JEDDAH – Growth in the Middle East and North Africa (MENA) will be stronger, as key oil exporters continue to boost oil production and drive up domestic demand, while activity in Libya rebounds after the 2011 unrest, The IMF said in its latest World Economic Outlook (WEO) released Monday. Sub-Saharan Africa, which has been insulated from external financial shocks, is also expected to enjoy relatively robust growth in 2012-13. In contrast, the IMF expects world economy to expand 3.5 percent in 2012, down slightly from its previous estimate of 3.6 percent in April. In a quarterly update to its World Economic Outlook, the IMF also cut its forecast to 3.9 percent in 2013, from 4.1 percent three months ago. The Fund cut its US growth forecast to 2 percent this year from its previous estimate in April of 2.1 percent and kept eurozone performance in 2012 unchanged at a contraction of 0.3 percent and down from a growth of 0.9 percent in 2013 to 0.7 percent. For 2013, it expects US growth of 2.3 percent, down from 2.4 percent. An already sluggish global recovery shows signs of further weakness, mainly because of continuing financial problems in Europe and slower-than-expected growth in emerging economies, the IMF said in a regular update to its World Economic Outlook (WEO). Two other IMF reports were also released July 16. The update to the Global Financial Stability Report (GFSR) said that risks to financial stability increased in the second quarter of 2012 because of the continued slow global recovery and fears about the quality of bank assets in Europe. An update to the IMF's Fiscal Monitor said that fiscal adjustment in both advanced and emerging economies is proceeding as expected. The latest World Economic Outlook projects that the global economy will grow 3.5 percent this year, down 0.1 percentage points from the April forecast, and 3.9 percent in 2012, 0.2 percentage points lower. "More worrisome than these revisions to the baseline forecast is the increase in downside risks," said Olivier Blanchard, the IMF chief economist and director of the IMF's Research Department, which prepared the WEO. The IMF emphasized that the relatively minor setback to the global outlook under its baseline projections is based on three important assumptions: that there will be enough policy action for financial conditions in the so-called euro area periphery, which includes Greece and Spain, to ease gradually through 2013; that US fiscal policy does not tighten sharply in 2013; and; that steps by some major emerging markets to stimulate growth gain traction. The IMF said the most immediate risk to the global recovery is that delayed or insufficient policy action will further escalate the euro area crisis. "Simply put, the eurozone periphery countries have to succeed," said Blanchard. The report cited agreements at the June 28 eurozone summit as a step in the right direction. It said the summit actions should help break the "adverse links between sovereigns and banks and create a banking union." But the recent deterioration in sovereign debt markets demonstrates that timely implementation of these measures, together with further progress on banking and fiscal unions, must be a priority. – SG
