Global economy shows ‘fragile’ improvement: IMF

By Agence France-Presse
Tuesday, March 27, 2012 13:15 EDT
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Global economy photo by Liv friis-larsen via Shutterstock
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Recent improvements in the global economy are “very fragile” and an escalation of the eurozone crisis remains the most immediate concern, IMF deputy managing director Naoyuki Shinohara said Tuesday.

While indicators had last year pointed to a big setback for the world there have in recent weeks been modest signs of improvement and stability in the key US and European economies, he said in a lecture at a university in Bangkok.

“Important policy actions carried out by European policy makers have helped and most recently the agreement on a new (debt) programme for Greece … has also brought some relief,” he said.

But, he said: “There is no room for complacency. A lot more needs to be done to give a fresh boost to growth.”

Shinohara said in many countries public debt remained at all-time highs, limiting the scope for fiscal stimulus, and unemployment also remained very high.
“We are navigating a very narrow path before recovery of the economy and the risk of slippage is very high,” he warned.

He said advanced economies “should press ahead with national and structural reforms to repair the damage done by the crisis” while emerging economies needed to remain vigilant for possible spillovers.

However the IMF expected “spillovers from the euro area to other regions will remain limited as long as the euro area is contained.”

“Since the beginning of the year financial tensions in the euro area have eased, in large part thanks to the so-called long-term refinancing operation of the European Central Bank,” he said.

In recent weeks the data has showed manufacturing activity for both advanced and emerging economies has improved, with readings above 50, which indicates growth, but Shinohara said a lot needed to be done to safeguard gains.

“Recent improvements are still very fragile. Important policy challenges remain to be addressed. Downside risks are still very large. The most immediate concern is still further escalation of the euro area crisis,” he said.

Shinohara said European policymakers need to pursue fiscal adjustment at the right pace.

“European policy makers also need to pursue financial reforms to stabilise the banking sector and structural reforms to restore economic competitiveness,” he said.

“And European policy makers also need to increase the strength of their firewall to provide an adequate backstop for governments undertaking these reforms,” he said.

The IMF, and the United States and other top economies worldwide have sought to raise pressure on Germany to drop its previous opposition to boosting the eurozone’s firewalls against debt crisis contagion.

Looking to the prospects for Asia, Shinohara said domestic demand remained generally strong, supported by low unemployment and high capacity utilisation.

“Growth in Asia is expected to gain momentum this year,” he said.

Leading economic indicators had strengthened in the United States and Europe, he said.

“These numbers have improved substantially since the beginning of this year and this suggests a similar improvement in Asia in the coming months,” he said.

The IMF sees global growth slightly above 3.0 percent in 2012 but will release its revised world economic outlook in two weeks.

“We are not expecting a major change in our outlook for this year and next year. Probably a slight improvement in our position on some of the areas but for the global picture I’m not expecting a major change,” he said.

(Global economy photo by Liv friis-larsen via Shutterstock)

Agence France-Presse
Agence France-Presse
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