Debt: Global Economy Fragile



Global Economy Worries as Recovery is Slow

Global Economy Worries as Recovery is Slow

The worldwide economy has begun to enter a “dangerous phase” with lower growth. The International Monetary Fund (IMF), has advised that both political debates and economic difficulties in both the eurozone and the US could mean a double-dip recession, if changes do not occur.

Weak Growth Outlook

The IMF called the outlook “weak and bumpy expansion” for the developed economies, predicting that GDP in these areas will increase at the slow rate of 1.5% for 2011. In addition, global growth for 2012 will be at 4%, due to issues with financial stability in the eurozone. Last year, it was 5%.

Growth prediction in June for the eurozone was at 2%. The IMF has cut this prediction to 1.6% for the year instead. Next year, it predicts 1.1% of growth, as opposed to the original 1.7%. A downward revision has also occurred in the UK.

The UK growth forecast was 1.5% and is now 1.1%, with 2012’s forecast at 1.6% rather than 2.3%. Chief economist at PwC, John Hawksworth commented on this news, saying, “It would be wise for both governments and businesses to develop contingency plans in case such a double dip scenario does emerge.”

The IMF believes that only Germany and Canada will grow by over 2% in 2011, with no one growing quickly in 2012 except perhaps Japan, with a rebounding economy after the losses from the earthquake and tsunami. The US and Italy have had large downward revisions, after both countries suffered credit rating downgrades.

Preventative Measures

In order to ensure that the US and the 17 countries in the eurozone do not fall back into a recession, the IMF advocates strong government leadership. Chief economist for the IMF, Olivier Blanchard warned that eurozone countries had been lagging in this, unable to solve the debt crisis. He stressed that Europe’s governments must work together to come out of the issues, with leaders sticking with their commitments, especially with the country’s banking system still so fragile.

The US economic recovery is also under concern, with a slower property market and increasingly unstable financial concerns. Either of these issues could create another recession in the US, with a similar fate for the eurozone, if public debt is not controlled quickly in order to ensure recovery stays on track.

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