The latest update of the IMF's World Economic Outlook released recently reveals some disturbing trends. The world economy is now projected to grow at 3.1 percent this year as against the April projection of 3.3 percent. The forecast for 2014 has also been lowered to 3.8 percent compared to the earlier projection of 4.0 percent. Notable was the fact that the Fund has trimmed its growth forecast for 2013 in every major report since April, 2012 after initially projecting the global economy would expand by as much as 4.1 percent this year - a sign of unexpectedly bumpy recovery from the global financial crisis.
The US economy looks weaker than previously expected due mainly to tight fiscal and financial conditions and the IMF has lowered its forecast for US growth to 1.7 percent in 2013, down from 1.9 percent in April, and to 2.7 percent for 2014, down from 2.9 percent. Eurozone was expected to contract by 0.6 percent this year compared to the April forecast of a decline of 0.4 percent. Emerging market economies, which had previously been the engine of global recovery, added to the overall subdued picture in the latest Outlook. The IMF cut their growth rate to 5.0 percent, including a lower forecast for China, Brazil, Russia, India and South Africa, often called the BRICS countries. China and Brazil, among the developing countries, saw significant downward revisions. Their growth forecast was scaled back to 7.8 percent and 2.5 percent from the April forecast of 8.1 percent and 3.0 percent respectively. The Outlook, however, noted that British and Japanese economies had managed to avoid the slowdown, with their growth rates now predicted at 0.9 percent and 2.0 percent compared to the earlier forecasts of 0.6 percent and 1.6 percent respectively.
The trimming of global growth forecasts by the IMF for the fifth time since early last year could be attributed to a number of factors. It had clearly underestimated the depth of recession in Europe and had not expected the US to go ahead with growth-stunting spending cuts. Also, after years of strong growth, economies of BRICS were projected to maintain the same trends. Risks of protracted slowdown in emerging market economies have now increased due to effects of domestic capacity constraints, slowing credit growth and weak external conditions. Some of the developing countries were already feeling the effects of slowdown in the form of falling share prices and depreciating currencies. Besides, difficult political transitions in the Middle East and North Africa were partly responsible for a slower growth in these regions. Reduced demand world-wide also contributed to the global slowdown. It is clear that the eurozone authorities risk reviving financial and economic stress amid a prolonged recession with a halting response to Europe's crisis. US could face continued pain from deep spending cuts and emerging market economies may have to deal with tamped-down growth expectations and the chance of social unrest if growth could falter to low levels because of some reason. As for the remedial measures, we wish that the wealthier countries should have taken bold, co-ordinated and assertive action to restructure and revive their economies but it does not seem possible because of difference in approach due to domestic conditions and overall uncertainty. Growth in emerging market economies is expected to remain high, but substantially lower than it was before the crisis. All of this could have negative implications for the economy of Pakistan, which is already under a great deal of stress and trying to find ways to get out of a dismal situation. Its exports could suffer, bilateral inflows and investment could slow down, current account deficit could be more than projected, rupee could depreciate further and economic growth could suffer, leading to further unemployment and social chaos. Since the macroeconomic targets for the expected EFF with the IMF may have been based on the old assumptions of global growth, Pakistan may also find it more difficult to meet the targets stipulated in the programme. Unfortunate though it may be but the country has no control over the unfolding situation and, therefore, has to adjust with the new reality.