The global recovery is threatened by intensifying strains in the euro area and fragility elsewhere. Financial conditions have deteriorated, growth prospects have dimmed, and downside risks have escalated. This is largely because the euro area economy is now expected to go into a mild recession in 2012 as a result of the rise in sovereign yields and the impact of additional fiscal consolidation.
No respite in 2012
Global growth prospects dimmed during the fourth quarter of 2011, as the euro area crisis entered a perilous new phase. Activity remained relatively robust throughout the third quarter, with global GDP expanding at an annualized 3.5% – worse than the September 2011 WEO forecast. Growth in the advanced economies surprised on the upside, as consumers in the US unexpectedly lowered their saving rates and business fixed investment stayed strong. The bounce back from the supply-chain disruptions caused by the March 2011 Japanese earthquake was also stronger than anticipated. Growth in emerging and developing economies slowed more than forecast, possibly due to a greater-than-expected effect of macroeconomic policy tightening or weaker underlying growth.
China leads emerging countries
Total business spending on fixed assets, such as factories, machinery, equipment, dwellings, and inventories of raw materials et al, which provides the basis for future production, picked up pace in advanced economies during Q3 2011. However, emerging economies saw a slight decline in the spending. China topped the list with 47.8% spending while India managed to spend 32% of the total investments on fixed assets. One of the prominent reasons for declined spending in emerging nations is the lack of business confidence created due to lackluster demand, high inflation and interest rates, ambiguous investment policies. Once these issues are sorted out, emerging world will hopefully be back on track.
No respite in 2012
Global growth prospects dimmed during the fourth quarter of 2011, as the euro area crisis entered a perilous new phase. Activity remained relatively robust throughout the third quarter, with global GDP expanding at an annualized 3.5% – worse than the September 2011 WEO forecast. Growth in the advanced economies surprised on the upside, as consumers in the US unexpectedly lowered their saving rates and business fixed investment stayed strong. The bounce back from the supply-chain disruptions caused by the March 2011 Japanese earthquake was also stronger than anticipated. Growth in emerging and developing economies slowed more than forecast, possibly due to a greater-than-expected effect of macroeconomic policy tightening or weaker underlying growth.
China leads emerging countries
Total business spending on fixed assets, such as factories, machinery, equipment, dwellings, and inventories of raw materials et al, which provides the basis for future production, picked up pace in advanced economies during Q3 2011. However, emerging economies saw a slight decline in the spending. China topped the list with 47.8% spending while India managed to spend 32% of the total investments on fixed assets. One of the prominent reasons for declined spending in emerging nations is the lack of business confidence created due to lackluster demand, high inflation and interest rates, ambiguous investment policies. Once these issues are sorted out, emerging world will hopefully be back on track.
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IIPM: Indian Institute of Planning and Management
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