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STORY: IMF / WORLD ECONOMIC OUTLOOK
TRT:2:30
SOURCE: IMF
RESTRICTIONS:
LANGUAGE: ENGLISH / NATS
DATELINE: 9 OCTOBER, 2012, TOKYO, JAPAN
RECENT - MADRID, SPAIN
1. Wide shot, skyline
RECENT - WASHINGTON, DC
2. SOUNDBITE (English) Olivier Blanchard, Economic Counsellor, IMF:
“So I think there are three factors holding global economic growth. The first one is fiscal consolidation in advanced countries. Now, as we know, it’s needed, but it’s slowing growth. The second is uncertainty about what policymakers are going to do, political uncertainty if you want, both in Europe -- mainly in Europe at this point, but also in the U.S., in Japan. And then the third is a slowdown in emerging markets, in the main ones: China, India, Brazil. Now, because the world now is so interconnected what happens in one part of the world has an effect on the rest of the world, and so all these things are combining to slow down growth.”
RECENT - LIMA, PERU
3. Various shots, construction
RECENT - WASHINGTON, DC
4. SOUNDBITE (English) Olivier Blanchard, Economic Counsellor, IMF:
“So to avoid a sharp downturn it’s very clear what’s needed is that policymakers take the right decisions. So if you look at Europe, the euro zone now has put in place, in principle, an architecture which is very coherent. The problem is implementation and they really have to implement it. That’s the key. In the U.S., we’re getting closer to this thing called the fiscal cliff, which is a potential increase in many taxes, which would be a catastrophe if it happened that quickly. So here it’s clear that there has to be put in place a fiscal plan, not only for this year, but for the coming years, which is credible and we can start implementing.”
RECENT - WASHINGTON, DC
5. Various shots, Congress
RECENT - WASHINGTON, DC
6. SOUNDBITE (English) Olivier Blanchard, Economic Counsellor, IMF:
“So it’s clear that emerging economies are affected by what’s happening in advanced economies for two channels, the usual ones. The first one is trade, so lower exports. The other is financial, that they basically face capital flows, inflows, outflows. That complicates their life a lot. In some cases, you have more than that. You actually have a weakness of domestic demand, which may be due to policy, fiscal or monetary, and that is adding to the slowdown. So in general, indeed, for the main ones -- China, India, Brazil -- we’ve revised our forecast down quite a bit.”
RECENT - HYDERABAD, INDIA
7. Wide shot, people buying gold
The twin fears over the future of the Eurozone and the danger of the United States dropping over the fiscal cliff continue to put pressure on global growth. Confidence is further hit by a loss of momentum in key emerging and developing economies, according to an IMF report on the world economic outlook.
The setbacks to the recovery have led the International Monetary Fund to mark down its outlook for the global economy to 3.3% growth in 2012, nudging up to 3.6% next year.
“So I think there are three factors holding global economic growth. The first one is fiscal consolidation in advanced countries. Now, as we know, it’s needed, but it’s slowing growth. The second is uncertainty about what policymakers are going to do, political uncertainty if you want, both in Europe -- mainly in Europe at this point, but also in the U.S., in Japan. And then the third is a slowdown in emerging markets, in the main ones: China, India, Brazil. Now, because the world now is so interconnected what happens in one part of the world has an effect on the rest of the world, and so all these things are combining to slow down growth,” Chief Economist Olivier Blanchard said.
Worse yet, the IMF says there is now a 1 in 6 chance of global growth dropping below 2 percent. That would mean recession in advanced economies and sub-par growth in emerging markets countries.
To avoid a sharper downturn, the IMF says two things are critical.
“So to avoid a sharp downturn it’s very clear what’s needed is that policymakers take the right decisions. So if you look at Europe, the euro zone now has put in place, in principle, an architecture which is very coherent. The problem is implementation and they really have to implement it. That’s the key. In the U.S., we’re getting closer to this thing called the fiscal cliff, which is a potential increase in many taxes, which would be a catastrophe if it happened that quickly. So here it’s clear that there has to be put in place a fiscal plan, not only for this year, but for the coming years, which is credible and we can start implementing,” Blanchard said.
If these assumptions prove correct, growth in advanced economies will limp on with an average growth of ¾ percent during the second half of 2012, improving slightly to 1½ percent in the first half of next year.
The weaker demand from advanced economies and financial market uncertainty are putting pressure on growth in emerging and developing economies. This is compounding the challenges they face at home, such as slowing domestic demand following previous interest rate hikes and budget cuts.
“So it’s clear that emerging economies are affected by what’s happening in advanced economies for two channels, the usual ones. The first one is trade, so lower exports. The other is financial, that they basically face capital flows, inflows, outflows. That complicates their life a lot. In some cases, you have more than that. You actually have a weakness of domestic demand, which may be due to policy, fiscal or monetary, and that is adding to the slowdown. So in general, indeed, for the main ones -- China, India, Brazil -- we’ve revised our forecast down quite a bit,” Blanchard said.
The IMF says while increased public spending helped see emerging markets through the crisis, they’ll need to get budgets back in line to protect against another potential downturn.
The IMF says the upside from the slowdown in global trade is a marked improvement in global imbalances. These imbalances occur when importing countries like the US run a large trade deficit in relation to exporting countries running a large trade surplus, such as China.
Because such imbalances must be financed by often volatile capital flows, the IMF tracks them; a vulnerability for the global economy: a vulnerability that appears to be decreasing but still remains high.
The key to reinvigorating growth and reducing vulnerabilities, the IMF says, is to reduce policy uncertainty. The global recovery will remain fragile until further decisive action is taken.
