A global economy on eggshells

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For the past six months we’ve been on a rollercoaster ride. Our baseline is that growth is going to be slow in advanced economies; sustained, but not great, in emerging market and developing economies. But the risk of things turning bad again in Europe is high.” –Olivier Blanchard, chief economist, International Monetary Fund 

It’s certainly disheartening to see the prospects for global economic growth described with words such as “fragile” and “mild contraction.” Then again, it’s yet another example of how wise some of the old sayings kicking around our culture really are; in this case, “hope for the best but prepare for the worst” seems remarkably apt.

The International Monetary Fund’s annual World Economic Outlook certainly should provoke a lot of caution in the business world, especially where trucking is concerned, as the group projects lackluster economic growth at best for the U.S. and the world as a whole.

Real gross domestic product (GDP) growth is expected to up gradually during this year and next from what’s being called a “trough” seen in the first quarter of 2012, with signs of mild improvement for the U.S.

The IMF raised its GDP growth projections for the U.S. to 2.1% overall for 2012 and 2.4% for 2013, compared to 1.7% in 2011 and pegs Canada’s at 2% for 2012 as well.

It has also slightly improved its forecast for the euro area compared with January, but the group still projects a mild contraction in the euro area, where concerns about high sovereign debt and fiscal consolidation have taken a toll – although, despite all that, Germany and France might end up seeing positive economic growth for the year. For Europe as a whole, the IMF believes GDP growth will reach 0.2% in 2012 and 1.4% in 2013.

Overall, global economic growth is projected to drop from close to 4% in 2011 to about 3.5% in 2012, picking up to 4.1% in 2013.

In summation, although prospects for the global economy are slowly improving again, growth is expected to be weak, especially in Europe, and unemployment in many advanced economies will stay high, according to the IMF’s forecast.

“Despite recent improvements in the global economic outlook, more work is required to support the still fragile recovery,” noted Christine Lagarde, the IMF’s managing director. “We have seen some improvement in the economic climate. But let me also underline this point: the risks remain high; the situation fragile.”

Indeed, the IMF recommended in its report that governments should strengthen policies to “solidify” the weak recovery in order to contain potential risks that can weigh on consumer and investor confidence.

Furthermore, advanced economies (read as: the U.S. and Europe) should implement medium-term budgetary savings, but not in a way that could undermine the recovery. In developing countries and emerging markets, policies should be geared toward ensuring a soft landing for economies that have seen sustained and very strong credit growth, the group noted.

Here are some of IMF’s projections for other parts of the world:

  • Asia: Weaker external demand has dimmed the outlook for Asia. But resilient domestic demand in China, limited financial spillovers, room for policy easing, and the capacity of Asian banks to step in as European banks deleverage suggest that the soft landing under way is likely to continue. Overall, growth in Asia will average 6%, with China slowing to 8.2% and India to 6.9%.
  • Russia and Commonwealth of Independent States: Weaker exports to Europe and policy tightening in some economies will moderate growth this year, even though commodity prices will remain high. Overall growth will fall to 4.2%.
  • Latin America and the Caribbean: Growth is projected to moderate to 3.75% this year before recovering above 4% in 2013. “Overheating” risks have receded but could reemerge if capital flows rev up again, putting exchange rates under pressure. Overall, the report says the outlook for the region is promising.
  • Middle East and North Africa: Growth in the region’s oil importers will be constrained by strong oil prices, anemic tourism associated with the social unrest in the region, and lower trade and remittance flows reflecting the ongoing problems in Europe. Among oil exporters, negative developments in the Islamic Republic of Iran are projected to be offset by increased oil production in Iraq and Saudi Arabia and a bounce back in Libya. Overall growth for the region is forecast at 4.2% in 2012, with oil producers buoyed by continued high oil prices. However, inflation will average 9.5% in the region, too.
  • Sub-Saharan Africa: The pace of growth is projected to pick up in 2012 to 5.4%, with the region relatively less exposed to the global slowdown but not immune to spillovers from the euro area’s problems. South Africa, which has stronger trade and financial ties with slowing Europe, is struggling with subpar growth and high unemployment.

Well, there it is: an outlook that certainly doesn’t bode all that well for freight volumes on either a domestic or global basis. Then again, it’s not projecting a big crash either – and there’s something to be said for that at the end of the day. 

Discuss this Blog Entry 1

Steve Myers (not verified)
on Apr 19, 2012

Sean,
I like the idea of "mild improvement", or any kind of improvement for that matter. A couple of business owners were in here yesterday talking about the recession in "past tense". I summoned considerable restraint and did not mention to them that they should be using "present tense". I think the terms being used, such as fragile, mild contraction, etc. are on the money, no pun intended. I'm hoping for a better economy, and not buying that new motorcycle.
Steve Myers

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