Europe’s weakened economy is now the central threat to global recovery, as its countries struggle with heavy debt, banks face a reckoning over their lack of capital and growth is slowing, the International Monetary Fund said Wednesday in its first assessment of the world economy since a crisis over government borrowing in Greece.
While the agency estimated that growth in the United States and emerging Asian and Latin American countries remains on track, it scaled back projections for Europe and outlined a series of issues there that could — unless controlled — spark problems rivaling those that caused the 2008 collapse of Lehman Bros.
“Downside risks have risen sharply” in recent months, the IMF said. “The ultimate effect could be substantially lower global demand.”
In updating its World Economic Outlook, the IMF slightly raised its overall forecast for global growth, to 4.6 percent for the year, compared with 4.2 percent in its April report. The improvement was based on a stronger than expected performance in the first months of the year, particularly in Asia. The IMF said it also expected the United States to grow slightly faster than earlier predicted — about 3.3 percent this year and 2.9 percent next year, less than forecast by the U.S. Federal Reserve.
But the outlook for Europe was reduced, as the combined impact of government spending cuts, continued concern over national debt and uncertainty about the banking sector undermines an economy already lagging behind the rest of the world. The IMF projected that the 16 countries that share the euro as a currency will grow just 1 percent this year and 1.3 percent in 2011.
Reflecting the ongoing concern, the European Central Bank on Thursday announced that it would leave its benchmark interest rate at a record low of 1 percent for the 14th consecutive month.
The Bank of England left its base interest rate at a record low of 0.5 percent for the 17th straight month and left its asset purchasing program on hold, the Associated Press reported Thursday. Britain’s economic recovery remains fragile, and analysts say public spending cuts are expected.
The IMF report on Europe, and an accompanying analysis of world economic stability, emphasized how a problem that was considered limited in scope when it surfaced in Greece last fall eventually expanded to other European countries and is now one of the main issues facing the global economy. Governments across Europe are cutting spending and overhauling social programs in an effort to curb record levels of debt, and the Obama administration is studying similar U.S. measures.
Although no other country has reached the crisis point hit by Greece — where borrowing costs skyrocketed until a joint European Union-IMF bailout provided emergency funding — the IMF noted that European countries and the United States will be competing this year to refinance some $4 trillion in government bonds maturing in the second half of the year. With the United States and nations such as Germany considered classic havens, there has been pressure felt in Britain, and in weaker euro-zone economies such as Portugal and Spain, to make a convincing effort to control deficits to keep the favor of bond investors and analysts.
While Europe, in conjunction with the IMF, established a fund to guarantee the repayment of euro-zone government debt, the IMF noted that thecalming effect of that program is “wearing off.” The interest rates paid by countries such as Spain and Italy — and even some, such as Belgium, considered at the heart of “core Europe” — have been rising again in comparison to those paid by Germany, the continent’s top economic performer.
“On the heels of Greece’s fiscal troubles, investors are now re-pricing these risks across the region,” the IMF said.
In addition, European and other economic analysts are awaiting the result of financial stress tests that will give a sense of how European banks fared during the recent financial crisis and recession, whether they could withstand another downturn, and how much capital they might need to raise to be considered healthy.
Stress tests in the United States helped restore confidence in the banking system. But IMF and other analysts say that European banks have been slow to write off bad loans and raise new capital and, until now, have been protected by national governments from a full accounting of their problems.
The issues of government debt and the health of the banks are related: European banks own tens of billions of dollars in Greek, Spanish and other government bonds, and the stress tests will assess how those holdings affect each company’s overall financial health.
The European banking system is plagued by a “legacy of unfinished cleansing,” the IMF said, which has left “pockets of vulnerability, overcapacity, and poor profitability.” Banks have become hesitant to lend to each other — much as happened during the U.S. financial crisis — and are relying on an ultimately unhealthy mix of short-term loans from the European Central Bank to ensure they have enough cash.
“Recent global stability gains are threatened by a confluence of sovereign and banking risks in the euro area that, without continued and concerted attention, could spill over,” the agency said.
