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Aruba, Juli 23, 2012 - An already sluggish global recovery shows signs of further weakness, mainly because of continuing financial problems in Europe and slower-than-expected growth in emerging economies, the IMF said in a regular update to its World Economic Outlook (WEO).

Two other IMF reports were also released July 16. The update to the Global Financial Stability Report (GFSR) said that risks to financial stability increased in the second quarter of 2012 because of the continued slow global recovery and fears about the quality of bank assets in Europe. An update to the IMF’s Fiscal Monitor said that fiscal adjustment in both advanced and emerging economies is proceeding as expected.
The latest World Economic Outlook projects that the global economy will grow 3.5 percent this year, down 0.1 percentage points from the April forecast, and 3.9 percent in 2013, 0.2 percentage points lower (see table).

Risks to recovery
“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 emphasized that the relatively minor setback to the global outlook under its baseline projections is based on three important assumptions:
• that there will 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 does not tighten sharply in 2013; and
• that steps by some major emerging markets to stimulate growth gain traction.

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