## IMF World Economic Outlook (WEO) Update -- Global Recovery Stalls, Downside Risks Intensify, January 2012

_World Economic Outlook, January 24, 2012_

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## Bibliographic details
- Published: January 24, 2012
- Series: World Economic Outlook

---

### Global outlook and headline projections
- Global output is projected to expand by 3¼ percent in 2012 — a downward revision of about ¾ percentage point relative to the September 2011 World Economic Outlook (WEO).
- Global GDP expanded at an annualized rate of 3½ percent during Q3 2011.
- Table 1 key year-over-year projections (percent change unless noted):
  - World Output: 2010 = 5.2; 2011 = 3.8; 2012 = 3.3; 2013 = 3.9; Q4 over Q4 estimates = 3.4; difference from September 2011 WEO projections = –0.7 (2012), –0.6 (2013).
  - Advanced Economies: 2010 = 3.2; 2011 = 1.6; 2012 = 1.2; 2013 = 1.9; difference from Sept. 2011 = –0.5.
  - Emerging and Developing Economies: 2010 = 7.3; 2011 = 6.2; 2012 = 5.4; 2013 = 5.9; difference from Sept. 2011 = –½ percentage point (average 2012–13 expected to be 5¾ percent).
  - Developing Asia (including China and India): 2010 = 9.5; 2011 = 7.9; 2012 = 7.8; 2013 = 7.4; China: 2010 = 10.4; 2011 = 9.2; 2012 = 8.2; India: 2010 = 9.9; 2011 = 7.0; 2012 = 6.7.
  - World Trade Volume (goods and services) — 2010 = 12.7; 2011 = –2.0.
  - Commodity prices (U.S. dollars): Oil average price in 2011 = $104.23 a barrel; assumed price based on futures markets = $99.09 in 2012 and $95.55 in 2013.
  - Nonfuel commodity prices projected change in 2012 = –14 percent.
  - Consumer prices: advanced economy inflation projected to fall to about 1½ percent in the course of 2012 (peak about 2¾ percent in 2011); emerging and developing economies inflation projected around 6¼ percent during 2012 (down from over 7¼ percent in 2011).

### Drivers of deterioration and regional effects
- Primary driver: intensifying strains in the euro area interacting with financial fragilities elsewhere (widened sovereign spreads, bank funding dried up, bank deleveraging).
- Financial market developments:
  - Sovereign spreads for many euro area countries reached highs not seen since the launch of the Economic and Monetary Union.
  - ECB offered a three-year Long-Term Refinancing Operation (LTRO) in response to funding strains.
  - Bank lending conditions moved sideways or deteriorated across a number of advanced economies.
  - Capital flows to emerging economies fell sharply; currency markets were volatile (Japanese yen appreciated; many emerging market currencies depreciated significantly).
- Regional outlook highlights:
  - Euro area: now expected to go into a mild recession in 2012; significant downward revision of 1½ percentage points since the September 2011 WEO.
  - Advanced economies (ex-euro area): activity projected to expand by 1½ percent on average during 2012–13; growth too sluggish to make a major dent in very high unemployment.
  - Emerging and developing economies: average growth during 2012–13 expected to be 5¾ percent (down from 6¾ percent during 2010–11); developing Asia projected to grow 7½ percent on average during 2012–13.
  - Middle East and North Africa: activity expected to accelerate in 2012–13 driven mainly by the recovery in Libya and strong oil exporters; most oil-importing countries face muted prospects.
  - Sub-Saharan Africa: output expected to expand by around 5½ percent in 2012; impact of global slowdown limited to a few countries (notably South Africa).
  - Central and Eastern Europe: expected to face the largest adverse spillovers due to strong trade and financial linkages with the euro area.

### Downside scenarios and risks (quantified)
- Euro-area-driven downside scenario assumptions and impacts:
  - Sovereign spreads temporarily rise; fiscal consolidation is more front-loaded; bank asset quality deteriorates; private investment contracts by additional 1¾ percentage points of GDP (relative to WEO projections).
  - Euro area output reduced by about 4 percent relative to the WEO forecast.
  - Global output lower than WEO projections by about 2 percent (assuming financial contagion to the rest of the world more intense than baseline but weaker than following the collapse of Lehman Brothers in 2008).
- Other key risks:
  - Insufficient progress on medium-term fiscal consolidation in the United States and Japan could lead to turmoil in global bond and currency markets.
  - Political paralysis in the United States could produce excessive near-term fiscal tightening.
  - Hard landing risk in key emerging economies if buoyant credit and asset price growth unwind.
  - Geopolitical oil supply risks (e.g., intensified concerns about an Iran-related shock) could have a large market impact given limited inventories and spare capacity.

### Commodity prices and inflation dynamics
- Oil: baseline petroleum price projection for 2012 is broadly unchanged since September 2011 ($99 a barrel compared with $100).
- Non-oil commodity prices: projected to fall by 14 percent in 2012; near-term risks to these prices skewed to the downside.
- Inflation:
  - Advanced economies: inflation projected to ease, reaching about 1½ percent in 2012 (down from about 2¾ percent in 2011).
  - Emerging and developing economies: inflation projected around 6¼ percent during 2012 (down from over 7¼ percent in 2011), though inflation may remain persistent in some regions.