By Howard Schneider
Tags: bank of england, economic growth, european central bank, european economy, financial crisis, global financial markets, global recovery, IMF, interest rates, world economic
Sites we Like……
[...] Every once in a while we choose blogs that we read. Listed below are the latest sites that we choose [...]……
get the headlines or the numbers of…
the nfl or nba, but soccer is beginning to build a strong fan base. considering it is one of the most popular sports in the world, it is about time the us got on board.since 1999 when the us women’s team…
“good” estrogen metabolites and less “bad” estrogen…
metabolites. although it does not increase or decrease estrogen levels, it directs how the estrogen is metabolized.research has suggested that dim may also help to prevent breast cancer. after studying a group of women for periods up to nineteen years,…
will be able to choose to dine…
at restaurants which cater to both the local and international cuisine. in addition to these pleasures you will find there are parks where you can relax in the day and during the night you have a choice of night clubs and…
Thanks!…
Thanks for all your insight. This site has been really helpful to me….
enjoy a special lobster dinner with your…
family or if you are planning a neighborhood lobster feast at your backyard, you can serve up the best lobsters possible wherever you are in the united states by simply ordering from an online lobster store. one of the most important…
Hi……
Thanks for sharing superb informations. Your website is so cool. I’m impressed by the details that you’ve on this site. It reveals how nicely you understand this subject. Bookmarked this web page, will come back for more articles. You, my friend, ROC…
Hey……
I’ve recently started a blog, the information you provide on this website has helped me tremendously. Thanks for all of your time & work. “It is no use saying, ‘We are doing our best.’ You have got to succeed in doing what is necessary.” by Sir Wi…
to become more expensive in the coming…
years. traditional sources of power like coal and oil are getting more expensive to procure, and the environmental costs of fossil fuels make them politically unpopular. while installing solar panels is definitely a great long-term plan for reducing yo…
this type of case and ensuring you…
meet these deadlines can prevent you from losing your license or even access to your vehicle.you may have no intention to drive while under the influence of drugs or alcohol, however, mistakes are all too easy to make and preparation for…
aborter…
great article regarding the current situation….
Wow!…
A very fascinating post. …
Blogs ou should be reading…
[...]Here is a Great Blog You Might Find Interesting that we Encourage You[...]……
metals especially in cases of treatment for…
cancer such as chemotherapy, and radiation. in addition burdock has anti-tumor and anti-mutagen effects.capsicum: capsicum is an alterative, antioxidant, and antiseptic. it increases metabolism, which stimulates circulation. it is rich in vitamin c and…
Check this out…
[...] that is the end of this article. Here you’ll find some sites that we think you’ll appreciate, just click the links over[...]……
Wow!…
A very awesome post. …
work because there is no sure way…
to end tinnitus that has been discovered at this time.another advantage is also found in the comfort and security of home treatment. by finding relief within one’s own home, the time that it takes to recover can be very quick and…
Superb website…
[...]always a big fan of linking to bloggers that I love but don’t get a lot of link love from[...]……
Superb website…
[...]always a big fan of linking to bloggers that I love but don’t get a lot of link love from[...]……
year later they introduced the world to…
the app store. soon after the release of the app store, iphone users has access to hundreds of gaming applications, most only costing.99 cents. the games didn’t just appeal to the casual gamer but some of the games interested hardcore gamers…
of your apps. additionally, you have better…
control over notifications with the notifications center which lets you see all of them in one place, dismiss them and choose what you want to see in future.the iphone 4s in white provides a fast and elegant way to communicate with…
your caller informed when to expect a…
return call and won’t be left wondering if the other party received their message.7. send fyi messages. if your caller declines to leave a message, send along a quick message anyway. your employer will appreciate the heads up and your caller…
search is through public records. you can…
personally check these records by visiting county offices that will readily provide you information such as owner of the house, unpaid dues and mortgages as well as tax payment history. calling all investors near and far! the metro denver area resident…
aerobics can be ideal for your entire…
body.practice water aerobics the same way you would outside of the pool. you can walk, jog, run and perform a variety of kicks. you’ll burn the same amount of fat, but put a considerable amount of less pressure on any tender…
Wikia…
Wika linked to this site…
Related……
[...]just beneath, are numerous totally not related sites to ours, however, they are surely worth going over[...]……