Get excited as this is a sneak peek of IMFs latest world economic outlook, and it has some good news. The international monitor predicts a gradual upturn in global growth in 2013 as the intensity of the global risk factors subsides.
The underlying factor has been a marked improvement in economic conditions during the 3QCY12. The global growth was primarily driven by the acceleration and capital flow to the emerging markets, surprising US economy rebound, some stability in the financial conditions, contraction in euro area bond spreads, as highlighted by the agency.
But the actual message of the latest update is best reflected in Lagardes three short sentences: We stopped the collapse. We should avoid the relapse. And its not time to relax.
Despite the fact that the global economy is finally eyeing some melioration on the output front and the policy efforts have lowered acute risks in the US and euro zone, it is by no means sturdy.
The fragility has actually intensified as the world is still recovering and might not be able to survive another big blow. Moreover, the growth momentum wilted moderately during the last quarter of 2012.
With no significant change in the economic conditions in the US, global agency foresees a rise in the countrys growth. The up tick in consumption is backed by a revival in the housing market and the financial market. All eyes should be set on dealing with the debt ceiling and fiscal consolidation debate.
Though it is expected that the policy efforts are going to be fruitful for the euro area provided that they are implemented time and correctly, improved financial conditions will not translate into growth gains in the short term.
The IMF predicts some contraction in the euro periphery in 2013 due to delayed transmission of lower spreads and improved liquidity before some real growth kicks in 2014. The priority has to be to avoid stagnation in the region through fiscal integration.
Though it might sound surprising that the growth in Japan is likely to remain on track despite renewed downturn, it is not alarming for those who understand the temporary nature of the recessionary forces.
Japanese trade is expected to bounce back once the fallout with China is resolved. Moreover, it is truism that global economic upturn will result in greater trade. The lesson for the Japanese policy makers set forth by IMF is further monetary easing and structural reforms.
Emerging markets have remained relatively resilient in the recent crisis. IMF predicts a modest growth trajectory for these economies. Where supportive policies buttressed growth in the region, contraction in the developed world is expected to shrink demand and monetary policies in major emerging economies has maxed out.
China needs to boost private consumption and market-oriented structural reforms while the greatest task for the emerging economies is the transformation of the macroeconomic.
In short, policy action is the silver bullet that could ease the frailty of the global recovery.
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