### Policy recommendations and required actions (enumerated)
- Overarching requirements for a more resilient recovery:
  - Sustained but gradual adjustment.
  - Ample liquidity and easy monetary policy, mainly in advanced economies.
  - Restored confidence in policymakers’ ability to act.
  - Not all countries should adjust in the same way, to the same extent, or at the same time.
- Fiscal adjustment:
  - Let automatic stabilizers operate freely for as long as financing conditions permit.
  - Countries with very low interest rates or other fiscal space (including some in the euro area) should reconsider the pace of near-term consolidation.
  - United States and Japan should formulate and implement credible medium-term consolidation plans (examples: reforms to slow growth of health care and pension spending; caps on discretionary spending; tax system reforms).
- Liquidity and monetary policy:
  - Monetary policy should continue to support growth while inflation expectations remain anchored and unemployment stays high.
  - If downside risks materialize, further monetary stimulus — including quantitative easing — may be necessary.
  - Targeted programs to ease credit constraints on businesses and households where monetary transmission is impaired.
  - In the euro area: additional and timely monetary easing by the ECB; continued provision of liquidity and engagement in securities purchases; sufficient funding through the EFSF and ESM.
- Bank deleveraging and financial repair:
  - Inject more capital into euro area banks (including public sources) and avoid excessively fast deleveraging to prevent a credit crunch.
  - Countries under pressure may require recourse to euro-wide resources to facilitate bank recapitalization.
  - Easy short-term funding should be coupled with repair and reform of financial systems to normalize credit conditions (see January 2012 Global Financial Stability Report Update).
- Restoring confidence in the euro area:
  - Deepen financial and fiscal integration over time (common supervision, resolution, and deposit insurance).
  - Near-term: a pan-euro area facility with capacity to take direct stakes in banks.
  - Further fiscal integration and more risk sharing across euro area members alongside stronger fiscal discipline or centralization.
  - Fold EFSF into the ESM and increase the size of the ESM to add substantial real resources.
  - Medium-term: structural reforms to labor and product markets to address internal imbalances and competitiveness problems.
- Policy guidance for emerging and developing economies:
  - Respond to moderating domestic demand and slowing external demand while managing volatile capital flows.
  - Countries with controlled inflation, low public debt, and external surpluses (including China and selected emerging Asian economies) can deploy additional social spending to support poorer households.
  - Economies with diminishing inflation but weaker fiscal fundamentals can stop tightening or ease monetary policy while managing lending to overheating sectors via macroprudential measures.
  - Economies with relatively high inflation and public debt (including India and some Middle Eastern economies) should be cautious about policy easing.
- Collective action and structural reforms:
  - Foster global demand rebalancing by economies with strong household balance sheets and external positions eliminating distortions that weigh on domestic demand.
  - Structural reforms to boost potential output: reform labor and product markets; strengthen resilience to population aging; improve social safety nets, pension, health care, and education systems; strengthen financial sectors; improve business environment for private investment.

*IMF World Economic Outlook Update — Global Recovery Stalls, Downside Risks Intensify, January 2012*

