ISI MACROECONOMIC REPORTS by Dr. Ahmet N. İMRE August 2012 ECONOMIC OUTLOOK, PROSPECTS AND POLICY: Globally and in Turkey The Global Economy: General Outlook and Near-Term Prospects The ongoing deterioration in the economic outlook of particularly the Mediterranean flank of the Eurozone continued to shape the global economic outlook in the second quarter of 2012 and there have also been some significant country-specific events that affected global risk perceptions. In particular, the results of the general elections in Greece in May reduced the probability of an exit from the monetary union and led to a partial recovery in risk perceptions. Meanwhile, the recent deepening of interdependent problems regarding sovereign debt and the banking sector in Spain has limited the improvement in risk appetite. Although the measures adopted and the supportive announcements by leading central banks have enabled some improvement in global risk perceptions since June, problems regarding the Eurozone continue to feature as a major risk for the global economy in the medium and long term ahead. The lack of stability in the global economy, coupled with the ongoing imbalances, is creating some adverse impact on the global economic outlook. In fact, economic activity has lost momentum in the last quarter, both in the US and in China—two of the driving engines of the world economy. Accordingly, growth forecasts for advanced and emerging countries have been modified downwards. While inflationary risks have waned to a large extent, in line with the weak outlook for global economic activity; concerns over growth and financial stability remain well-justified. Against this background, central banks continue to implement expansionary monetary policies. Chronic fragilities and imbalances regarding the global economy continue to keep investors' risk appetite highly volatile. Four years after the outbreak of the global crisis, advanced economies are still going through a deleveraging process. Acute economic problems in the Eurozone, uncertainties regarding the US economy and China, as well as supply-side risks with regard to energy prices still prevail. Together with the unusually low-cost liquidity facilities provided by central banks; these uncertainties create substantial volatility in short-term capital flows destined to emerging economies. Such an environment leads central banks of emerging economies to assign priority to measures aimed at containing the adverse effects of excessive volatility in short-term capital flows. All these factors highlight the importance of adopting a flexible monetary policy framework. Over the past three months, the global recovery—which at any rate was not very strong to begin with—has exhibited signs of weakening further, according to the IMF’s World Economic Outlook Update dated July 16, 2012 1 . Financial market and sovereign stress in the Eurozone periphery have been driven up, close to end-2011 levels. Growth in a number of major emerging market economies has been lower than forecast but these developments are expected to result in only a minor setback to the global outlook, with global growth at 3.5 % in 2012 and 3.9 % in 2013, marginally lower than in the April 2012 edition of IMF’s World Economic Outlook. The latest World Economic Outlook dated July 16 points to the ongoing uncertainty in the global economy, originating particularly from further turbulence in the Eurozone. While the instability in global financial markets had become inclined to ease in the early months of the year, market tensions and sovereign stress in the Eurozone have tended to intensify once again in 1 International Monetary Fund: World Economic Outlook - New Setbacks, Further Policy Action Needed July 16, 2012 (http://www.imf.org/external/pubs/ft/weo/2012/update/02/pdf/0712.pdf ) ISIEmergingMarketsPDF tr-chase from 128.84.125.63 on 2012-08-30 16:59:41 EDT. DownloadPDF. Downloaded by tr-chase from 128.84.125.63 at 2012-08-30 16:59:41 EDT. ISI Emerging Markets. Unauthorized Distribution Prohibited.
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IISSII MMAACCRROOEECCOONNOOMMIICC RREEPPOORRTTSS
by Dr. Ahmet N. İMRE
August 2012
EECCOONNOOMMIICC OOUUTTLLOOOOKK,, PPRROOSSPPEECCTTSS AANNDD PPOOLLIICCYY:: Globally and in Turkey
The Global Economy: General Outlook and Near-Term Prospects
The ongoing deterioration in the economic outlook of particularly the Mediterranean flank of the
Eurozone continued to shape the global economic outlook in the second quarter of 2012 and there
have also been some significant country-specific events that affected global risk perceptions. In
particular, the results of the general elections in Greece in May reduced the probability of an exit from
the monetary union and led to a partial recovery in risk perceptions. Meanwhile, the recent deepening
of interdependent problems regarding sovereign debt and the banking sector in Spain has limited the
improvement in risk appetite. Although the measures adopted and the supportive announcements by
leading central banks have enabled some improvement in global risk perceptions since June, problems
regarding the Eurozone continue to feature as a major risk for the global economy in the medium and
long term ahead.
The lack of stability in the global economy, coupled with the ongoing imbalances, is creating some
adverse impact on the global economic outlook. In fact, economic activity has lost momentum in the
last quarter, both in the US and in China—two of the driving engines of the world economy.
Accordingly, growth forecasts for advanced and emerging countries have been modified downwards.
While inflationary risks have waned to a large extent, in line with the weak outlook for global
economic activity; concerns over growth and financial stability remain well-justified. Against this
background, central banks continue to implement expansionary monetary policies.
Chronic fragilities and imbalances regarding the global economy continue to keep investors' risk
appetite highly volatile. Four years after the outbreak of the global crisis, advanced economies are still
going through a deleveraging process. Acute economic problems in the Eurozone, uncertainties
regarding the US economy and China, as well as supply-side risks with regard to energy prices still
prevail. Together with the unusually low-cost liquidity facilities provided by central banks; these
uncertainties create substantial volatility in short-term capital flows destined to emerging economies.
Such an environment leads central banks of emerging economies to assign priority to measures aimed
at containing the adverse effects of excessive volatility in short-term capital flows.
All these factors highlight the importance of adopting a flexible monetary policy framework. Over the
past three months, the global recovery—which at any rate was not very strong to begin with—has
exhibited signs of weakening further, according to the IMF’s World Economic Outlook Update dated
July 16, 20121. Financial market and sovereign stress in the Eurozone periphery have been driven up,
close to end-2011 levels. Growth in a number of major emerging market economies has been lower
than forecast but these developments are expected to result in only a minor setback to the global
outlook, with global growth at 3.5 % in 2012 and 3.9 % in 2013, marginally lower than in the April
2012 edition of IMF’s World Economic Outlook. The latest World Economic Outlook dated July 16
points to the ongoing uncertainty in the global economy, originating particularly from further
turbulence in the Eurozone.
While the instability in global financial markets had become inclined to ease in the early months of
the year, market tensions and sovereign stress in the Eurozone have tended to intensify once again in
1 International Monetary Fund: World Economic Outlook - New Setbacks, Further Policy Action Needed
July 16, 2012 (http://www.imf.org/external/pubs/ft/weo/2012/update/02/pdf/0712.pdf)
ISIEmergingMarketsPDF tr-chase from 128.84.125.63 on 2012-08-30 16:59:41 EDT. DownloadPDF.
Downloaded by tr-chase from 128.84.125.63 at 2012-08-30 16:59:41 EDT. ISI Emerging Markets. Unauthorized Distribution Prohibited.