16 Jul 2012

IMF / WORLD ECONOMIC OUTLOOK

The IMF says an already sluggish global recovery shows signs of further weakness, in a regular update to its World Economic Outlook released today (16 July).

IMF

Posted at: July 16, 2012 11:56 am

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STORY: IMF / WORLD ECONOMIC OUTLOOK
TRT:2:10
SOURCE: IMF
RESTRICTIONS: NONE
LANGUAGE: ENGLISH / NATS

DATELINE: RECENT 2012, WASHINGTON, D.C. / FILE

SHOTLIST:

FILE – RECENT, MADRID, SPAIN

1. Wide shot towers in Madrid
2. Med shot, man leaving unemployment office

RECENT 2012, WASHINGTON, D.C.

3. SOUNDBITE (English) Olivier Blanchard, Chief Economist, IMF:
"If you take one step back, it's a very weak recovery. And the rate of growth world output which is 3.5 percent this year we think, is very low. It's the lowest one if you forget 2009, for the last ten years. And then if you look across countries, in the U.S. we forecast two percent.  That's barely enough to decrease unemployment. In Europe we have negative growth this year, positive growth but small next year. Emerging market countries down from fairly high rates in the 2000's to low rates now. So weak recoveries: point number one, and point number two: this is the baseline. And unfortunately, when we look we see very large downside risks."

FILE – RECENT, ROME, ITALY

4. Wide shot, Rome 
5. Wide shot, cityscape

RECENT 2012, WASHINGTON, D.C.

6. SOUNDBITE (English) Olivier Blanchard, Chief Economist, IMF:
"You only need two things. The first one is that the countries which are under pressure have to succeed. So what this means is they have to take the measures which are needed to succeed. It means competiveness, it means fiscal consolidation. In the first approximation, you know, Italy and Spain are really doing a whole lot. But they're in a deep hole and they may not be able to succeed on their own, so they need help from the other Euro members, right. What does it mean?  It means in effect, some form of financial help in various forms.  If they have to continue to borrow at six, seven percent, they cannot make it. So we have to find ways of helping them. So these two things, strong effort by them and then help from the others is what's needed. If this happens, I think we can avoid a major Euro crisis, and if we avoid it then the forecast would look more optimistic than it does."

FILE – RECENT, BEIJING, CHINA

7. Wide shot, towers
8. Med shot, pedestrians

RECENT 2012, WASHINGTON, D.C.

9. SOUNDBITE (English) Olivier Blanchard, Chief Economist, IMF:
"I think there is a sense in which the very high growth rates we've seen were probably slightly above potential growth, so these countries are having lower growth rates. It's happening because they are in many cases, squeezing investments, squeezing credit. They seem to be doing it about right. We think it's going to be a soft landing.  But yeah, looking forward, we're not going to see some of the rates we saw in the 2000's."

FILE – RECENT, LIMA, PERU

10. Wide shot, beach scene 
11. Med shot, palm tree and hotel

STORYLINE:

An already sluggish global recovery shows signs of further weakness, mainly because of continuing financial problems in Europe and slower-than-expected growth in emerging economies, the IMF said today (16 July) in a regular update to its World Economic Outlook.

The World Economic Outlook Update projects the global economy will grow 3.5 percent this year, down 0.1 percentage points from the April forecast, and 3.9 percent in 2013, 0.2 percentage points lower.

"If you take one step back, it's a very weak recovery. And the rate of growth world output which is 3.5 percent this year we think, is very low. It's the lowest one if you forget 2009, for the last ten years. And then if you look across countries, in the U.S. we forecast two percent.  That's barely enough to decrease unemployment.  In Europe we have negative growth this year, positive growth but small next year. Emerging market countries down from fairly high rates in the 2000's to low rates now. So weak recoveries: point number one, and point number two: this is the baseline. And unfortunately, when we look we see very large downside risks," said IMF chief economist Olivier Blanchard.

The IMF warned that there remain serious downside risks for the global economy and emphasized that the relatively minor setback to the global outlook under its baseline projections is based on some important assumptions: that there will be enough policy action for financial conditions in the so-called euro area periphery, which includes Greece and Spain, to ease gradually through 2013; that U.S. fiscal policy does not tighten sharply in 2013; and that steps by some major emerging markets to stimulate growth gain traction.

The IMF said the most immediate downside risk to the global recovery is that delayed or insufficient policy action will further escalate the euro area crisis.

"You only need two things. The first one is that the countries which are under pressure have to succeed.  So what this means is they have to take the measures which are needed to succeed. It means competiveness, it means fiscal consolidation.  In the first approximation, you know, Italy and Spain are really doing a whole lot.  But they're in a deep hole and they may not be able to succeed on their own, so they need help from the other Euro members, right. What does it mean?  It means in effect, some form of financial help in various forms.  If they have to continue to borrow at six, seven percent, they cannot make it.  So we have to find ways of helping them.  So these two things, strong effort by them and then help from the others is what's needed.  If this happens, I think we can avoid a major Euro crisis, and if we avoid it then the forecast would look more optimistic than it does," Blanchard said.

Growth has slowed in a number of major emerging economies, especially Brazil, China, and India. This was due in part to a weaker external environment but also because of a sharp deceleration in domestic demand in response to capacity constraints and policy tightening. Overall, though, they have weathered the crisis well.

"I think there is a sense in which the very high growth rates we've seen were probably slightly above potential growth, so these countries are having lower growth rates.  It's happening because they are in many cases, squeezing investments, squeezing credit.  They seem to be doing it about right.  We think it's going to be soft landings. But yeah, looking forward, we're not going to see some of the rates we saw in the 2000's," Blanchard said.

Filed under IMF.