[Marxism] IMF latest forecast on world economy

RKOB aktiv at rkob.net
Wed Sep 21 10:42:39 MDT 2011

For those of you who are interested in the latest economic forecast of 
the IMF I forward the link to their actual "World Economic Outlook".


The short version is below.



*Weak and Bumpy Global Recovery Ahead *

IMF Survey online, September 20, 2011, 

  * Global growth forecast to moderate to 4 percent in 2011 and 2012
  * Advanced economies facing anemic growth of only 1.6 percent in 2011
  * Multiple shocks combined with insufficient rebalancing stalling recovery

The global economic recovery is slowing, with world growth projected at 
4 percent in both 2011 and 2012, down from over 5 percent in 2010, the 
IMF said in its latest forecast.

And even this lowered projection counts on a lot going well.

The IMF foresaw a slowdown this year after strong growth in 2010 as 
fiscal stimulus packages in response to the crisis wound down. But a 
barrage of economic shocks in 2011 combined with other factors for a 
worse than anticipated outcome.

"The global economy is in a dangerous new phase. Global activity has 
weakened and become more uneven, confidence has fallen sharply recently, 
and downside risks are growing," the IMF said in its September 2011 
World Economic Outlook 

The report, released in Washington on September 20, says strong and 
coordinated action is necessary to avert a decade of lost growth in the 
advanced economies.

"Strong policies are urgently needed to improve the outlook and to 
reduce the risks," said IMF Chief Economist Olivier Blanchard. "Only if 
governments move decisively on fiscal policy, financial repairs, and 
external rebalancing, can we hope for stronger and more robust recovery."

*Uneven growth*

Real GDP is expected to grow by a fairly robust 6.4 percent in emerging 
and developing economies but by only 1.6 percent in advanced economies 
in 2011(see table below).

These WEO projections rest on a number of assumptions: that European 
policymakers will be able to contain the euro area crisis to the 
so-called periphery countries, that U.S. policymakers strike a judicious 
balance between support for the economy and medium-term fiscal 
consolidation, and that ups and downs in global financial markets don't 
get worse. If the assumptions are not met, global growth will be much 


One-off shocks including the earthquake and tsunami in Japan and social 
unrest in some oil-producing countries, stalling of the handover from 
private to public demand in the U.S. economy, major financial turbulence 
in the euro area, and sell-off of risky assets in global markets hit 
advanced country growth hard. And market concerns about the ability of 
many countries to stabilize their public debt are stifling/putting a 
damper on financial flows.

*Twin rebalancing act stalling*

The WEO repeated its mantra that both domestic and external rebalancing 
are essential to a revitalized global economy.

First, */to achieve internal rebalancing, private demand has to take 
over from government stimulus. /*Despite considerable progress on this 
front in many countries, the major advanced economies lag behind. 
Reasons vary by country but tight bank lending, repercussions from the 
housing boom, and high household indebtedness are all putting stronger 
brakes on the recovery than expected.

Fiscal consolidation cannot be so fast that it kills growth, nor so slow 
that it kills recovery, said Blanchard. The key is credible medium-term 
consolidation. Other measures to prop up domestic demand, including 
continued low interest rates, increased bank lending, and housing loan 
resolution programs, are also essential, he stressed.

Second, */countries with large external surpluses must achieve more 
domestically driven growth, while those with large deficits/*, most 
notably the United States, must do the opposite. This is not happening. 
While imbalances did fall during the crisis, that was due to the large 
decrease in demand for imports in advanced economies relative to 
precrisis trends, rather than an increase in imports by emerging 
economies with external surpluses. Now the forecast is for an increase 
rather than a decrease in imbalances.

*Fiscal and financial uncertainty*

Market worries about the ability of countries to stabilize their public 
debt have spread from a few small countries on the periphery of Europe 
to more counties in Europe and beyond to the United States and Japan. 
And concerns about sovereign debt and by extension that of the banks 
holding sovereign bonds have lead to a freeze of financial flows as the 
banks maintain high liquidity and tighten lending. There is a real risk 
of a feedback loop between low growth, nonperforming loans, weakened 
banks, and cuts in lending.

Until now emerging markets have enjoyed immunity from adverse global 
economic developments. They now face even more volatile capital flows 
and, along with low-income countries, diverse export conditions.

*Forceful action*

The risks to the global economy are many, but three in particular demand 
strong action by policymakers:

. In */the euro area/*, banks must be made stronger, not only to avoid 
deleveraging and maintain growth, but also, and more importantly, to 
reduce risks of vicious feedback loops between low growth, weak 
sovereigns, and weak banks. This requires additional capital buffers, 
from either private or public sources.

. The top priorities in the */United States/* include devising a 
medium-term fiscal consolidation plan to put public debt on a 
sustainable path and to implement policies to sustain the recovery, 
including by easing the adjustment in the housing and labor markets. The 
new American Jobs Act would provide needed short-term support to the 
economy, but it must be flanked with a strong medium-term fiscal plan 
that raises revenues and contains the growth of entitlement spending.

. In */Japan/*, the government should pursue more ambitious measures to 
deal with the very high level of public debt while attending to the 
immediate need for reconstruction and development in the areas hit by 
the earthquake and tsunami.

*Building on success*

The situations of */emerging and developing economies/* vary widely, but 
after strong growth in recent years and on the horizon, most are in the 
enviable position of being able to invest in growth and employment and 
to brace against future global economic volatility. In a number of 
economies, signs of overheating continue to warrant close attention. In 
others, monetary tightening can pause while uncertainty is very high. 
Most economies should continue to lower fiscal deficits.

Large capital inflows in some emerging economies are a signal to those 
countries to further strengthen their macroeconomic and financial policy 
frameworks and reform their economies so that these inflows have 
productive outlets. And high food prices underscore the need for 
developing well-targeted social safety nets that protect the most 
vulnerable from hunger.

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