growth.
In the Eurozone, real GDP is projected to decline by 0.4% in 2012 overall
- - about ¾% (on an annualized basis) during the
second half of 2012. With lower budget cuts and domestic and euro area–wide
policies supporting a further improvement in financial conditions later in 2013,
real GDP is projected to stay flat in the first half of 2013 and expand by about
1% in the second half. The “core” economies are expected
to see low but positive growth throughout 2012–13. Most euro area “periphery”
economies are likely to suffer a sharp contraction in 2012, constrained by tight
fiscal policies and financial conditions, and to begin to recover only in 2013.
Japan, growth is projected at 2.2% in 2012. The pace of
growth will diminish noticeably as post-earthquake reconstruction winds
down. Real GDP is forecast to stagnate in the second half of 2012 and grow by
about 1% in the first half of 2013. Thereafter, growth is expected to
Fundamentals remain strong in many economies that have not suffered a
financial crisis, notably in many emerging market and developing
economies. In these economies, high employment growth and solid
consumption should continue to propel demand and, together with macroeconomic
policy easing, support healthy investment and growth. However, growth rates are
not projected to return to precrisis levels.
In developing Asia, real GDP growth will average 6.7% in 2012 and is forecast to accelerate to a 7¼% pace in the second
half of 2012. The main driver will be China, where activity is
expected to receive a boost from accelerated approval of public infrastructure
projects. The outlook for India is unusually uncertain: for
2012, with weak growth in the first half and a continued investment slowdown,
real GDP growth is projected to be close to 5%, but improvements in
external conditions and confidence - - helped by a variety of reforms announced very
recently—are projected to raise real GDP growth to about 6% in 2013.
Middle East and North Africa, activity in the oil importers
will likely be held back by continued uncertainty associated with political and
economic transition in the aftermath of the Arab Spring and weak terms of
trade—real GDP growth is likely to slow to about 1¼% in 2012 and rebound
moderately in 2013. Due largely to the recovery in Libya, the
pace of overall growth among oil exporters will rise sharply in
2012, to above 6½%, and then return to about 3¾% in 2013.
Latin America, real GDP growth is projected to be about 3¼%
for the second half of 2012. It is then expected to accelerate to 4¾% in
the course of the second half of 2013. The projected acceleration is strong for
Brazil because of targeted fiscal measures aimed at boosting
demand in the near term and monetary policy easing, including policy rate cuts
equivalent to 500 basis points since August 2011. The pace of activity elsewhere
is not forecast to pick up appreciably.
In the central and eastern European economies, improving
financial conditions in the crisis-hit economies, somewhat stronger demand from
the euro area, and the end of a boom-bust cycle in Turkey are
expected to raise growth back to 4% later in 2013. The
Commonwealth of Independent States will grow at 4.0% this year,
Russia posting growth of around 3.7%.
Sub-Saharan Africa is expected to continue growing strongly,
averaging above 5%. Most countries in the region are participating in a
strong expansion, with the exception of
South Africa, which has been hampered by its strong links with
Europe. Recently some food importers in the region have been hit by the sharp
increase in global food prices for a few major crops.
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