Tea Leaf: World economy deeply into the 'danger zone'

Published: Thursday, Jan. 26 2012 8:22 p.m. MST

The world's economy is deep in the danger zone because of risks from the eurozone, the International Monetary Fund has stated. The IMF predicts the global economy will grow by 3.25 percent (after inflation) in 2012, down from an earlier forecast of 4.0 percent. Global output is forecast to expand 3.9 percent in 2013, down from a previous forecast of 4.5 percent.

The Washington-based IMF suggests that the eurozone is set for a "mild recession" in 2012, with a 0.5 percent reduction in real GDP expected, compared to a previous forecast of 1.1 percent growth. Our own forecast would have a deeper European recession.

A British Treasury official noted that "The IMF has downgraded its growth forecasts for all the major economies, reflecting the deterioration in the global outlook since their last forecasts in September," according to the BBC.

German growth estimates have been reduced to 0.3 percent in 2012, down from the originally predicted 1.3 percent growth pace last September. Interestingly, the IMF stands by its 1.8 percent growth prediction for the U.S., based somewhat on recent strong domestic data on jobs and manufacturing, the BBC reported.

The IMF noted that Europe's most pressing challenge was to restore confidence and put an end to the crisis in the euro area. The IMF warned that the "United States and other advanced economies are susceptible to spillovers from a potential intensification of the eurozone crisis."

The IMF warned that overly aggressive austerity measures could backfire. "Going too fast (to cut deficits) will kill growth and derail the recovery," an IMF economist said. What's needed is a credible, medium-term plan to reduce deficits over time, he said, adding that the United States and Japan have both so far failed to provide such plans.

Japan is forecast to rebound from a 0.9 percent contraction in 2011 to grow 1.7 percent in 2012, down from a September forecast of 2.3 percent. China is now expected to see growth slow from 9.2 percent in 2011 to 8.2 percent in 2012, then pick up speed to 8.8 percent in 2013. Overall, emerging markets and developing nations are forecast to see 5.4 percent growth in 2012, down from a September estimate of 6.1 percent. Growth in 2013 is forecast at 5.9 percent.

Jeff Thredgold holds the the highest earned designation in professional speaking. He is also an economic consultant to Zions Bank.

Get The Deseret News Everywhere

Subscribe

Mobile

RSS