The following key summary points have been extracted from the IMF’s latest World Economic Outlook Update, January 2012, that was released yesterday in Washington. Overall the IMF, once again, lowered their world growth projection for 2012 and 2013. According to the IMF, the downward revision is largely because the euro area economy is now expected to go into a mild recession in 2012 as a result of the rise in sovereign yields, the effects of bank deleveraging on the real economy, and the impact of additional fiscal consolidation.
The IMF’s growth forecast for developed economies in 2012 was cut by 0.7 percentage points to a mere 1.2%, while the 2013 forecast was reduced by 0.5 percentage points to 1.9%. The forecast for emerging markets was also reduced by 0.7 percentage points for 2012 to 5.4%, and by 0.6 percentage points for 2013 to 5.9% (see charts attached).
Interestingly, the GDP growth forecast for almost every major part of the world was lowered for both 2012 and 2013. The US was the only key exception; GDP growth for 2012 was left unchanged at 1.8%, but the outlook for 2013 was cut 0.3 percentage points to 2.2%. Emerging markets are still expected to significantly out-perform the developed economies.
The risks are still to the downside and, according to the IMF, the following are worth highlighting:
- Intensification of the adverse feedback loops between sovereign and bank funding pressures in the euro area, resulting in much larger and more protracted bank deleveraging and sizable contractions in credit and output.
- Insufficient progress in developing medium-term fiscal consolidation plans in the United States and Japan.
- A number of major emerging economies experienced buoyant credit and asset price growth as well as rising financial vulnerabilities. This has buoyed demand and may have led to overestimation of the trend growth rates in these economies.
- Concerns about geopolitical oil supply risks are increasing again.
It is also worth noting that the IMF revised South Africa’s growth rate significantly lower for both 2012 and 2013. For 2012, the IMF’s growth forecast is now down at 2.5% compared with an estimate of 3.6% in September 2011, while for 2013 the growth rate if estimated at 3.4%, down from 4.0% in September 2011. Recently the Reserve Bank revised their SA GDP forecast for 2012 down to 2.8%. (STANLIB 2.8%). The IMF indicated that the downward revision to SA’s growth outlook reflected mainly the negative impact of the global economic slowdown. As we know South Africa, which is a very open economy, is especially vulnerable to changes in global economic conditions. This is more pronounced at the moment given the general lack of domestically driven growth initiatives.
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