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Rickety growth

An IMF report shows global growth rates on shaky ground

The Middle East and North Africa region is forecast to grow at 5.5 per cent in 2012 according to the July update of the World Economic Outlook (WEO) issued by the International Monetary Fund (IMF).

The report, which is issued in two editions in April and September, is updated throughout the year. The report's projections for the region are an improvement on the 3.5 per cent growth rate witnessed by the region in 2011. However, the report forecasts the growth of the region to dampen in 2013 down to 3.7 per cent. The report attributes this to key oil exporters of the region continuing to boost oil production and domestic demand while activity in Libya is rebounding rapidly after the unrest in 2011.

On the global level, figures are lower. World output for 2012 is estimated at 3.5 per cent in 2012 and 3.9 per cent the following year. This is some 0.1 and 0.2 percentage points, respectively, lower than forecast in the April 2012 WEO.

As the report states, in the three months since WEO was issued, "the global recovery, which was not strong to start with, has shown signs of further weakness. Financial market and sovereign stress in the Euro area periphery have ratcheted up, close to end-2011 levels. Growth in a number of major emerging market economies has been lower than forecast."

In advanced economies growth is projected to expand by 1.4 per cent in 2012 and 1.9 per cent in 2013, 0.2 percentage points less for 2013 relative to the April 2012 WEO. "The downward revision mostly reflects weaker activity in the Euro area, especially in periphery economies, where the dampening effects from uncertainty and tighter financial conditions will be strongest. Owing mainly to negative spillovers, including from uncertainty, growth in most other advanced economies will also be slightly weaker."

Downside risks to this weaker global outlook continue to loom large. "The most immediate risk according to the report is still that delayed or insufficient policy action will further escalate the Euro area crisis."

The report further added: "The situation in the Euro area crisis economies will likely remain precarious until all policy action needed for a resolution of the crisis has been taken." That policy action includes the establishment of a single supervisory mechanism for Euro area banks, the European Stability Mechanism (ESM), to recapitalise banks directly. The report also recommended continuing efforts to reach monetary and fiscal union.

Other downside risks relate to fiscal policy in other advanced economies. "Both the United States and Japan need more credible plans to put medium-term government debt on a downward track," the report said.

© Al Ahram Weekly 2012

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