International Economic Developments
In 2011, sovereign debt and financial vulnerabilities dented growth prospects and weighed in on the global economic recovery towards the end of the year. Consequently, the IMF estimated a slowing in global growth to 3.9 percent in 2011, lower than initial expectations, following a 5.3 percent expansion in 2010. Nonetheless, solid economic activity in most emerging and developing economies drove the global economic recovery, despite some macroeconomic policy tightening during the year. In contrast, lacklustre performance in consumption and investment persisted in advanced economies as households coped with income and wealth losses and firms operated with large excess capacity. In effect, low internal demand, coupled with tight financial and fiscal conditions in most advanced economies, underpinned their relatively weak growth outcomes in 2011.
For 2012, while growth in advanced economies will continue to lag that of emerging markets, the worsening external environment and the withdrawal of monetary and fiscal stimulus implies an imminent slowdown in emerging and developing economies’ growth.
Evidently, risks to the international economic outlook tilted further downwards in the last quarter of 2011, on account of the unfolding Euro crisis and the associated deterioration in global financial conditions.
In the US, while high commodity and consumer prices cut into retail sales in the first half of 2011, the US Federal Reserve kept its funds rate largely unchanged to support the economic recovery into the medium term. As a result, the US economy is estimated to have grown by 1.7 percent in 2011, with a surge in consumer spending in the last quarter, following a 3.0 percent broad economic expansion in 2010.