International Monetary Fund's Economic Counsellor Olivier Blanchard Photo: IMF/Stephen Jaffe
The prospects for the global economy are slowly improving, but growth is expected to be weak, especially in Europe, according to a United Nations-backed report released today.
The 2012 World Economic Outlook, published by the International Monetary Fund (IMF), added that unemployment in many advanced economies will stay high.
“Although action by policymakers in Europe and elsewhere has helped to reduce vulnerabilities, risks of a renewed upsurge of the crisis in Europe continue to loom large, along with geopolitical uncertainties affecting the oil market,” statedthe Fund.
Global growth is forecasted to drop from close to 4 per cent in 2011 to about 3.5 per cent this year, picking up to 4.1 per cent next year, according to the report, which comes ahead of the Spring Meetings of the IMF and the World Bank in Washington DC.
Prospects for global economy slowly improving, but growth expected to be weak – IMF
“For the past six months we’ve been on a rollercoaster ride,” said IMF’s Chief Economist, Olivier Blanchard. “Our baseline is that growth is going to be slow in advanced economies; sustained, but not great, in emerging market and developing economies.
“But the risk of things turning bad again in Europe is high,” he added.
The Fund projects a “mild contraction” in the euro area, where concerns about high sovereign debt and fiscal consolidation have taken a toll, although Germany and France might see positive growth.
Japan, bouncing back from last year’s destructive earthquake and tsunami, will see a recovery of 2 per cent, according to the forecast.
The report called on governments to strengthen policies to solidify the weak recovery and contain potential risks that can weigh on consumer and investor confidence.
Advanced economies should implement medium-term budgetary savings, but not in a way that could undermine the recovery, the report said. In developing countries and emerging markets, policies should be geared toward ensuring a soft landing for economies that have seen sustained, very strong credit growth.
In terms of regional prospects, growth in the United States is projected at 2.1 per cent in 2012 and 2.5 per cent next year, reflecting ongoing fiscal consolidation and continued weakness in housing prices, while growth in Canada will moderate slightly to close to two per cent.
Growth in Asia overall will average 6 per cent, with China slowing to 8.2 per cent and India to 6.9 per cent. Meanwhile, in Europe, real gross domestic product in the euro area is projected to contract in the first half of 2012 but then start recovering, except in Spain, Italy, Greece, and Portugal where recovery will only begin in 2013.
Growth in the United Kingdom, whose financial sector was hit hard by the global crisis, will be weak in early 2012, the report said. It also noted that overall growth in Russia and the Commonwealth of Independent States will fall to 4.2 per cent, while growth in Latin America and the Caribbean is projected to moderate to just over 3 per cent this year before recovering above 4 per cent in 2013.
Overall growth for the Middle East and North Africa is forecast at 4.2 per cent this year, with oil producers buoyed by continued high oil prices. At the same time, growth in the region’s oil importers will be constrained by strong oil prices, anaemic tourism associated with the social unrest in the region, and lower trade and remittance flows reflecting the ongoing problems in Europe.
Sub-Saharan Africa, the report noted, will see its growth rate pick up to 5.4 per cent this year, with the region relatively less exposed to the global slowdown, but not immune to spillovers from the euro area’s problems.
South Africa, which has stronger trade and financial ties with slowing Europe, is struggling with subpar growth and high unemployment, the report added.