IMF: Global Economic Prospects Strengthen, But Downside Risks Remain

April 18, 2012 06:42 AM

The International Monetary Fund (IMF), in its World Economic Outlook, this week said after suffering a major setback during 2011, global prospects are "gradually strengthening," but warned that "downside risks remain elevated."

The report states a "weak recovery will likely resume in the major advanced economies, and activity is expected to remain relatively solid in most emerging and developing economies." The report continues, "However, the recent improvements are very fragile. Policymakers need to continue to implement the fundamental changes required to achieve healthy growth over the medium term."

The IMF praised euro-zone leaders for increasing its bailout funds and taking other steps to address the crisis. The report adds, "Given prospects for very low domestic inflation, there is room for further monetary easing... In addition, banks must be recapitalized -- this may require direct support from a more flexible European Stability Mechanism/European Financial Stability Facility."

Specific to commodities, the report states, "Looking ahead, given the weak global activity and heightened downside risks to the near-term outlook, commodity exporters may be in for a downturn. If downside risks to global economic growth materialize, there could be even greater challenges facing commodity exporters, most of which are emerging and developing economies. Conversely, if geopolitical risks to the supply of oil materialize, oil prices could rise temporarily, but the ensuing slowdown in global growth could lead to a decline in the prices of other commodities."

Juli says: Traders and investors are often know for focusing on the negative... and in this case, weakness in outside markets has in part been due to their warning that "downside risks remain elevated."

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