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Prospects Daily: Eurozone growth projected to slowdown sharply in 2012

Global Macroeconomics Team's picture

Important developments today:

1. Eurozone growth projected to slowdown sharply in 2012

Eurozone growth projected to slowdown sharply in 2012. Battered by the spreading sovereign-debt crisis in member states, waning consumer and business confidence which could impinge on durable and investment goods spending, ongoing fiscal austerity, and a slowdown in global trade, the recently released European Commission Autumn economic forecasts points to a significant slowdown in GDP growth in the EU. Annual GDP growth in 2012 for the 17-bloc Eurozone is projected at 0.5%; and 0.6% for the 27-member EU.  Though picking-up in 2013, growth is still expected to remain lack-lustre, rebounding to 1.3% and 1.5% for the Eurozone and EU respectively. The risks to the forecasts are noted to be tilted to the downside with the possibility of further negative dynamics of slower growth affecting sovereign debtors, which could in turn deteriorate bank balance sheets, thereby reducing their ability to support growth and thus leading to a recession.

Among Emerging Markets

In East Asia and the Pacific, Malaysia’s central bank kept the key interest rate unchanged at 3% at the latest monetary policy meeting. Despite pressures on domestic consumer prices from food shortages after recent floods, the bank announced plans to maintain the current interest rate in view of external economic slowdowns.

In Central and Eastern Europe, Turkey’s industrial production grew 6.9% in September, gaining 12% on the year, beating all market forecasts as broad based expansion in manufacturing (12.8%), utilities (9.9%) and mining (2.2%) boosted the headline figure. The pace of growth in industrial output is the highest since February, underscoring the fast momentum of growth in the economy.

In South Asia, India’s industrial output growth slowed sharply to 1.9% in September, a two-year low, as the central bank’s string of interest rate hikes took effect on the economy. While manufacturing production grew modestly by 2.1%, output of key capital equipment and consumer goods shrank, raising concerns that the overall pace of growth may slow. The Reserve Bank has raised interest rates 13 times since March 2010 to control inflation, which remained high at 9.72% in the last reading, and signaled that it may pause interest rate tightening after last month’s 25 basis point increase.

In Sub-Saharan Africa, Ethiopia’s annual inflation was recorded at 39.8% in October, easing slightly from 40.1% recorded in September. Month-on-month inflation has been slowing in the country, at 1.9% in October from 2.6% in September, however a poor agricultural year and surging food costs are likely to keep inflationary pressures a concern this year.