## IMF World Economic Outlook (WEO) Update -- Mild Slowdown of the Global Expansion, and Increasing Risks, June 2011

_World Economic Outlook, June 17, 2011_

## Source details

**Canonical URL:** [IMF World Economic Outlook (WEO) Update -- Mild Slowdown of the Global Expansion, and Increasing Risks, June 2011](https://www.imf.org/en/publications/weo/issues/2016/12/31/mild-slowdown-of-the-global-expansion-and-increasing-risks)

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- [Markdown version](/en/publications/weo/issues/2016/12/31/mild-slowdown-of-the-global-expansion-and-increasing-risks/index.md)
- [Structured JSON version](/en/publications/weo/issues/2016/12/31/mild-slowdown-of-the-global-expansion-and-increasing-risks/index.json)
- [Bundle manifest](/en/publications/weo/issues/2016/12/31/mild-slowdown-of-the-global-expansion-and-increasing-risks/bundle-manifest.json)

## Bibliographic details
- Published: June 17, 2011
- Series: World Economic Outlook

---

### Global growth and near-term outlook
- Global activity expanded at an annualized rate of 4.3 percent in the first quarter of 2011.
- Global activity is projected to slow in the second quarter of 2011, then reaccelerate in the second half of 2011; baseline projections for 2011–12 are broadly unchanged relative to the April 2011 WEO.
- Forward-looking indicators (manufacturing purchasing managers indices) suggest activity softened in Q2 2011, especially in many advanced economies.
- Key drivers of the slowdown in Q2 2011:
  - Supply disruptions from the Japanese earthquake and tsunami.
  - Transitory factors in the United States, including higher commodity prices, bad weather, and supply chain disruptions.
  - Earlier oil price increases cutting into households’ real incomes and dampening private consumption.
- Fundamental growth drivers remaining in place: still-accommodative macroeconomic conditions, pent-up demand for durables and investment, and strong potential growth in emerging and developing economies.

### Key statistics and projections (as presented)
- Table 1 highlights (Percent change unless otherwise noted):
  - World Output: 2009 = –0.5; 2010 = 5.1; 2011 = 4.3; 2012 = 4.5; Q4 over Q4 projections: 2011 = 4.7; 2012 = 4.4.
  - Advanced Economies: 2009 = –3.4; 2010 = 3.0; 2011 = 2.2; 2012 = 2.6; Q4 over Q4 projections: 2011 = 2.7; 2012 = 2.3.
  - United States: 2009 = –2.6; 2010 = 2.9; 2011 = 2.5; Q4 over Q4 projections: 2011 = 2.8.
  - Euro Area: 2009 = –4.1; 2010 = 1.8; 2011 = 2.0; 2012 = 1.7.
  - Japan: 2009 = –6.3; 2010 = 4.0; 2011 = –0.7; 2012 = –2.1.
  - Emerging and Developing Economies (quarterly estimates/projections account for ~80%): 2009 = 7.4; 2010 = 6.6; 2011 = 6.4; 2012 = 7.5; Q4 over Q4 projections: 2011 = 6.9.
  - Developing Asia: 2009 = 7.2; 2010 = 9.6; 2011 = 9.2; 2012 = 8.6.
  - China: 2009 = 10.3; 2010 = 9.5; 2011 = 9.8; 2012 = 9.4.
  - India: 2009 = 6.8; 2010 = 10.4; 2011 = 8.2; 2012 = 7.8.
  - World Trade Volume (goods and services): 2009 = –10.8; 2010 = 12.4; 2011 = 6.7.
  - Commodity prices (U.S. dollars): Oil — 2010 average price = $79.03 a barrel; assumed price based on futures markets = $106.30 in 2011 and $105.25 in 2012.
  - Global inflation: rose from 3½ percent in Q4 2010 to 4 percent in Q1 2011.
- Regional snapshots:
  - Latin America and the Caribbean: region expanded by more than 6 percent in 2010; LAC growth projected to moderate to about 4½ percent in 2011 and converge to about 4 percent over the next two years.
  - Sub-Saharan Africa: activity projected to continue strengthening with robust domestic demand and benefits from elevated commodity prices.
  - Middle East and North Africa: prospects clouded by political and social unrest; outlook improved for some oil and mineral exporters.

### Inflation, commodities, and financial conditions
- Inflation:
  - Global inflation pickup driven mainly by larger-than-expected increases in commodity prices; core inflation also rose across a number of economies.
  - Among advanced economies: core inflation subdued in the United States and Japan, rose moderately in the euro area.
  - Among emerging and developing economies: inflation pressures increasingly broad-based.
- Commodity markets:
  - Commodity prices surged through April 2011, fell in May, and stabilized afterward.
  - Crude oil prices briefly approached $120 a barrel in April 2011, fell sharply in May, and then averaged about $107 a barrel (close to April 2011 WEO assumptions).
  - Food prices stabilized beginning in early 2011 after weather-related supply shocks in 2010.
- Financial volatility:
  - Global financial conditions became more volatile since late May 2011, reflecting market concerns about sovereign risks in the euro area periphery and softening U.S. activity.
  - Symptoms: rising sovereign credit default swap spreads in certain euro area economies, retreating global equity prices, and falling long-term bond yields in major advanced economies.
  - June 2011 GFSR Market Update emphasizes insufficient pace of banking system repair (notably in Europe) and risks related to releveraging in market segments.
  - For many emerging and developing economies, the financial environment remained accommodative but capital inflows were fickle; some large emerging economies experienced rapid credit growth while others tightened monetary policy.

