Special Report: Short-term Forecast of Global Real GDP Growth

In its September 2011 update of the World Economic Outlook, the IMF lowered its global real GDP growth forecasts to 4.0% for 2011 and 2012, down from its June 2011 estimations of 4.3% for 2011 and 4.5% for 2012. Growth has significantly weakened in advanced economies due to financial strains caused by the fiscal crisis in the eurozone and the USA. In developing and emerging countries, growth remains solid but should moderate due to weaker external demand and capacity constraints.

Overall Outlook

The IMF forecasts that the global economic growth will slow to 4.0% in 2011 and 2012 in real terms, down from 5.1% in 2010 as downside risks to global growth have increased. These risks include the sovereign debt crisis in key advanced economies and insufficient policy action to address the crisis, signs of overheating in emerging and developing economies, the volatility in commodity prices and the rise in geopolitical tensions. Real GDP in advanced economies is forecast to grow modestly at 1.6% for 2011, compared to 6.4% in the developing and emerging world.

Growth has slowed significantly among advanced economies due to rising financial instability as well as the on-going problems of weak domestic demand and high unemployment. The advanced world is facing the risk of a renewed recession, unless economies in the eurozone can resolve their sovereign debt crisis and the USA has a credible plan to reduce its reliance on debts. Developing and emerging economies will continue to lead global economic growth but at a slower pace as external demand weakens given the slowdown of major advanced economies. In addition, correcting capacity constraints, building social safety nets and rebalancing from external to internal demand remain challenges for these economies to sustain their growth momentum.

Some regional highlights:

  • While countries in the Sub-Saharan Africa region continue showing solid economic performance owing to strong domestic demand, economies in the North Africa and Middle East region remain affected by social and political unrest and high unemployment. Movements in commodity prices should largely shape the short-term economic prospects of the region’s oil-exporting and oil-importing countries;
  • Backed by strong commodities prices, economies in Eastern Europe will continue expanding but a still weak domestic demand, vulnerable financial systems, high unemployment and a slowdown of the global economy pose a significant risk in sustaining the region’s growth;
  • The growth momentum in Latin America will be maintained by commodity exporting countries like Argentina, Chile, Peru and Uruguay many of which are growing above potential. However, signs of overheating in many of these economies are emerging;
  • The euro area’s deepening debt crisis has seriously affected the region’s financial stability and dampened the growth outlook for the region. Growth has started to slow since 2011 in several economies due not only to higher commodity prices and fiscal austerity measures but also to declining business and consumer confidence. Meanwhile, recession deepens in countries which face default risks such as Greece and Portugal.