Global economic outlook
Prospects or the world economy in 2012-2013
Following two years o anaemic and uneven recovery rom the global nancial crisis, the world economy is teetering on the brink o another major downturn. Output growthhas already slowed considerably during 2011, especially in the developed countries. Tebaseline orecast oresees continued anaemic growth during 2012 and 2013. Such growthis ar rom sucient to deal with the continued jobs crises in most developed economiesand will drag down income growth in developing countries.Even this sombre outlook may be too optimistic. A serious, renewed globaldownturn is looming because o persistent weaknesses in the major developed economiesrelated to problems let unresolved in the atermath o the Great Recession o 2008-2009.Te problems stalking the global economy are multiple and interconnected.Te most pressing challenges are the continued jobs crisis and the declining prospects oreconomic growth, especially in the developed countries. As unemployment remains high,at nearly 9 per cent, and incomes stagnate, the recovery is stalling in the short run becauseo the lack o aggregate demand. But, as more and more workers remain out o a job or along period, especially young workers, medium-term growth prospects also suer becauseo the detrimental eect on workers’ skills and experience.Te rapidly cooling economy is both a cause and an eect o the sovereigndebt crises in the euro area, and o scal problems elsewhere. Te sovereign debt crises ina number o European countries worsened in the second hal o 2011 and aggravated the weaknesses in the balance sheets o banks sitting on related assets. Even bold steps by theGovernments o the euro area countries to reach an orderly sovereign debt workout orGreece were met with continued nancial market turbulence and heightened concernso debt deault in some o the larger economies in the euro zone, Italy in particular. Tescal austerity measures taken in response are urther weakening growth and employmentprospects, making scal adjustment and the repair o nancial sector balance sheets allthe more challenging. Te United States economy is also acing persistent high unem-ployment, shaken consumer and business condence, and nancial sector ragility. TeEuropean Union (EU) and the United States o America orm the two largest economiesin the world, and they are deeply intertwined. Teir problems could easily eed into eachother and spread to another global recession. Developing countries, which had reboundedstrongly rom the global recession o 2009, would be hit through trade and nancial chan-nels. Te nancial turmoil ollowing the August 2011 political wrangling in the UnitedStates regarding the debt ceiling and the deepening o the euro zone debt crisis also causeda contagious sell-o in equity markets in several major developing countries, leading tosudden withdrawals o capital and pressure on their currencies.Political divides over how to tackle these problems are impeding needed,much stronger policy action, urther eroding the already shattered condence o businessand consumers. Such divides have also complicated international policy coordination.Nonetheless, as the problems are deeply intertwined, the only way or policymakers to savethe global economy rom alling into a dangerous downward spiral is to take concertedaction, giving greater priority to revitalizing the recovery in output and employment in theshort run in order to pave more solid ground or enacting the structural reorms requiredor sustainable and balanced growth over the medium and long run.
The world economy ison the brink o anotherrecessionThe problems are multipleand interconnectedPolicy paralysis has becomea major stumbling block