European and Japanese Economic Woes May Jeopardize Global Recovery

By Korollos Shalaby

A slower recovery than expected in the euro zone and the recession in Japan will weigh on global growth this year. But a rebound in 2014 should provide the fastest expansion since 2010, said the International Monetary Fund (IMF).

The IMF revised down its GDP forecast for 2013 to 3.5% in the year from 3.6% last October. The outlook for 2014 was clearer, as the economy is expected to grow 4.1%, only if there is sustained recovery in the euro area, the agency said.

The last time the world economy showed healthy growth rates above 4% was in 2010, when production reached 5.1% growth after overcoming the global financial crisis.

The IMF said the activity in the advanced economies is likely to remain weak this year, at 1.4%, before strengthening to 2.2% in 2014. In October, it had projected for developed economies to grow 1.5% in 2013.

"Policy measures have reduced the acute risks in the euro area and the United States," the IMF said in an update of its World Economic Outlook.

But they warned that these risks remain, especially if there is a setback in the recovery of the euro area due to a lack of reform, and whether there are "excessive" budget cuts in the United States.

The agency predicted the U.S. economy will grow 2% in 2013, a decrease of 0.1 percentage points from the October forecast.

They said the atmosphere in the financial markets and real estate will support consumer spending in 2013 and that the Company still consider spending cuts about to go on the first of January this year as part of the "tax gap." They noted that the United States must have a credible plan for fiscal consolidation.

The IMF expects the U.S. economy to accelerate its pace and grow 3% in 2014. For the euro area, the agency estimates a contraction of 0.2% in 2013 and only until the following year, the currency bloc will grow 1%.

January forecast was lowered by 0.3 percentage points to which unveiled last October. The agency said the downgrade is because there is still uncertainty despite recent progress. They cut their forecast for the euro zone despite the response of European authorities to reduce the cost paid by countries financed.

Key leaders within the IMF still fear that the European crisis still poses a risk to the global economy, especially if key financial reforms are not set in place.


Korollos Shalaby is a nationally acknowledged mortgage expert with over 6 years experience as a loss mitigation expert and mortgage finance consultant. He has owned several companies and has been at the forefront of all lending and banking practices since 2006.