{
  "title": "Global Economy: Some Bad News and Some Hope",
  "publication": "IMF Blog, October 9, 2012",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2012/10/09/global-economy-some-bad-news-and-some-hope",
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  "summary": "The world economic recovery continues, but it has weakened further. In advanced countries, growth is now too low to make a substantial dent in unemployment. And in major emerging countries, growth that had been strong earlier has also decreased.",
  "sections": [
    {
      "heading": "Economic growth",
      "content": "- The world economic recovery continues, but it has weakened further.\n- Relative to the IMF's forecasts last April, growth forecasts for 2013 have been revised down from 1.8% to 1.5% for advanced countries, and from 5.8% down to 5.6% for emerging and developing countries.\n- The downward revisions are widespread, and are stronger for two sets of countries: members of the euro area, where we now expect growth close to zero in 2013, and for three large emerging market economies, China, India, and Brazil."
    },
    {
      "heading": "Forces affecting advanced economies",
      "content": "- Upward force on growth:\n  - Accommodative monetary policy: central banks maintain very low policy rates and experiment with programs to decrease rates in particular markets, help particular categories of borrowers, or help financial intermediation in general.\n- Downward forces on growth:\n  - Fiscal consolidation: proceeding according to plan in most countries, but weighing on demand; evidence suggests that, in the current environment, fiscal multipliers are large—larger than in normal times.\n  - Weak financial systems: banks remain weak in many countries (more so in Europe than in the United States), exacerbated by low growth, leading many borrowers to face tight borrowing conditions.\n  - General uncertainty: worries about European policymakers' ability to control the euro crisis, U.S. policymakers' failure to agree on a fiscal plan, and Japanese policymakers' ability to reduce their budget deficit further."
    },
    {
      "heading": "Emerging and developing economies",
      "content": "- Interconnections:\n  - Low growth in advanced countries affects emerging and developing economies through exports and supply chains.\n  - Example: lower exports account for most of the decrease in growth in China; supply-chain effects account for much of the decrease in growth in Asia.\n- Capital flows:\n  - Alternative risk-off and risk-on episodes, triggered by progress and regress on policy actions, cause volatile capital flows, in particular to Asia and to Latin America.\n- Domestic factors:\n  - Policy uncertainty in India affecting domestic demand.\n  - Tighter policies in Brazil in response to an earlier boom.\n- Outlook:\n  - These developments are not seen as signs of a hard landing in China, India, or Brazil; positive policy measures are being taken in all three countries.\n  - Nonetheless, the result is expected to be lower growth for some time, lower than recent past growth."
    },
    {
      "heading": "Policy recommendations",
      "content": "- Continue with accommodating monetary policy as a powerful force for growth.\n- Continue steady fiscal consolidation: \"not too slow, not too fast.\"\n- Continue to repair the financial system.\n- Decrease policy uncertainty.\n- Deliver fiscal consolidation while maintaining growth."
    },
    {
      "heading": "Euro area focus and banking architecture",
      "content": "- Recent change in attitudes: realization that an ambitious architecture must be put in place.\n- Lessons identified:\n  - Euro area countries can be hit by strong shocks.\n  - Weak banks can considerably amplify adverse effects of shocks.\n  - Sovereign/bank interactions can further worsen outcomes if the sovereign itself might be in trouble.\n- Objectives for new architecture:\n  - Reduce the amplitude of shocks in the first place.\n  - Put in place a system of transfers to soften the effects of shocks.\n  - Move supervision, resolution, and recapitalization processes of banks to the euro level.\n- Progress:\n  - These issues are being seriously explored and some mechanisms are being put together."
