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Global stagnation

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The world recovery ...is in danger of stalling.

IMF Chief Economist, 23 January 2012.

"While contained for the moment, the risk of ... a global crisis, similar in magnitude to the Lehman crisis remains" World Bank, January 2012[1]..

Global stagnation is generally considered in early 2012 to be a possible short-term prospect, involving a large part of the world economy. Of 30 countries surveyed by the International Monetary Fund, the growth rates of the economies of 20 were classified as "below trend and moderating"; of 8 as "below trend and rising"; and of only 2 as "above trend"[2] The January forecasts by the World Bank and the International Monetary Fund continue to show growth in the world economy, but at a significantly lower rate than in their previous forecasts. Morever, the World Bank forecast embdies the assumption that eurozone policy action will "prevent the sovereign-debt stress of the past months from deteriorating further". (The financial turmoil generated by the intensification of the eurozone crisis had already spread to the developing countries and to other high-income countries, and global growth and world trade had slowed sharply). A downside scenario, in which "one or two small Euro Area economies (equal to about 4 percent of Area GDP) face a serious credit squeeze", reduces GDP in the directly affected economies by 8 or more percent, and that of the world economy by about 1.7 per cent. It also reduces the forecast growth of the advanced economies by about 1.7 per cent, implying slightly negative growth in 2012, followed by slightly positive growth in 2013.

Introduction

This article is the fifth of a series of contemporary accounts of financial and economic events and developments during the period from mid 2007 to the end of 2011. The other articles are:-

Subprime mortgage crisis - events surrounding the bursting of a house price bubble in the United States in mid 2007;
Crash of 2008 - global financial developments from mid 2007 to the end of 2008;
Recession of 2009 - global economic developments from mid 2007 to the end of 2010
Great Recession - a summary of events from mid-2007 to the end of 2011