Outlook Slowly Improving but Remains Fragile

World output projected to grow 3.5 percent in 2012, recovering to 4.1 percent next year

Risks remain elevated, particularly from Europe and oil

Emerging markets and developing countries doing relatively well

Although action by policymakers in Europe and elsewhere has helped to reduce vulnerabilities, risks of a renewed upsurge of the crisis in Europe continue to loom large, along with geopolitical uncertainties affecting the oil market.

Real GDP growth should pick up gradually during 2012-13 from a trough seen in the first quarter of 2012, with signs of improvement in the United States, and the emerging economies remaining supportive. The IMF raised its projection for the United States to 2.1 percent this year and 2.4 percent next year from 1.7 percent in 2011. It has also slightly improved its forecast for the euro area compared with January. But it still projects a mild contraction in the euro area, where concerns about high sovereign debt and fiscal consolidation have taken a toll, although Germany and France might see positive growth.

Japan, bouncing back from last year’s destructive earthquake and tsunami, will see a recovery of 2 percent.

Overall, global growth is projected to drop from close to 4 percent in 2011 to about 3½ percent this year, picking up to 4.1 percent next year, the IMF said in its April 2012 World Economic Outlook, released on April 17 ahead of the Spring Meetings of the IMF and the World Bank in Washington.

Rollercoaster ride

“For the past six months we’ve been on a rollercoaster ride,” said IMF Chief Economist Olivier Blanchard. “Our baseline is that growth is going to be slow in advanced economies; sustained, but not great, in emerging market and developing economies. But the risk of things turning bad again in Europe is high.”

IMF Managing Director Christine Lagarde said in a speech at a Washington think tank last week that recent European action had helped improve the economic climate, but prospects were still fragile.

The IMF is pressing for additional resources to enable it to contain economic contagion in the event of a new crisis. Japan has pledged an additional $60 billion to the Fund.

Need for continued policy measures

“The building of the firewalls, when it is completed, will represent major progress,” Blanchard said in a foreword to the report. But he warned that the firewalls would not, by themselves, solve the difficult, fiscal, competitive, and growth issues...