IMF World economic outlook
Euro crisis remains global economy’s biggest threat
By Brian Beary in Washington | Tuesday 17 July 2012
“The utmost priority is to resolve the crisis in the euro area,” the International Monetary Fund (IMF) has said in an updated ‘World economic outlook’, published on 16 July. Though the overall GDP growth forecasts for 2012 and 2013 have not changed markedly since the April 2012 forecast, the first quarter of 2012 registered slightly better growth than predicted three months ago, while the second quarter’s growth forecast has been revised downward. “Job creation has been hampered, with unemployment remaining high in many advanced economies, especially among the young in the euro area periphery,” it explains. The improvement in the first quarter figure is partly due to the European Central Bank’s long-term refinancing operations (LTROs), which gave a 0.25% growth boost. “There is room for monetary policy in the euro area to ease further,” it says, suggesting that the ECB might engage in “additional LTROs with lower collateral requirements”.
Elsewhere, the IMF urges the EU to follow through on the policy commitments it made at the leaders’ summit in June, saying this holds the key to whether the global economy can rebound. On policy specifics, it says that progress must be made in creating a banking and fiscal union, and that “periphery countries need to remain on track with their policy reform commitments”. It calls for a “pan-European deposit insurance guarantee scheme and bank resolution with common backstops” and stresses the need for all eurozone members to ratify the European Stability Mechanism, the EU’s bailout fund for indebted countries.
The IMF is forecasting zero growth in the EU for 2012 and 1% for 2013. The EU’s largest economy, Germany, is forecast to see 1% growth in 2012 and 1.4% in 2013, while troubled eurozone countries Spain and Italy are forecast to see their economies contract in 2012, by 1.5% and 1.9%, respectively (see table). Looking beyond Europe, the IMF notes that growth in emerging markets is lower than forecast in April. It also warns that the US poses a big risk, stemming from the gridlock in Congress over how to tackle the country’s soaring deficit. The IMF notes that oil prices, meanwhile, have dropped by 25% from their high in March 2012, due to a decline in demand, increase in production and easing of fears about the impact of the oil embargo on Iran.
IMF GDP growth forecasts: 2012 / 2013 (%)
EU27:0.0 / 1.0
Eurozone: -0.3 / 0.7
Germany:1.0 / 1.4
France:0.3 / 0.8
Italy:-1.9 / -0.3
Spain:-1.5 / -0.6
United Kingdom:0.2 /- 1.4
United States: 2.0 / 2.3
China:8.0 / 8.5
India:6.1 /-/ 6.5
Russia: 4.0 / 3.9
Source: IMF ‘World economic outlook’, July 2012