Outlook for global economy weaker than expected

In a recent speech given in Tokyo, the head of the IMF stated that the outlook for the global economy is worse than expected. Christine Lagarde said that the state of affairs around the world is bleak and has extended well beyond the current crisis in the eurozone.

Not only did jobs in the United States not grow as expected, large emerging markets such as China have slowed as well. It had been forecast by the IMF back in April that 2012 would see a growth of 3.5pc whilst 2013 was projected to be at a growth rate of 3.1pc.

Unfortunately, within the past two months many global economies have stalled or deteriorated and as stated, United States and Chinese jobs creation has not met up with expectations. Within the next week or two the IMF is expected to release an assessment of growth which will have been updated to reflect these unexpected slowdowns.

Part of the basis for a reassessment is in the fact that US jobs only grew by 80,000 last month as opposed to the 90,000 which had been projected. Although it was higher than the previous month’s creation of 77,000 jobs, it is much lower than had been anticipated. When large global economies do not produce as projected, this has a dire impact on economies around the world.

Given the fact that this is much lower than the pre-crisis average of monthly growth, it is believed that the US Federal Reserve will implement another stimulus package to try to give the economy there a boost. It appears as though an unexpected rise in jobs earlier in the year gave false hopes and now these new fears are rippling through global economies, especially in the UK and the eurozone.

With Germany standing strong against further help for the troubled EU and confidence down, it appears as though worries for the global economy are well founded. Spain and Italy are the two countries which are currently causing a great deal of concern in the eurozone and France is right there amongst them. Even Germany’s bond yields have turned negative which will probably also be reflected in the IMF’s updated assessment.

Author: Sam Allcock
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