The International Monetary Fund revised down today its expectations for global economic growth in 2012, in large part due to increasing downside risks in the Euroarea.

• Global growth is expected to be 3.25% in 2012, down 0.75% from the IMF’s September World Economic Outlook.
• Europe is expected to go into a mild recession in 2012 (-0.5%), whereas it was expected to grow 1.1% for the year.
• U.S. growth projections remained unchanged at 1.8% for 2012.  This annual rate is materially slower than the rate we experienced in the second half of 2011.
  • This is also slower than the most recent Blue Chip Consensus Forecast of 2.2% growth in 2012.

Growth is projected to slow in both advanced and emerging countries, but the IMF notes that it expects a deceleration in growth rather than a collapse into recession.

The IMF pointed to oil prices a secondary risk factor. It noted that although general commodity prices declined during 2011, oil prices were held high because of supply developments.  The IMF’s baseline projections for oil prices in 2012 were unchanged at $99 per barrel.

Another secondary risk factor listed was insufficient progress in developing medium-term fiscal consolidations plans in the United States.  The report noted that Euro risk factors have made U.S. government securities relatively more attractive in the short-term, but that government debt levels and costs are projected to rise over the medium-term in the absence of a credible fiscal consolidation plan.

• In accordance with the existing IMF policy stance, the report noted that an immediate risk that exists would be for policymakers to excessively tighten U.S. fiscal policy in the near term.