International Monetary Fund (IMF) in at update to World Economic Outlook (WEO) on 23 January 2013, projected that the global economic growth rate would be 3.5 percent in 2013. The update mentioned that the global economic growth would strengthen gradually as the limitations of the economic activities have seen a positive note with the start of the year.
Some of the major projections of IMF are
• Global growth would reach 3.5 percent in 2013, from 3.2 percent in 2012
• Crisis risks would narrow down but the downside risks will remain crucial
• Main sources of growth would be the emerging markets, developing countries and the United States
Reasons that may be beneficial in betterment of the economic growth
• The actions taken in policy making have been responsible in reducing the risk of the acute crisis situation faced in the area and the United States.
• Actions in terms of plans taken by Japan would also be beneficial in pulling it out from a short-lived recession kind of condition.
• The policies made by the emerging economies of the world in terms of policy making is has also shown positive outcomes with a good start in the year
The report also described that if the risks of crisis doesn’t materialize, then the expected targets of growth may be crossed and can be stronger then that is projected.
Thing that can show an impact, the growth or result into the downfall
• Fiscal tightening, if crosses an excessive limit in United States it may have an adverse impact on the economic growth
• Long-term stagnation of the euro-area would also have an adverse impact
Situations that hinted towards improvement in economic conditions
The economic conditions of the world had shown a positive movement in the third quarter of the 2012 and this was change brought by the performance displayed on the economic front by the emerging economies of the world as well as United States. The borrowing cost of the countries in Euro Zone was marginally better than expected but it also identified some of the weaknesses in the core Euro area. Japan was under the effect of recession in the second half of 2012, which had shown positive signs of improvement in the running year.
Forecasts and the Expected Changes
• In terms of Euro Zone, IMF managed to downgrade its forecast as this economic situation of the region may contract a bit n 2013.
• The report also observed slight improvement in the financial conditions of the banks and governments of the Periphery economies, occurred due to the policy actions undertaken by them but these economies has yet not improved in terms of the borrowing conditions in private sector.
• In terms of United States, the forecast remained broadly unchanged to that of the of October 2012 WEO to 2 percent, but predicted that the support offered to the financial market would support the growth in consumption in the country
• In terms of Japan, the near-term outlook has also remained unchanged regardless of the recession witnessed by the country in recent past and it’s expected that the monetary easing and incentive package would boost the growth in the country
• The report projected that the developing economies and the emerging market of the world would grow by 5.5 percent in 2013 and it will remain almost same as it was predicted in October 2012 WEO.
• In case of China, the IMF has forecasted a growth rate of 7.8 percent, 8.2 percent and 8.5 percent in 2012, 2013 and 2014 respectively. In 2011, it witnessed a growth rate of 9.3 percent.
Findings of the report and threats
• Following the findings of the report in detail, it’s projected that the Euro Area is one of the biggest threat to the Global Economic Outlook as it poses a downside risk to the economy. If the momentum of reforms is not maintained in the Euro Area than the risk of prolonged stagnation would increase
• To move ahead of the risk factor, adjustment programs from the periphery countries should continue and be supported by the firewall developments for prevention of the contagion and take steps towards banking union and fiscal integration, the report stated.
• In case of United States, excessive fiscal consolidation in short term should be avoided and it should raise the debt ceiling and should move ahead to identify a credible medium-term fiscal consolidation plan, that focuses towards entitlement and tax reform.
• In context of Japan, the report identified that it should find out a medium-term fiscal strategy as lack of such an strategy can bring risks to the stimulus package to it
• The developing nations and emerging economies need to make fine policies to tackle the of rising domestic imbalances
The overall decrease in the forecast for the global economic growth rate is the result of the economic slowdown witnessed by the world due to the Euro Zone Crisis in existence. The Euro Zone crisis had an adverse impact on the export and import of the world, leading to great set-backs to the emerging economies of the world as well as the developed economies. Before, Euro Crisis the world also suffered from the recession that hit the United States of America in 2009. Japan also witnessed an economic slowdown after the Tsunami that hit the country in 2011 and affected the Fukushima nuclear Plant.