Weak and Bumpy Global Recovery Ahead

Global growth forecast to moderate to 4 percent in 2011 and 2012

Advanced economies facing anemic growth of only 1.6 percent in 2011

Multiple shocks combined with insufficient rebalancing stalling recovery

And even this lowered projection counts on a lot going well.

The IMF foresaw a slowdown this year after strong growth in 2010 as fiscal stimulus packages in response to the crisis wound down. But a barrage of economic shocks in 2011 combined with other factors for a worse than anticipated outcome.

“The global economy is in a dangerous new phase. Global activity has weakened and become more uneven, confidence has fallen sharply recently, and downside risks are growing,” the IMF said in its September 2011 World Economic Outlook (WEO).

The report, released in Washington on September 20, says strong and coordinated action is necessary to avert a decade of lost growth in the advanced economies.

“Strong policies are urgently needed to improve the outlook and to reduce the risks,” said IMF Chief Economist Olivier Blanchard. “Only if governments move decisively on fiscal policy, financial repairs, and external rebalancing, can we hope for stronger and more robust recovery.”

Uneven growth

Real GDP is expected to grow by a fairly robust 6.4 percent in emerging and developing economies but by only 1.6 percent in advanced economies in 2011(see table below).

These WEO projections rest on a number of assumptions: that European policymakers will be able to contain the euro area crisis to the so-called periphery countries, that U.S. policymakers strike a judicious balance between support for the economy and medium-term fiscal consolidation, and that ups and downs in global financial markets don't get worse. If the assumptions are not met, global growth will be much lower.

One-off shocks including the earthquake and tsunami in Japan and social unrest in some oil-producing countries, stalling of the handover from public to private demand in the U.S. economy, major financial turbulence in the euro area, and sell-off of risky assets in global markets hit advanced country growth hard. And market concerns about the ability of many countries to stabilize their public debt are stifling/putting a damper on financial flows.

Twin rebalancing act stalling

The WEO repeated its mantra that both domestic and external rebalancing are essential to a revitalized global economy.

First, to achieve internal rebalancing, private demand has to take over from...