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'''Global stagnation''' is generally considered in late 2011 to be a possible short-term prospect, involving a large part of the world economy. Of 30 countries surveyed by the [[International Monetary Fund]], the growth rates of the economies of 20 were classified as "below trend and moderating"; of 8 as "below trend and rising"; and of 2 as "above trend"<ref>[http://www.imf.org/external/pubs/ft/weo/2011/02/pdf/text.pdf ''Slowing Growth, Rising Risks'', World Economic Outlook, IMF, September 2011, Fig 1.4 p6]</ref>.  
{|align="right" cellpadding="10" style="background-color:#FFFFCC; width:35%; border: 1px solid #aaa; margin:20px; font-size: 92%;"
| ''The world recovery ...is in danger of stalling.''
IMF Chief Economist, 23 January 2012.
 
''"While contained for the moment, the risk of ... a global crisis, similar in magnitude to the Lehman crisis remains"''
World Bank, January 2012<ref>[http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1322593305595/8287139-1326374900917/GEP_January_2012a_FullReport_FINAL.pdf ''Global Economic Prospects'', World Bank, January 2012]</ref>..
 
|}
 
'''Global stagnation''' is generally considered in early 2012 to be a possible short-term prospect, involving a large part of the world economy. Of 30 countries surveyed by the [[International Monetary Fund]], the growth rates of the economies of 20 were classified as "below trend and moderating"; of 8 as "below trend and rising"; and of only 2 as "above trend"<ref>[http://www.imf.org/external/pubs/ft/weo/2011/02/pdf/text.pdf ''Slowing Growth, Rising Risks'', World Economic Outlook, IMF, September 2011, Fig 1.4 p6]</ref>
The [[/Addendum#Forecasts|January forecasts]] by the World Bank and the International Monetary Fund continue to show growth in the world economy, but at a significantly lower rate than in their previous forecasts.
Morever, the World Bank forecast embdies the assumption that eurozone policy action will "prevent the sovereign-debt stress of the past months from deteriorating further". (The financial turmoil generated by the intensification of the [[eurozone crisis]] had already spread to the developing countries and to other high-income countries, and  global growth and world trade had slowed sharply).
A downside scenario, in which "one or two small Euro Area economies (equal to about 4 percent of Area GDP) face a serious credit squeeze", reduces GDP in the directly affected economies by 8 or more percent, and that of the world economy by about 1.7 per cent. It also reduces the forecast growth of the advanced economies by about 1.7 per cent, implying slightly negative growth in 2012, followed by slightly positive growth in 2013.
 
==Introduction==
This article is  the fifth of a series of contemporary accounts of financial and economic events and developments during the period from mid 2007 to the end of 2011. The other articles are:-
:[[Subprime mortgage crisis]] - events surrounding the bursting of a house price [[bubble (economics)|bubble]] in the United States in mid 2007;
:[[Crash of 2008]] - global financial developments from mid 2007 to the end of 2008;
:[[Recession of 2009]] - global economic developments from mid 2007 to the end of 2010
:[[Great Recession]] - a summary of events from mid-2007 to the end of 2011
 


The global slowdown of economic growth that occurred in 2011, following the strong growth of 2010, is thought to be attributable to a range of factors, including:<br>
&nbsp;&nbsp;&nbsp;(a) the completion of the stockbuilding phase of the [[inventory cycle]] that normally follows a [[recession (economics)|recession]];<br>
&nbsp;&nbsp;&nbsp;(b) the [[Shock (economics)|economic shock]] caused by the [[tsunami|Japanese tsunami]] of March 2011;<br>
&nbsp;&nbsp;&nbsp;(c) the loss of output due to the continuing [[deleveraging]] by banks and the consequent restriction of credit to companies;<br>
&nbsp;&nbsp;&nbsp;(d) the effect on demand of continuing deleveraging by companies and households;<br>
&nbsp;&nbsp;&nbsp;(e) the effect on demand of the reductions in [[public expenditure]] and the other [[fiscal adjustment]]s in the [[Great Recession#Fiscal aftermath (2010-11 )|fiscal aftermath]] of the [[Great Recession]];<br>
&nbsp;&nbsp;&nbsp;(f) the reduction in the availability of [[credit (finance)|credit]] resulting from precautinary action by European banks in anticipation of the [[restructuring of debt|restructuring]] of the Greek government's debt;<br>
&nbsp;&nbsp;&nbsp;(g) losses of investor and consumer confidence due to fear of a global financial crisis resulting from  a [[sovereign default]] by a major developed country<ref>[http://www.imf.org/External/Pubs/FT/GFSR/2011/02/pdf/text.pdf ''Global Financial Stability Report'', IMF, September 2011]</ref>.<br>
Assessments of the relative importance of (a) to (g) differ, but it is evident that factors (a) and (b) were transient effects with no implications for current prospects. Factors (c) and (d), on the other hand, may be expected to exert a continuing but diminishing influence. The effects of factors (e), (f), and  (g) are expected to persist into 2012 and possibly beyond.


