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Are We Heading towards a Synchronised Global Slowdown?
Who publishes the World Economic Outlook survey?
1. The World Economic Outlook (WEO) is a survey conducted and published by the International Monetary Fund (IMF).
2. IMF is a 189-member international organization working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
3. WEO is published biannually and updated partly twice a year.
4. WEO with the help of key macroeconomic indicators (like GDP, inflation, current account and fiscal balance) projects about the world economy in near and medium context.
How the recent reports of the World Economic Outlook portrayed the world economy?
1. The title of the January 2018 update of World Economic Outlook showed a bright future. Its title was “Brighter Prospects, Optimistic Markets, Challenges Ahead”.
2. But 2018 was a major disappointment and the WEO’s update of January 2019 was titled “Weakening Global Expansion”. Risks of a sharper decline in global growth (growth of the world gross domestic product or the world income) were pointed out.
What is the Global recession?
1. A global recession is a recession that affects various countries in the world. It is a period of global economic slowdown or declining economic output.
2. The IMF estimated the global growth for 2018 at 3.7% and expects global growth for 2019 to be at 3.5%.
3. But the World Bank estimated the global growth for 2018 at 3% and expects the global growth for 2019 to be at 2.9%.
4. Prior to the Global Financial Crisis (GFC) that started in 2007, IMF argued that a global annual real GDP growth rate of 3.0% or less was “equivalent to global recession”.
5. Now the IMF has a very complicated way of defining what a global recession is. Going by the older IMF definition and based on World Bank estimates, the world was already in the global recession in 2018.
Which are concerns pointed out in GFSR of October 2018?
1. The Global Financial Stability Report (GFSR) of October 2018 by IMF was titled “A Decade after the Global Financial Crisis: Are we safer?”
2. It assesses that we were not safe. It finds that global near-term risks to financial stability have increased somewhat, reflecting mounting pressures on emerging market economies and escalating trade tensions.
3. Some of the concerns in the report are:
a) Failure of governments and regulators to push through all the reforms needed to protect the system from reckless behavior.
b) Global debt levels well above those at the time of the last crash in 2008.
c) The dramatic rise in lending by the ‘shadow banks’ in China.
d) The growth of global banks like JP Morgan to a scale beyond that seen in 2008, leading to fears that they remain “too big to fail”.
Where goes the way ahead?
1. If a global recession hits sooner than IMF expects, banking systems in the Eurozone and China, global stocks, etc may be affected.
2. If a financial crisis originates from any of these, the global economy may be affected.