The International Monetary Fund ( IMF ) has sounded another caveat about the deepening global crisis. According to Christine Lagarde, IMF's Managing Director, the crisis is unfolding, escalating and spreading across the world. She has even suggested that the world could see a re-run of the depression of the 1930s.
The warning follows IMF's indication earlier in the month that world growth forecast could be lowered, when the estimate is re-visited in January. The view is somewhat endorsed by the recent downward revision in the growth forecast of the Asian Development Bank (ADB) for Asia from 7.5% to 7.2% for 2012. IMF has pegged its estimate for global growth at 4% for 2012.
The underlying sentiment across the world is downright bearish. Countries in Europe have been threatened with downgrades by Standard & Poor's and Moody's, a division of Moody's Corporation ( MCO ).
Several major banks including HSBC Holdings Plc ( HBC ), UBS AG ( UBS ), Bank of America ( BAC ), Citigroup ( C ), JPMorgan ( JPM ), Wells Fargo ( WFC ), Goldman Sachs ( GS ), Bank of New York Mellon ( BK ) and Morgan Stanley ( MS ) have already been downgraded. The financial services industry has also announced programs of large-scale retrenchment.
Industrial activity was lower in October in Europe and in November in China. Japan, plagued by a strong yen, continues to grapple with the aftermath of the twin disasters in March 2011.
India, which grew at 10% in 2010, is projected to slow down to 7.8% in 2011 and even slower at 7.5% in 2012. Brazil, another BRIC member, which grew at 7.5% in 2010, is expected to grow at half that rate in 2011 and 2012.
The US has however, bucked the global trend. The manufacturing PMI (Purchase Managers Index) increased to 52.7 in November as opposed to 50.8 in October. Unemployment in the US dropped to 8.6% in November. The US GDP increased 1.3 % in second quarter 2011 and 2.0% in the third quarter.
Despite such positives, the long-term sustainability of economic recovery in the US appears brittle. This is clearly borne out by the recurrent volatility in the numbers. During the second and third quarters of 2010, US GDP had increased by 3.8% and 2.5%, respectively.
The US and China - the two largest economies account for almost one-third of the world's total output. With the US lacking steam, Europe in financial disarray and Asia, led by China showing signs of weakening, the locomotive model of global growth does not inspire optimism.
There is no instant prophylactic to keep the crisis at bay as it threatens to engulf all the major economic regions of the world. Ms. Lagarde has called for concerted global action to fund the IMF to help address the growing crisis. Recovery will have to happen, but will be painfully slow. While prudent fiscal management and austerity is the crying need of the hour, growth will have to remain on the global agenda for revival.