In the absence of further downside developments, the major forecasters expect world growth to continue, although at a more subdued rate, through the next two years - but at a rate in the developing countries, at which [[output gap]]s and [[unemployment]] are bound to  persist<ref>[http://www.imf.org/external/pubs/ft/weo/2011/02/pdf/text.pdf ''Slowing Growth, Rising Risks'', World Economic Outlook, IMF, September 2011]</ref>. The downside developments that could halt or reverse that growth include:<br>&nbsp;&nbsp;&nbsp;
(a) a failure by the [[eurozone]] authorities to take effective action to avert the danger of  a [[sovereign default]] or withdrawal from the eurozone by a large member country; <br>&nbsp;&nbsp;&nbsp;
(b) failure by the United States authorities to obtain congressional agreement to a viable programme of deficit reduction; and,<br>&nbsp;&nbsp;&nbsp;
(c) [[Positive feedback]] from, and to, (a) or (b) arising from resulting damage to investor and consumer confidence.<br>
The avoidance of outcome (a) requires, at minimmum, the implementation of the [[Eurozone crisis#The decisions of October/November 2011|the decisions of October/November 2011]] in addition to those of [[Eurozone crisis/Timelines#July|21st July 2011]]. The operational details of both are yet to be established.






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Latest revision as of 00:52, 7 July 2012

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This editable Main Article is under development and subject to a disclaimer.
The world recovery ...is in danger of stalling.

IMF Chief Economist, 23 January 2012.

"While contained for the moment, the risk of ... a global crisis, similar in magnitude to the Lehman crisis remains" World Bank, January 2012[1]..

Global stagnation is generally considered in early 2012 to be a possible short-term prospect, involving a large part of the world economy. Of 30 countries surveyed by the International Monetary Fund, the growth rates of the economies of 20 were classified as "below trend and moderating"; of 8 as "below trend and rising"; and of only 2 as "above trend"[2] The January forecasts by the World Bank and the International Monetary Fund continue to show growth in the world economy, but at a significantly lower rate than in their previous forecasts. Morever, the World Bank forecast embdies the assumption that eurozone policy action will "prevent the sovereign-debt stress of the past months from deteriorating further". (The financial turmoil generated by the intensification of the eurozone crisis had already spread to the developing countries and to other high-income countries, and global growth and world trade had slowed sharply). A downside scenario, in which "one or two small Euro Area economies (equal to about 4 percent of Area GDP) face a serious credit squeeze", reduces GDP in the directly affected economies by 8 or more percent, and that of the world economy by about 1.7 per cent. It also reduces the forecast growth of the advanced economies by about 1.7 per cent, implying slightly negative growth in 2012, followed by slightly positive growth in 2013.

Introduction

This article is the fifth of a series of contemporary accounts of financial and economic events and developments during the period from mid 2007 to the end of 2011. The other articles are:-

Subprime mortgage crisis - events surrounding the bursting of a house price bubble in the United States in mid 2007;
Crash of 2008 - global financial developments from mid 2007 to the end of 2008;
Recession of 2009 - global economic developments from mid 2007 to the end of 2010
Great Recession - a summary of events from mid-2007 to the end of 2011




  1. ↑ Global Economic Prospects, World Bank, January 2012
  2. ↑ Slowing Growth, Rising Risks, World Economic Outlook, IMF, September 2011, Fig 1.4 p6
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