---

## Content in this bundle

- **Figure 1.  Global GDP Growth**
  - [Figure 1.  Global GDP Growth (CSV)](/External/pubs/ft/weo/2012/update/01/data/fig1.csv){rel="external" type="application/octet-stream"}
- **Figure 2.  Recent Economic Indicators**
  - [Figure 2.  Recent Economic Indicators (CSV)](/External/pubs/ft/weo/2012/update/01/data/fig2.csv){rel="external" type="application/octet-stream"}
- **Figure 3.  Recent Financial Market Developments**
  - [Figure 3.  Recent Financial Market Developments (CSV)](/External/pubs/ft/weo/2012/update/01/data/fig3.csv){rel="external" type="application/octet-stream"}
- **Figure 4. WEO Downside Scenario**
  - [Figure 4. WEO Downside Scenario (CSV)](/External/pubs/ft/weo/2012/update/01/data/fig4.csv){rel="external" type="application/octet-stream"}
- **Figure 5.  Net Fund Flows to Emerging Markets**
  - [Figure 5.  Net Fund Flows to Emerging Markets (CSV)](/External/pubs/ft/weo/2012/update/01/data/fig5.csv){rel="external" type="application/octet-stream"}
- **0112a**
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  - [0112a (PDF)](/-/media/websites/imf/imported-flagship-issues/external/arabic/pubs/ft/weo/2012/update/01/pdf/0112a.pdf){rel="external" type="application/pdf"}
- **世界经济展望最新预测 2012年1月——全球复苏停滞，下行风险加剧**
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- **Mise à jour des Perspectives de l’économie mondiale; le 24 janvier 2012; FMI**
  - [Mise à jour des Perspectives de l’économie mondiale; le 24 janvier 2012; FMI (Markdown version)](/-/media/websites/imf/imported-flagship-issues/external/french/pubs/ft/weo/2012/update/01/pdf/0112f.pdf.md){rel="alternate" type="text/markdown"}
  - [Mise à jour des Perspectives de l’économie mondiale; le 24 janvier 2012; FMI (PDF)](/-/media/websites/imf/imported-flagship-issues/external/french/pubs/ft/weo/2012/update/01/pdf/0112f.pdf){rel="external" type="application/pdf"}
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  - [世界経済見通し改訂見通し　2012年1月　--　世界経済は失速、強まる下振れリスク (PDF)](/-/media/websites/imf/imported-flagship-issues/external/japanese/pubs/ft/weo/2012/update/01/pdf/0112j.pdf){rel="external" type="application/pdf"}
- **Figure 1.  Global GDP Growth**
  - [Figure 1.  Global GDP Growth (Markdown version)](/-/media/websites/imf/imported-flagship-issues/external/pubs/ft/weo/2012/update/01/data/_fig1pdf.pdf.md){rel="alternate" type="text/markdown"}
  - [Figure 1.  Global GDP Growth (PDF)](/-/media/websites/imf/imported-flagship-issues/external/pubs/ft/weo/2012/update/01/data/_fig1pdf.pdf){rel="external" type="application/pdf"}
- **Figure 2. Recent Economic Indicators**
  - [Figure 2. Recent Economic Indicators (Markdown version)](/-/media/websites/imf/imported-flagship-issues/external/pubs/ft/weo/2012/update/01/data/_fig2pdf.pdf.md){rel="alternate" type="text/markdown"}
  - [Figure 2. Recent Economic Indicators (PDF)](/-/media/websites/imf/imported-flagship-issues/external/pubs/ft/weo/2012/update/01/data/_fig2pdf.pdf){rel="external" type="application/pdf"}
- **_fig3pdf**
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  - [_fig3pdf (PDF)](/-/media/websites/imf/imported-flagship-issues/external/pubs/ft/weo/2012/update/01/data/_fig3pdf.pdf){rel="external" type="application/pdf"}
- **_fig4pdf**
  - [_fig4pdf (Markdown version)](/-/media/websites/imf/imported-flagship-issues/external/pubs/ft/weo/2012/update/01/data/_fig4pdf.pdf.md){rel="alternate" type="text/markdown"}
  - [_fig4pdf (PDF)](/-/media/websites/imf/imported-flagship-issues/external/pubs/ft/weo/2012/update/01/data/_fig4pdf.pdf){rel="external" type="application/pdf"}
- **Figure 5.  Net Fund Flows to Emerging Markets**
  - [Figure 5.  Net Fund Flows to Emerging Markets (Markdown version)](/-/media/websites/imf/imported-flagship-issues/external/pubs/ft/weo/2012/update/01/data/_fig5pdf.pdf.md){rel="alternate" type="text/markdown"}
  - [Figure 5.  Net Fund Flows to Emerging Markets (PDF)](/-/media/websites/imf/imported-flagship-issues/external/pubs/ft/weo/2012/update/01/data/_fig5pdf.pdf){rel="external" type="application/pdf"}
- **_0112pdf**
  - [_0112pdf (Markdown version)](/-/media/websites/imf/imported-flagship-issues/external/pubs/ft/weo/2012/update/01/pdf/_0112pdf.pdf.md){rel="alternate" type="text/markdown"}
  - [_0112pdf (PDF)](/-/media/websites/imf/imported-flagship-issues/external/pubs/ft/weo/2012/update/01/pdf/_0112pdf.pdf){rel="external" type="application/pdf"}
- **Перспективы развития мировой экономики - Бюллетень; 24 января 2012 года**
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  - [Перспективы развития мировой экономики - Бюллетень; 24 января 2012 года (PDF)](/-/media/websites/imf/imported-flagship-issues/external/russian/pubs/ft/weo/2012/update/01/pdf/0112r.pdf){rel="external" type="application/pdf"}
- **Section 1 — La recuperación mundial se estanca, los riesgos a la baja se intensifican**
  - [Section 1 — La recuperación mundial se estanca, los riesgos a la baja se intensifican (Markdown version)](/-/media/websites/imf/imported-flagship-issues/external/spanish/pubs/ft/weo/2012/update/01/pdf/0112s.pdf.md){rel="alternate" type="text/markdown"}
  - [Section 1 — La recuperación mundial se estanca, los riesgos a la baja se intensifican (PDF)](/-/media/websites/imf/imported-flagship-issues/external/spanish/pubs/ft/weo/2012/update/01/pdf/0112s.pdf){rel="external" type="application/pdf"}

---

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- [January 2012 Global Financial Stability Report Update](http://www.imf.org/external/pubs/ft/fmu/eng/2012/01/index.htm)

_Source: https://www.imf.org/en/publications/weo/issues/2016/12/31/global-recovery-stalls-downside-risks-intensify_