Weo 10/10

FOR RELEASE: In Washington, D.C. (EDT): July 16, 2012

New Setbacks, Further Policy Action Needed
In the past three months, 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 lowerthan forecast. Partly because of a somewhat better-than-expected first quarter, the revised baseline projections in this WEO Update suggest that these developments will only result in a minor setback to the global outlook, with global growth at 3.5 percent in 2012 and 3.9 percent in 2013, marginally lower than in the April 2012 World Economic Outlook. These forecasts, however, are predicated ontwo important assumptions: that there will be sufficient policy action to allow financial conditions in the euro area periphery to ease gradually and that recent policy easing in emerging market economies will gain traction. Clearly, downside risks continue to loom large, importantly reflecting risks of delayed or insufficient policy action. In Europe, the measures announced at the European Union(EU) leaders’ summit in June are steps in the right direction. The very recent, renewed deterioration of sovereign debt markets underscores that timely implementation of these measures, together with further progress on banking and fiscal union, must be a priority. In the United States, avoiding the fiscal cliff, promptly raising the debt ceiling, and developing a medium-term fiscal plan are of theessence. In emerging market economies, policymakers should be ready to cope with trade declines and the high volatility of capital flows.

A better Q1, a worse Q2
Global growth increased to 3.6 percent (seasonally adjusted annual rate) in the first quarter of 2012, surprising on the upside by some ¼ percentage point compared with the forecasts presented in the April 2012 World Economic Outlook(Figure 1, Table 1). The upward surprise was partly due to temporary factors, among them easing financial conditions and recovering confidence in response to the European Central Bank’s (ECB’s) longer-term refinancing operations (LTROs). Global trade rebounded in parallel with industrial production in the first quarter of 2012, which, in turn, benefited trade-oriented economies, notablyGermany and those in Asia. For Asia, growth was also pulled up by a greater-than-anticipated rebound in industrial production, spurred by the restart of supply chains disrupted by the Thai floods in late 2011, and stronger-than-expected domestic demand in Japan.
Figure 1. Global GDP Growth
(Percent; quarter over quarter, annualized)
Emerging and developingeconomies 12 10 8 6 4 2 0 -2 -4 -6 -8 -10World

Advanced economies 2007 08 09 10 11 12 13: Q4

Source: IMF staf f estimates.

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Table 1. Overview of the World Economic Outlook Projections
(Percent change unless noted otherwise)

WEO Update, July 2012

Year over Year Difference from April 2012 WEO Projections 2012 –0.1 0.0 –0.1 0.0 0.4 –0.1 0.0 0.4 0.4 –0.6 0.1 –0.2 –0.6 –0.1 0.0 0.0 0.0 –0.1 –0.3 –0.2 –0.7 0.0 –0.3 –0.6 0.31.3 –0.1 –0.1 2013 –0.2 –0.2 –0.1 –0.2 –0.1 –0.2 0.0 –0.7 –0.2 –0.6 0.0 –0.1 0.0 –0.2 –0.1 –0.1 –0.1 –0.1 –0.4 –0.3 –0.7 –0.1 0.1 0.5 0.0 0.0 0.0 –0.1 Q4 over Q4 Estimates 2011 3.2 1.2 1.6 0.7 2.0 1.2 –0.5 0.3 –0.5 0.5 2.2 2.5 3.0 5.8 3.8 4.4 4.6 ... 7.2 8.9 6.2 2.6 3.6 1.4 3.9 ... ... 2.6 Projections 2012 3.4 1.4 1.9 –0.2 1.0 0.4 –1.9 –2.3 1.9 0.8 2.1 3.2 4.4 5.9 1.5 3.1 2.7 ... 7.7 8.4 6.4 7.53.5 4.2 3.4 ... ... 2.8 2013 4.1 2.2 2.5 1.2 1.8 1.1 0.4 0.6 2.2 1.2 2.1 3.3 3.6 6.5 3.6 4.5 4.8 ... 7.6 8.4 6.4 6.4 5.1 4.0 4.2 ... ... 3.7

Projections 2010 World Output 1/ Advanced Economies United States Euro Area Germany France Italy Spain Japan United Kingdom Canada Other Advanced Economies 2/ Newly Industrialized Asian Economies Emerging and Developing Economies 3/ Central and Eastern...