World economy in trouble
Global growth is slowly improving as the United States recovery gains traction and dangers from Europe recede, but risks remain elevated and the situation is very fragile, the International Monetary Fund (IMF) said yesterday.
Another flare-up of the euro-zone sovereign debt crisis or sharp escalation in oil prices on geopolitical uncertainty could disrupt the world economy finding its feet now tensions in the euro zone have subsided, the IMF said. "An uneasy calm remains. One has the feeling that at any moment things could well get very bad again," IMF chief economist Olivier Blanchard told reporters as he detailed the Fund's World Economic Outlook. "Our baseline forecast is for low growth in advanced countries, especially in Europe, but with downside risks being extremely present," he said.
The global economy is on track to expand this year by 3.5 percent and by 4.1 percent in 2013, up slightly from 3.3 percent and 3.9 percent GDP output respectively that the IMF had forecast in January, when market concern was rampant that Greece could default and Italy and Spain were facing budget crises. Since then, Greece has restructured its debt, Italy and Spain are adopting tough fiscal measures and eurozone leaders have agreed to enlarge their bailout fund, causing financial market tensions to ease.
The United States, meanwhile, is gradually gaining momentum while China and other emerging economies appear on track for gradual slowdowns without crashing, the IMF said. But the gains are precarious. Should the euro zone crisis erupt once more, it could trigger a widespread dumping of risky assets and rob 2 percent from global growth over two years and 3.5 percent from the eurozone, the Fund warned.
To secure the global recovery, the IMF urged central banks in the United States, euro zone and Japan to stand ready to deliver further monetary easing; governments to exercise caution over the pace of budget cutbacks wherever feasible. and Europe to consider using public funds.