World Economy Slowing Because of Europe, USA, China, Brazil, and India

July 17th, 2012
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Econintersect Eurocrisis News Roundup:  The International Monetary Fund (IMF) said that global growth is showing further weakness due the Eurozone, USA, and emerging economies (e.g. Brazil, China, and India).  Specifically,

“More worrisome than these revisions to the baseline forecast is the increase in downside risks,” said Olivier Blanchard, the IMF chief economist and director of the IMF’s Research Department, which prepares the WEO.

The IMF stated the economic weakness is due to concerns:

  • that there may not be enough policy action for financial conditions in the so-called euro area periphery, which includes Greece and Spain, to ease gradually through 2013;
  • that U.S. fiscal policy might tighten sharply in 2013; and
  • that steps by some major emerging markets to stimulate growth might not gain traction.

Follow up:

From the IMF press release:

The IMF said the most immediate risk to the global recovery is that delayed or insufficient policy action will further escalate the euro area crisis. “Simply put, the euro periphery countries have to succeed,” said Blanchard. The report cited agreements at the June 28 eurozone summit as a step in the right direction. It said the summit actions should help break the “adverse links between sovereigns and banks and create a banking union.” But the recent deterioration in sovereign debt markets demonstrates that timely implementation of these measures, together with further progress on banking and fiscal unions, must be a priority.

The WEO update also cited the possibility that growth in the United States would stall because of excessive fiscal tightening caused by political gridlock. “In the extreme, if policymakers fail to reach consensus on extending some temporary tax cuts and reversing deep automatic spending cuts,” the U.S. economy could face a steep decline of more than 4 percent of GDP in its fiscal deficit in 2013. That so-called fiscal cliff would cause a severe decline in U.S. growth, with “significant spillovers to the rest of the world.” Moreover, if the United States does not act promptly to raise its federal debt ceiling, there will be increased risk of financial market disruption and loss in consumer and business confidence.

Growth has slowed in a number of major emerging economies, especially Brazil, China, and India. This was due both to a weaker external environment and a sharp deceleration in domestic demand in response to capacity constraints and policy tightening. Overall, though, emerging markets have weathered the crisis well.

Source: IMF

Read updated source reports from the IMF:  Global Financial Stability Report (GFSR), World Economic Outlook, and Fiscal Monitor

 

Other Links to posts on the IMF Report:

An economic slowdown in China and other major developing countries has pulled one of the few remaining props from the world economy, which is already threatened by the financial crisis in Europe and a sluggish U.S. growth. Read full article >>
This post has been corrected. See note below.The international economy will grow even more slowly than previously expected as flagging momentum in the U.S., a fiscal crisis in Europe and tumbling demand in China and India keep the recovery lethargic, according to the International Monetary Fund.
Risks to global growth rising: IMFThe International Monetary Fund stepped up its warnings Monday on risks to the global economy, especially from Europe, as it trimmed its growth forecast for the rest of the year.
Growing risk aversion is pushing equities lower for a seventh successive session while also driving demand for safe havens such as UK, US and German government debt. The flight to safety largely reflects growing unease about the economic outlook.

 

Other Eurocrisis News:

While recent PMI data have shown the Eurozone economy to have contracted over the first half of 2012, a different trend has been evident in Ireland, where stabilisation and even some growth has been seen. Companies in Ireland have worked hard to improve their competitive position and this has borne fruit, particularly in export markets.
Inflation set to fall further in the US and UK. Bank of England MPC minutes and Bernanke testimony to be scoured for need for more aggressive stimulus. UK retail sales, unemployment and government borrowing data likely to disappoint.
LONDON (Reuters) - Bank of England governor Mervyn King is expected to be quizzed by lawmakers over his role in the resignation of Barclays chief executive Bob Diamond in an interest rate scandal that is rocking London's reputation as a banking centre.
The common currency union was supposed to benefit the economy of the entire European Union. Now that the euro is struggling, however, it is bringing growth down with it. Germany's economy, once seemingly immune to the crisis, is now facing mounting difficulties. By SPIEGEL Staff
Quantitative easing: QE, or not QE? THE conventional arms have run out. Central banks in America and Britain have long since pushed interest rates to close to zero. On July 5th the European Central Bank (ECB) joined them, slashing its rate on deposits to 0% and its main policy rate below 1%. A different sort of arsenal is now being deployed...

 

Interest rates: The fog of LIBOR THE furore over alleged manipulation of the London Interbank Offered Rate (LIBOR) and its European cousin, the Euro Interbank Offered Rate (EURIBOR), continues to rage. In Britain, the deputy governor of the Bank of England and the chairman of Barclays were hauled over the coals this week by a parliamentary committee...

IMF releases fresh funds for PortugalThe IMF said Monday it was releasing 1.48 billion euros ($1.82 billion) in new funds to troubled Portugal after Lisbon passed a performance review under its bailout loan program.
LONDON (Reuters) - World shares and the euro posted modest gains on Tuesday as investors speculated that Federal Reserve Chairman Ben Bernanke will hint at more monetary stimulus later in the day.
IN THE wee hours of a recent morning a young man with a rucksack was sauntering along the railway line near Grossbeeren. When stopped by two policemen he told them he had missed his train. Being of a suspicious nature, they asked him to open his rucksack. And, behold, they found clippers, gloves, a torch and 24kg (53lbs) of copper cable...
ECB could supervise euro banks very quickly: NoyerThe European Central Bank could take on the job of supervising the eurozone's strained banking system, a key reform, very quickly if necessary, French central bank head Christian Noyer said.

A former Barclays director who told staff to lower their Libor submissions in the midst of the financial crisis following a misunderstanding with the Bank of England today said the move seemed "appropriate".
'No Measurable Effect': ECB Interest Rate Cut Inspires Little HopeThe European Central Bank's interest rate is now lower than ever before. But, even with the cut, few believe it will do much to energize the euro-zone's flagging economy. The real problems are to be found elsewhere -- and they aren't getting better.
Wolseley set to turn its back on France and HollandeBuilding supplies giant Wolseley is set to exit France, in what amounts to a damning indictment of president François Hollande’s economic stewardship.






German investor confidence declined for the third month in a row in July as the debt crisis hits demand for German exports from both inside and outside the eurozone, new data showed on Tuesday.

Steven Hansen

Tags: china, contraction, ecb, economy, euro, europe, imf, india, recession, usa, world



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