### Risks and scenarios
- Balance of risks is tilted to the downside relative to April 2011 WEO.
- Elevated downside risks include:
  - Spillovers from further deterioration in market confidence in the euro area periphery.
  - Setbacks to the U.S. recovery.
  - Reversal of capital inflows to emerging economies if global financial conditions tighten.
  - Banks in advanced economies face large near-term refinancing needs; a squeeze on wholesale funding could tighten lending standards.
  - Near-term risks from sharper or more prolonged negative spillovers from Japan.
- Commodity-related risks:
  - Risks for commodity markets are smaller than in April 2011 but still point down for growth; unrest in the Middle East may raise oil prices; low inventories and weather risks pose near-term upside risks for food prices.
- Emerging-market overheating risks:
  - Elevated inflation pressures and high asset prices in some key emerging economies increase the risk of hard landings if policy rates remain low.

### Policy recommendations and priorities
- Advanced economies:
  - Implement credible and well-paced consolidation programs focused on bolstering medium-term debt sustainability—especially the United States and Japan.
  - For the United States: immediately address the debt ceiling and launch a deficit reduction plan that includes entitlement reform and revenue-raising tax reform; if recovery weakens, modify the pace of adjustment within the envelope of a credible medium-term plan.
  - For Japan: make progress in tax and entitlement reforms to address debt dynamics; ensure fiscal response to the earthquake is consistent with medium-term sustainability.
  - Address financial sector vulnerabilities—particularly in several European economies—through ambitious structural reforms to boost competitiveness, front-loaded fiscal adjustment, and balance sheet repair; strengthen EU-wide supervision and crisis resolution and make the safety net more flexible.
  - Maintain accommodative monetary policy where sizable slack exists (United States, Japan, euro area), while guarding against further increases in core inflation as slack diminishes; accommodative monetary policy should not substitute for financial sector repair.
  - Use macroprudential policies and stronger financial supervision to contain risks from prolonged low interest rates.
- Emerging and developing economies:
  - Expeditiously tighten macroeconomic policies where economies are operating at or above precrisis output levels.
  - Use exchange rate flexibility and macroprudential tools, possibly including capital controls, to contain boom-bust risks; continue policy tightening coordinated with transparent central bank communication to anchor inflation expectations.
  - Rebuild fiscal buffers in economies with high fiscal deficits or debt; preserve social sector spending and priority infrastructure investment.
  - For economies with excessive current account surpluses (particularly in Asia): pursue demand rebalancing through exchange rate appreciation and structural reforms to secure balanced growth and employment gains in the medium term.
- Latin America and the Caribbean (region-specific guidance):
  - With output gaps largely closed, remove macroeconomic policy accommodation.
  - Reduce the pace of government spending to avoid overburdening monetary policy amid sizable capital inflows and currency appreciation.
  - Strengthen macroprudential measures and consider capital controls to enhance financial-system resilience.
  - In Central America: rebuild policy buffers used during the global recession.
  - In the Caribbean: continue fiscal consolidation where public debt is very high to ensure stability and sustainable growth.

*IMF World Economic Outlook Update — Mild Slowdown of the Global Expansion, and Increasing Risks, June 2011*

---

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---

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- [Global Growth Hits a Soft Patch](http://blog-imfdirect.imf.org/2011/06/17/global-growth-hits-a-soft-patch/)
- [Global Growth Hits Soft Patch, Expected to Rebound](http://www.imf.org/external/pubs/ft/survey/so/2011/NEW061711A.htm)
- [http://www.imf.org/external/mmedia/view.aspx?vid=993170889001](http://www.imf.org/external/mmedia/view.aspx?vid=993170889001)
- [Global Financial Stability Report Market Update](http://www.imf.org/External/Pubs/FT/fmu/eng/2011/02/index.htm)
- [Fiscal Monitor Update](http://www.imf.org/external/pubs/ft/fm/2011/02/update/fmindex.htm)
- [World Economic Outlook (WEO)](http://www.imf.org/external/pubs/ft/weo/2011/01/index.htm)
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- [discussion forum](http://www.imf.org/external/pubs/ft/weo/forum/index.htm)
- [June 2011 Global Financial Stability Report (GFSR) Market Update](http://www.imf.org/external/pubs/ft/fmu/eng/2011/02/index.htm)

_Source: https://www.imf.org/en/publications/weo/issues/2016/12/31/mild-slowdown-of-the-global-expansion-and-increasing-risks_