Global Growth Will Weaken Despite Emerging And Developing Countries

The IMF has released its full World Economic Outlook updated to September, and the big news is the breadth of the Fund's downgrade to its growth forecasts.

The world economy is now forecast to grow 4% this year and next. That's still high by the standard of the past three decades. Advanced economies faced the biggest downward revisions. American output is proving very disappointing in 2011 and isn't expected to rise much in 2012. That's rough news, but I'm not sure Europe is in a better position. The growth outlook for the euro-zone economy dropped by less, but the IMF is assuming that, "euro area policies remain sufficiently strong to keep financial turmoil under control". One has to think that the standard error on the euro-zone forecasts are quite a bit higher than those for the American economy.

It's fascinating to see how uniformly the IMF brought down its forecasts. It's a reminder, among other things, that decoupling is and will likely remain an incomplete phenomenon. It's also worth keeping in mind that one should guard growth zealously, because random shocks may loom around the corner.

I'd also draw attention to the downward revisions to Chinese growth, particularly the relatively large change (by emerging market standards) in 2012. Expect to see more of that in future versions. A Chinese collapse is unlikely, but I suspect that the era of double-digit growth is over. Growth will henceforth be tempered by the need to address substantial structural problems across the economy.

Source: The Economist