The International Monetary Fund (IMF) sharply downgraded its outlook for the global economy from a few months ago, saying prospects have deteriorated further and risks increased. Overall, the IMF's forecast for global growth was marked down to 3.3% this year and a still sluggish 3.6% in 2013, which will keep Central and Eastern Europe's growth at 2.0% in 2012 and 2.6% in 2013.
In its latest World Economic Outlook, unveiled in Tokyo ahead of the IMF-World Bank 2012 Annual Meetings, the IMF said advanced economies are projected to grow by 1.3% this year, compared with 1.6% last year and 3.0% in 2010, with public spending cutbacks and the still-weak financial system weighing on prospects.
Growth in emerging market and developing economies was marked down compared with previous forecasts to 5.3%, against 6.2% last year. Leading emerging markets such as China, India, Russia, and Brazil will all see slower growth, with Russia growing 3.7% this year and 3.8% next. The wider Commonwealth of Independent States will grow at 4.0% this year and 4.1% next.
The IMF notes that Emerging Europe was significantly affected by the euro area crisis during the past year, including through the deleveraging of Western European banks and declining capital inflows. But unlike in 2008, risk contagion from the Eurozone crisis has remained limited, and credit default swap spreads for most countries in the region remain well below those for the economies of the euro area periphery. As such growth is projected to strengthen from 2.0% in 2012 to about 2.6% in 2013, largely owing to improving conditions elsewhere in Europe.
In Emerging Europe, the need for fiscal consolidation varies widely, the IMF says; economies with a high public debt burden and exposed to market volatility must continue with steady consolidation (Hungary). Inflation pressure is set to decline rapidly in many countries, giving central banks new room for easing.
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