Intro
The year began on a positive note. A marked improvement in market sentiment, combined with monetary policy easing in developing countries, was reflected in a rebound in economic activity in both developing and advanced countries. However, since the beginning of May, much of this progress has been called into question by a re-igniting of Euro Area jitters, which roiled financial markets around the globe. More >
Recent Developments
The first four months of the year saw improved conditions in financial markets that may have contributed to a turnaround in the real-side economy. Industrial production, trade and capital goods sales all returned to positive territory, following the slowdown during the fourth quarter of 2011. More >
Headwinds
The resurgence of tensions in the Euro Area adds to the pre-existing headwinds from fiscal consolidation and banking sector deleveraging in the advanced economies, as well as capacity constraints and reduced capital inflows in some of the large developing economies. All these will conspire to keep growth weak in 2012. More >
Outlook
Growth is forecast at 5.3 percent for developing countries and 1.4 percent for the advanced economies during 2012 (the Euro zone is projected to contract by 0.3 percent). Overall, global GDP is projected to increase by 2.4 percent this year. More >
Risks
In the immediate run, the new Euro Area tensions pose the most serious potential risk for developing countries, particularly those with strong reliance on worker remittances, tourism and commodities or those with high levels of short-term debt or medium-term financing requirements. More >
Challenges
For the foreseeable future, the external environment will remain characterized by volatile capital flows and heightened investor uncertainty, complicating the conduct of macroeconomic policy in developing countries. More >
Conclusions
In these uncertain conditions, policy in developing countries needs to be less reactive to short-term fluctuations in the global markets and, instead, focus on medium-term domestic strategies to achieve their development objectives. More >
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