The International Monetary Fund has lowered the world’s 2012 economic growth to 3.3 percent, down from its September projection of 4.0 percent, citing the faltering global recovery and greater risks.
“The global recovery is threatened by intensifying strains in the euro area and fragilities elsewhere. Financial conditions have deteriorated, growth prospects have dimmed, and downside risks have escalated,” the IMF said in its update of the World Economic Outlook.
The IMF said the downward revision of the global economic growth is largely due to the prospect that the eurozone is “now expected to go into a mild recession in 2012,” citing the rise in sovereign yields, the effects of bank deleveraging and the impact of extra fiscal consolidation.
The IMF slashed its growth outlook for the advanced economies this year from 1.9 percent to 1.2 percent in the updated report. The projection for the eurozone area this year is now set at minus 0.5 percent, down from an estimated growth of 1.1 percent. Both Italy and Spain are expected to slump at a deeper pace at minus 2.2 percent and minus 1.7 percent, respectively.
Growth in emerging and developing economies is also expected to slow to 5.4 percent because of the worsening external environment and a weakening of internal demand, the Washington-based organization said. Its previous projection for 2012 was 6.1 percent.
“The most immediate policy challenge is to restore confidence and put an end to the crisis in the euro area by supporting growth, while sustaining adjustment, containing deleveraging, and providing more liquidity and monetary accommodation,” the IMF said.
The IMF also warned that emerging economies face the possibility of a hard landing in the context of uncertain potential output. Should the real estate and credit markets suffer a setback, possibly triggered by loss in confidence and falling demand from abroad, emerging economies might sustain “very damaging” impact, the IMF said.
The IMF also said the oil market impact of intensified concerns about an Iran-related oil supply shock would be large, given limited inventory and spare capacity.
