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

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.

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:

Risks to global growth rising: IMF

– http://news.yahoo.com

The 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.

Other Eurocrisis News:

Quantitative easing: QE, or not QE?

– http://www.economist.com/

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

– http://www.economist.com/

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 Portugal

– http://news.yahoo.com

The 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.

ECB could supervise euro banks very quickly: Noyer

– http://news.yahoo.com

The 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.

‘No Measurable Effect’: ECB Interest Rate Cut Inspires Little Hope

– http://www.spiegel.de/

The 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 Hollande

– http://www.standard.co.uk/business/

Building supplies giant Wolseley is set to exit France, in what amounts to a damning indictment of president François Hollande’s economic stewardship.

Steven Hansen