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The International Monetary Fund (IMF) painted a stark picture of the global
economy this week slashing the outlook for world growth while forecasting a damaging recession in Europe that will leave no country, including Canada and the U.S., unscathed. The report stated that financial conditions have deteriorated, growth prospects have dimmed, and downside risks have escalated and, as such, policymakers must immediately move forward together to save the world economy from falling into a 1930s-style death spiral because the longer corrective action is put off the worse it will actually get. Words: 640
So conveys an article written by Eric Lam (www.financialpost.com) which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Lam goes on to say, in part:
In its January World Economic Outlook update, the IMF cut its projection for global growth in 2012 to 3.3%, down 70 basis points from its forecast in September. The global economic body blamed this largely on a “mild recession” expected this year after the eurozone entered a “perilous new phase” toward the end of 2011.
Eurozone Outlook
The IMF now expects the eurozone to contract by 0.5% in 2012, a full 1.6-percentage-point cut from the September forecast, before returning to minimal growth of 0.8% in 2013.
Canadian Outlook
Canada, which has become a relative economic bright light thanks to a rigorous financial regulatory system, will not escape the wrath of a European implosion with the IMF now forecasting 1.7% growth in 2012, a 20-basis-point cut.
“Watch out for the links between commodity prices and Canada. That has been very important the past two years,” Mr. St-Arnaud said. The IMF has also scolded Canada for its excessive housing market in the past, even as the Bank of Canada continues to expect household balance sheets to widen.
American Outlook
The United States will fare slightly better, growing by 1.8% in 2012, unchanged from earlier predictions. While there have been glimmers of positivity in recent economic data from the U.S., a strong recovery from supply-chain disruptions after the Japanese earthquake, and stabilizing oil prices, these are not expected to be significant-enough developments to sustain momentum going forward.
Emerging Markets Outlook
Emerging markets are also expected to slow because of fallout from the euro crisis, with growth cut to 5.4% (down 70 basis points) including a 70-basis-point trim to 7.3% for developing Asia. China is expected to grow 8.2%, an 80-basis-point cut.
IMF Report Dire For Good Reason
The IMF Report said that:
“The current environment — characterized by fragile financial systems, high public deficits and debt, and interest rates close to the zero bound — provides fertile ground for self-perpetuating pessimism and the propagation of adverse shocks, the most critical of which is a worsening of the crisis in the euro area. Financial conditions have deteriorated, growth prospects have dimmed, and downside risks have escalated.”
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Christine Lagarde, the IMF’s managing director, warned in a speech in Berlin earlier this week that the new forecasts, dour as they are, nevertheless assume a “constructive policy path that is by no means assured” and called on policymakers to save the world economy from falling into a 1930s-style death spiral going on to say:
“The longer we wait, the worse it will get. The only solution is to move forward together. Our collective economic future depends on it. Why did 2011 turn out so badly? Put simply, policymakers let an old wound fester, and in doing so made the situation worse. From this perspective, 2012 must be a year of healing.”
*http://business.financialpost.com/2012/01/24/imf-slashes-world-outlook/
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