    },
    {
      "heading": "Short-term measures, country actions, and scenarios",
      "content": "- Immediate needs for Spain and Italy:\n  - Follow through with adjustment plans that reestablish competitiveness and fiscal balance while maintaining growth.\n  - Be able to recapitalize banks, if needed, without adding to sovereign debt.\n  - Be able to borrow at reasonable rates.\n- Outlook if measures are implemented rapidly:\n  - If the complex puzzle of mechanisms and measures can be rapidly completed, one can reasonably hope that the worst might be behind us.\n  - If uncertainty is partly behind the slowdown and adoption/implementation of measures reduces it, outcomes may be better than the forecasts.\n  - \"The case for an upside scenario is a bit stronger than it has been for a while.\"\n\nOlivier Blanchard, October 9, 2012 — Global Economy: Some Bad News and Some Hope\n\n---\n\n\n References\n\n- unemployment\n- World Economic Outlook\n- Tokyo\n- euro area\n- China\n- India\n- Brazil\n- weak financial system\n- plan\n- banks are still weak\n- Japanese\n- interconnected\n- capital flows\n- monetary policy\n- fiscal\n- not too slow, not too fast\n- Spain\n- Italy\n\nSource: https://www.imf.org/en/blogs/articles/2012/10/09/global-economy-some-bad-news-and-some-hope"
    }
  ],
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    "[Markdown version](/en/blogs/articles/2012/10/09/global-economy-some-bad-news-and-some-hope/index.md)",
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    "Authors: Olivier Blanchard",
    "Published: October 9, 2012",
    "The world economic recovery continues, but it has weakened further.",
    "Relative to the IMF's forecasts last April, growth forecasts for 2013 have been revised down from 1.8% to 1.5% for advanced countries, and from 5.8% down to 5.6% for emerging and developing countries.",
    "The downward revisions are widespread, and are stronger for two sets of countries: members of the euro area, where we now expect growth close to zero in 2013, and for three large emerging market economies, China, India, and Brazil.",
    "Upward force on growth:",
    "Downward forces on growth:",
    "Interconnections:",
    "Capital flows:",
    "Domestic factors:",
    "Outlook:",
    "Continue with accommodating monetary policy as a powerful force for growth.",
    "Continue steady fiscal consolidation: \"not too slow, not too fast.\"",
    "Continue to repair the financial system.",
    "Decrease policy uncertainty.",
    "Deliver fiscal consolidation while maintaining growth.",
    "Recent change in attitudes: realization that an ambitious architecture must be put in place.",
    "Lessons identified:",
    "Objectives for new architecture:",
    "Progress:",
    "Immediate needs for Spain and Italy:",
    "Outlook if measures are implemented rapidly:",
    "[unemployment](http://blogs.imf.org/2012/10/03/restoring-jobs-by-restoring-growth/)",
    "[World Economic Outlook](http://www.imf.org/external/pubs/ft/survey/so/2012/RES100812A.htm)",
    "[Tokyo](http://www.imf.org/external/am/2012/index.htm)",
    "[euro area](http://www.imf.org/external/region/eur/index.htm)",
    "[China](http://www.imf.org/external/pubs/ft/survey/so/2012/CAR072412A.htm)",
    "[India](http://www.imf.org/external/pubs/ft/survey/so/2012/car041712a.htm)",
    "[Brazil](http://www.imf.org/external/pubs/ft/survey/so/2012/CAR072012A.htm)",
    "[weak financial system](http://blogs.imf.org/2012/09/28/not-making-the-grade-report-card-on-global-financial-reform/)",
    "[plan](http://blogs.imf.org/2012/07/18/signs-of-fiscal-progress-will-it-be-enough/)",
    "[banks are still weak](http://www.imf.org/external/pubs/ft/survey/so/2012/RES092512A.htm)",
    "[Japanese](http://www.imf.org/external/pubs/ft/survey/so/2012/CAR061112B.htm)",
    "[interconnected](http://www.imf.org/external/pubs/ft/fandd/2012/09/index.htm)",
    "[capital flows](http://blogs.imf.org/2012/09/07/capital-controls-when-are-multilateral-considerations-of-the-essence/)",
    "[monetary policy](http://www.imf.org/external/pubs/ft/fandd/basics/monpol.htm)",
    "[fiscal](http://www.imf.org/external/pubs/ft/fandd/basics/fiscpol.htm)",
    "[not too slow, not too fast](http://blogs.imf.org/2012/04/20/making-goldilocks-happy/)",
    "[Spain](http://www.imf.org/external/country/ESP/index.htm)",
    "[Italy](http://www.imf.org/external/country/ITA/index.htm)"
  ],
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