Tuesday, January 24, 2012
Eurozone takes its toll on global growth
Posted by David Smith at 03:45 PM
Category: Thoughts and responses

The International Monetary Fund has revised down its growth forecast for 2012 to 3.3%, from 4% in September, and its 2013 forecast from 4.5% to 3.9%. To be fair, its earlier forecasts looked a little rosy, though the global economy grew by a very impressive 5.2% in 2010 before slowing to 3.8% in 2011.

According to the IMF: "The global recovery is threatened by intensifying strains in the euro area and fragilities elsewhere. Financial conditions have deteriorated, growth prospects have dimmed, and downside risks have escalated.

"Global output is projected to expand by 3 percent in 2012 a downward revision of about percentage point relative to the September 2011 World Economic Outlook (WEO). This is largely because the euro area economy is now expected to go into a mild recession in 2012 as a result of the rise in sovereign yields, the effects of bank deleveraging on the real economy, and the impact of additional fiscal consolidation."

It predicts that Britain will grow by 0.6% in 2012, a downward revision from 1.6% in September. There will be a debate over this: "In the near term, sufficient fiscal adjustment is in motion in most advanced economies. Countries should let automatic stabilizers operate freely for as long as they can readily finance higher deficits. Among those countries, those with very low interest rates or other factors that create adequate fiscal space, including some in the euro area, should reconsider the pace of near-term fiscal consolidation."

The update is here