IMF released its world economic outlook report on Monday, downgrading the 2012 outlook to 1.3% for advanced economies, and 3.3% for global economies. The projection by region is as follows (Source img.org):
In the United States, growth will average 2.2 percent this year. Real GDP is projected to expand by about 1½ percent during the second half of 2012, rising to 2¾ percent later in 2013. Weak household balance sheets and confidence, relatively tight financial conditions, and continued fiscal consolidation stand in the way of stronger growth.
In the euro area, real GDP is projected to decline by 0.4 percent in 2012 overall—about ¾ percent (on an annualized basis) during the second half of 2012. With lower budget cuts and domestic and euro area–wide policies supporting a further improvement in financial conditions later in 2013, real GDP is projected to stay flat in the first half of 2013 and expand by about 1 percent in the second half. The “core” economies are expected to see low but positive growth throughout 2012–13. Most euro area “periphery” economies are likely to suffer a sharp contraction in 2012, constrained by tight fiscal policies and financial conditions, and to begin to recover only in 2013.
In Japan, growth is projected at 2.2 percent in 2012. The pace of growth will diminish noticeably as post-earthquake reconstruction winds down. Real GDP is forecast to stagnate in the second half of 2012 and grow by about 1 percent in the first half of 2013. Thereafter, growth is expected to accelerate further.
Fundamentals remain strong in many economies that have not suffered a financial crisis, notably in many emerging market and developing economies. In these economies, high employment growth and solid consumption should continue to propel demand and, together with macroeconomic policy easing, support healthy investment and growth. However, growth rates are not projected to return to pre crisis levels.
In developing Asia, real GDP growth will average 6.7 percent in 2012 and is forecast to accelerate to a 7¼ percent pace in the second half of 2012. The main driver will be China, where activity is expected to receive a boost from accelerated approval of public infrastructure projects. The outlook for India is unusually uncertain: for 2012, with weak growth in the first half and a continued investment slowdown, real GDP growth is projected to be close to 5 percent, but improvements in external conditions and confidence—helped by a variety of reforms announced very recently—are projected to raise real GDP growth to about 6 percent in 2013.
In the Middle East and North Africa, activity in the oil importers will likely be held back by continued uncertainty associated with political and economic transition in the aftermath of the Arab Spring and weak terms of trade—real GDP growth is likely to slow to about 1¼ percent in 2012 and rebound moderately in 2013. Due largely to the recovery in Libya, the pace of overall growth among oil exporters will rise sharply in 2012, to above 6½ percent, and then return to about 3¾ percent in 2013.
In Latin America, real GDP growth is projected to be about 3¼ percent for the second half of 2012. It is then expected to accelerate to 4¾ percent in the course of the second half of 2013. The projected acceleration is strong for Brazil because of targeted fiscal measures aimed at boosting demand in the near term and monetary policy easing, including policy rate cuts equivalent to 500 basis points since August 2011. The pace of activity elsewhere is not forecast to pick up appreciably.
In the central and eastern European economies, improving financial conditions in the crisis-hit economies, somewhat stronger demand from the euro area, and the end of a boom-bust cycle in Turkey are expected to raise growth back to 4 percent later in 2013. The Commonwealth of Independent States will grow at 4.0 percent this year, with Russia posting growth of around 3.7 percent.
Sub-Saharan Africa is expected to continue growing strongly, averaging above 5 percent. Most countries in the region are participating in a strong expansion, with the exception of South Africa, which has been hampered by its strong links with Europe. Recently some food importers in the region have been hit by the sharp increase in global food prices for a few major crops…
How to interpret this report?
Obviously the world economy is slowing down, what’s more alarming with this report is that Spain is showing a difference of -0.7% for 2013, or a contraction of 1.3% in GDP, a huge difference to Spain’s official GDP forecast of -0.5%, and IMF’s own forecast of -0.6% back in July; this is one of the primary reasons for Spanish yields going above the 6% today, and likely to weigh in on the EUR throughout the trading session.
Although this report is mostly doom and gloom, IMF actually upgraded US from 2.0% to 2.2% for 2012, a rare sign of optimism; but of course with the Feds continuing to pump more money into the market (QE3), USD outlook is definitely not looking good. I would be more inclined to go LONG on CAD instead as a good USD alternate, since recent Employment Change release out of Canada showed strong economy, backed by crude oil, and strong trade partnership with U.S., the currency may even surpass AUD in demand as US economy outshines China’s. I would be looking to position long-term trades on CADJPY or USDCAD, both in the direction of CAD.