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16 April 2012

IMF: Outlook slowly improving but remains fragile


According to the IMF's latest forecast, prospects for the global economy are slowly improving again but growth is expected to be weak, especially in Europe, and 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.

Real GDP growth should pick up gradually during 2012-13 from a trough seen in the first quarter of 2012, with signs of improvement in the United States, and the emerging economies remaining supportive. The IMF raised its projection for the United States to 2.1 per cent this year and 2.4 per cent next year from 1.7 per cent in 2011. It has also slightly improved its forecast for the euro area compared with January. But it still 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.

"For the past six months we’ve been on a rollercoaster ride", said IMF 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.”

“The building of the firewalls, when it is completed, will represent major progress”, Blanchard said in a foreword to the report. But he warned that the firewalls would not, by themselves, solve the difficult, fiscal, competitive and growth issues faced by some struggling economies.

The report said that governments should 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. In developing countries and emerging markets, policies should be geared towards ensuring a soft landing for economies that have seen sustained, very strong credit growth.

Europe

Real GDP 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. Many advanced economies outside the euro area avoided large pre-crisis imbalances, which helped cushion the spillovers from the euro area. But in the United Kingdom, whose financial sector was hit hard by the global crisis, growth will be weak in early 2012. Growth in emerging Europe is projected to slow sharply to 1.9 per cent this year, reflecting its strong economic and financial linkages with the euro area. Europe as a whole will see projected growth of 0.2 per cent in 2012 and 1.4 per cent next year.

Full forecast



© International Monetary Fund


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