Tuesday, September 20, 2011

Weak and Bumpy Global Recovery Ahead (Video, Charts) *IMF: Slowing Growth, Rising Risks*

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International Monetary Fund: World Economic Outlook


World Economic Outlook: Slowing Growth, Rising Risks

Official Statement by the International Monetary Fund (September 20, 2011): The global economic recovery is slowing, with world growth projected at 4 percent in both 2011 and 2012, down from over 5 percent in 2010, the IMF said in its latest forecast. And even this lowered projection counts on a lot going well. The IMF foresaw a slowdown this year after strong growth in 2010 as fiscal stimulus packages in response to the crisis wound down. But a barrage of economic shocks in 2011 combined with other factors for a worse than anticipated outcome. “The global economy is in a dangerous new phase. Global activity has weakened and become more uneven, confidence has fallen sharply recently, and downside risks are growing,” the IMF said in its September 2011 World Economic Outlook (WEO). The report, released in Washington on September 20, says strong and coordinated action is necessary to avert a decade of lost growth in the advanced economies. “Strong policies are urgently needed to improve the outlook and to reduce the risks,” said IMF Chief Economist Olivier Blanchard. “Only if governments move decisively on fiscal policy, financial repairs, and external rebalancing, can we hope for stronger and more robust recovery.”

Key Points of the report are:
■ Global growth forecast to moderate to 4 percent in 2011 and 2012
■ Advanced economies facing anemic growth of only 1.6 percent in 2011
■ Multiple shocks combined with insufficient rebalancing stalling recovery

World Rebalancing Necessary Of interest is the recognition by the IMF, in both this report and the prior 2 reports, that both a domestic and external rebalancing is necessary to spur the global recovery, "The World Economic Outlook repeated its mantra that both domestic and external rebalancing are essential to a revitalized global economy".
■ To achieve internal rebalancing, private demand has to take over from government stimulus.
■ Countries with large external surpluses must achieve more domestically driven growth, while those with large deficits, most notably the United States, must do the opposite.
"This is not happening" notes the IMF. That is, trade rebalancing and currency valuations are necessary to increase exports from developed nations, in particular the USA. Of course, the developing nations, the export nations, would need to increase imports and also domestic demand in this rebalancing scenario. The USA and China trade relationship is a prime example of what the IMF is addressing. However, the issue is not just an adjustment of currency valuations but cost of labor. That is, cheap labor will offset the currency valuation adjustments to some extent.

IMF World Economic Outlook Video (September 20, 2011) The global economic recovery is slowing, with world growth projected at 4 percent in both 2011 and 2012, the IMF said in its latest forecast. Chief Economist Olivier Blanchard says even this lowered projection counts on a lot going well.


Actual and Projected GDPs by Year (Chart) Below is the IMF Actual and Projected GDPs by Year for the World, USA, Euro Area, Japan, and UK. These are annual percentage growth rates. The chart is for 5 years: 2008 actual, 2009 actual, 2010 actual, 2011 projected, and 2012 projected.





BRIC Actual and Projected GDPs by Year (Chart) Below is the IMF Actual and Projected GDPs by Year for the Brazil, Russia, India, and China. These are annual percentage growth rates. The chart is for 5 years: 2008 actual, 2009 actual, 2010 actual, 2011 projected, and 2012 projected.






Actual and Projected GDPs by Year (Chart) Below is the IMF Actual and Projected GDPs by Year for the Developing Economies and Advanced Economies. Developing Economies include the BRIC nations (Brazil, Russia, India, China) and economies in Asia, Africa, South America, and Central America. Advanced Economies include the USA, Euro Area, Japan, UK, Australia, and Canada. These are annual percentage growth rates. The chart is for 4 years: 2009 actual, 2010 actual, 2011 projected, and 2012 projected.






Commentary

The September 2011 IMF World Economic Outlook is less optimistic for the global recovery than the past 2 reports were. GDPs for the World and individual nations were revised downwards for 2011 and 2012. As noted in previous reports, important risks to the global recovery are sovereign debt and financial system issues, termed "fiscal and financial uncertainty" by the IMF. Additional impediments are real estate markets, high unemployment, rising food and commodity prices, and potentially increasing oil prices.

The IMF noted shocks to the world economy, including "the earthquake and tsunami in Japan and social unrest in some oil-producing countries, stalling of the handover from private to public demand in the U.S. economy, major financial turbulence in the euro area, and sell-off of risky assets in global markets hit advanced country growth hard. And market concerns about the ability of many countries to stabilize their public debt are stifling/putting a damper on financial flows".

GDP projections for the World and most nations were revised downwards. Notable revisions by magnitude for 2011 were:
United States -1.0% to +1.5%
Mexico -0.9% to +3.8%
Canada -0.8% to +2.1%
Advanced Economies -0.6% to +1.6%
Russia -0.5% to +4.3%
Germany -0.5% to +2.7%
World -0.3% to +4.0%


About the IMF
Overview The International Monetary Fund (IMF) is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
What The IMF promotes international monetary cooperation and exchange rate stability, facilitates the balanced growth of international trade, and provides resources to help members in balance of payments difficulties or to assist with poverty reduction.
Membership The IMF has 187 member countries. It is a specialized agency of the United Nations but has its own charter, governing structure, and finances. Its members are represented through a quota system broadly based on their relative size in the global economy.
How Through its economic surveillance, the IMF keeps track of the economic health of its member countries, alerting them to risks on the horizon and providing policy advice. It also lends to countries in difficulty, and provides technical assistance and training to help countries improve economic management. This work is backed by IMF research and statistics.
Collaboration The IMF works with other international organizations to promote growth and poverty reduction. It also interacts with think tanks, civil society, and the media on a daily basis.


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