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.
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.
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