Context
IMF has predicted that the global economy will grow by 3.25% in 2012, down from an earlier forecast of 4%. It said that the world economy is in danger zone due to the eurozone crisis. Eurozone will see a mild recession in 2012, with GDP lowering to 0.5%, compared with a previous forecast of 1.1% growth. Growth estimates have been reduced for the main eurozone countries for 2012. The growth forecast for the UK economy has been cut to 0.6% from earlier 1.6%. Similarly, Germany’s growth will be 0.3% down from expected 1.3%, while France’s growth will be 0.2%, down from 1.4%. However, US growth forecast has remained consistent at 1.8%.
There is a risk of spillover of eurozone crisis on the Eastern Europe and Asian markets. Previously, these markets had shown strong resilience but the recent shock indicators and general business climate are daunting. The IMF said Europe has to restore confidence and design consistent and decisive policy action to surmount the current financial crisis. “There are three requirements for a more resilient recovery: sustained but gradual adjustment, ample liquidity and easy monetary policy, mainly in advanced economies, and restored confidence in policymakers’ ability to act.”
