Each quarter, the International Monetary Fund (IMF) assesses the global economy in its World Economic Outlook report. What is particularly interesting about the recent assessment released earlier this month is that despite major central banks' efforts to inject a large amount of liquidity into the world financial system, the IMF lowered global growth expectations to just 3.3% this year from an earlier estimate of 3.5%. This would make the slowest year of growth since 2009, when the world was struggling to emerge from the global financial crisis. It also predicted only a modest improvement in next year's growth of 3.6%, lower than its previous estimate of 3.9%.
Not only did the IMF revise down its growth outlook, it also cautioned that the forecast rests on two important assumptions: European policy makers adopting policies that would help to ease financial conditions further in peripheral economies; and US policy makers avoiding drastic automatic tax increases and spending cutbacks (also known as the "fiscal cliff") while ensuring fiscal sustainability. It warned that if these two assumptions do not materialise, then the forecast could be worse.
Judging from the IMF's tendency to be positive about the global economy, its pessimistic tone this time seems to indicate we should all be prepared for a protracted slowdown.
This article is older than 60 days, which we reserve for our premium members only.You can subscribe to our premium member subscription, here.