The IMF released their June World Economic Outlook document on 17 June 2011.
In summary:
The IMF has revised down heavily their 2011 growth outlook for Japan, acknowledging that the 11 March 2011 earthquake had a much bigger impact than initially envisaged.
They also revised down their growth outlook Brazil and the US, but argue that this slowdown in growth in temporary.
In contrast, the IMF revised up their growth outlook for Germany meaningfully (see chart attached). Importantly, the IMF left their growth outlook for China unchanged at 9.6% in 2011 and 9.5% in 2012. This is despite the barrage of ‘scare’ economic research on China by the stock-broker community.
Growth outlook:
Despite some negative surprises, global growth was recorded at 4.3% in the first quarter of 2011, broadly in-line with the April 2011 IMF World Economic Outlook. On the negative side, the earthquake and tsunami in Japan heavily impacted industrial production as well as consumer sentiment and spending. Growth also disappointed in the United States, in part due to transitory factors, namely higher commodity prices, bad weather, and supply chain disruptions from the Japanese earthquake.
In contrast, growth surprised on the upside in the euro area, driven by increased investment activity in Germany and France. Growth in emerging and developing economies was mostly in-line with expectations.
Growth slowdown is temporary:
Global activity is projected by the IMF to slow in the second quarter of 2011, and then reaccelerate in the second half of the year. Economic activity is expected to remain unbalanced with risks to the downside (due to concerns about the Euro-area and the path of recovery in the US). Growth is set to be sluggish in advanced economies facing fiscal and financial sector balance sheet problems, which will continue to be a drag on employment.
Activity will continue to expand strongly in advanced economies that do not face such challenges, as well as in many emerging and developing economies.
Importantly, the fundamental drivers of growth remain in place, namely continuing accommodative macroeconomic conditions, pent-up demand for consumer durables and investment, and strong potential growth in emerging and developing economies.
Growth in the advanced economies is projected to average about 2.5% during 2011–12, slightly weaker than in the April 2011 IMF World Economic Outlook. Growth in emerging and developing economies is expected to be 6.5% during 2011–12, in line with the April 2011 World Economic Outlook projections.
Inflation:
Global inflation picked up from 3.5% in the last quarter of 2010 to 4% in the first quarter of 2011, more than 0.25 percentage points higher than projected in the April 2011 IMF World Economic Outlook. Inflation accelerated mainly because of larger than-expected increases in commodity prices. However, core inflation also crept up across a number of economies. Among advanced economies, core inflation remained subdued in the United States and Japan and rose moderately in the euro area. Among emerging and developing economies, inflation pressures have become increasingly broad-based, reflecting a higher share of food and fuel in consumption as well as accelerating demand pressure.
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