The IMF Downgrades Global Growth But Sees No Fallout For The US

By Jan 25, 2012, 8:25 AM Author's Blog  

Does the International Monetary Fund’s diminished outlook for the global economy lay the groundwork for thinking that recession risk is elevated for the U.S.? Perhaps, although the IMF’s latest numbers suggest otherwise. Indeed, IMF projections for US GDP remain intact.

“Global growth prospects dimmed and risks sharply escalated during the fourth quarter of 2011,” according to the World Economic Outlook report, which was released yesterday. The world economy will expand 3.3% in 2012, the IMF predicts—down from its previous 4.0% forecast. Quite a bit of the downgrade is due to deteriorating conditions in the euro area, which the IMF says will contract by 0.5% this year. But the stronger headwinds in Europe aren’t projected to slow the U.S. economy, which is expected to expand by 1.8% in 2012, a rate that’s unchanged from the IMF’s previous forecast in September.

In fact, the latest numbers from Europe suggest there may more strength than it appears and so the recession in the euro zone may be milder than expected. As Reuters reports:

The euro zone may escape recession thanks to a surprise upturn in the service sector this month but the overall economy is still struggling to gain any traction outside Germany and to a lesser extent France, surveys showed on Tuesday.

Markit’s Flash Eurozone Purchasing Managers’ Composite Index (PMI), a reliable indicator of overall economic performance, showed the euro zone economy grew in January for the first time since August, confounding forecasts for a contraction.

Survey compiler Markit said that if sustained, the data pointed to no growth in the first quarter – but no contraction either.

Economist Nouriel Roubini, however, isn’t taking the bait. “There’s a recession throughout Europe, US growth is very anemic. There is a slowdown right now in China,” he says.

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