Bucharest (ADF) - The International Monetary Fund (IMF) has revised its forecast of economic growth in Romania next year 2012 from 4,4 percent to 3.5 percent down. The proceeds from the released Tuesday, "World Economic Outlook" shows. The growth forecast for the current year has been kept unchanged at 1.5 percent of gross domestic product (GDP). The IMF also revised its inflation forecast for Romania slightly upward. This year, the IMF expects an inflation rate of 6.4 per cent (originally 6.1 percent). 2012 consumer price inflation is likely to decline by only 0.9 percent to 4.3 percent, it said the IMF report.In general, the IMF made in its recent report little hope for a significant economic upturn in the global economy in general and in the European Union in particular. Overall, the global economy rise this year, only 4.0 percent (down 0.3 percent less than forecast in June).
The performance of the EU economy this year will grow by only 1.7 percent of GDP, instead of the original 2.0 percent of GDP. Also, the 2012 forecast for the European Union, the IMF revised downward, from plus 2.1 percent of GDP to 1.4 percent of GDP plus only.
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The main problem with an exit from the eurozone is the transition period. Capital controls will have to be imposed. Temporary measures to ration foreign exchange for the importation of petroleum and other essential items will have to be undertaken. How will the Bank of Greece settle with the ECB? How will debt be converted from euros to drachmas?
It is clear that a tremendous amount of preparatory work is needed both for default and for exit from the eurozone, and much of it has to be undertaken in utter secrecy. Still, it has to be done – even if one were to disagree with exit from the eurozone. The reason is that such preparations would also enhance Greece's bargaining position with the troika. Instead of laughing at empty threats of renegotiation, as has occurred twice with the current finance minister, the troika would see that the government means business.
If the current Greek government can't or doesn't want to take such necessary measures that will preserve the country and its people, it should yield the field – with or without elections – to other political forces that are willing to do so
IMF Insufficient
While the IMF vowed to “strongly support” Europe, Managing Director Christine Lagarde warned its $384 billion war chest may not be enough to meet all aid requests if the world economy worsens. The current lending capacity “looks comfortable today but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders,” she said.
The world economy will find some support from emerging markets, which will grow 4.5 percent to 5 percent over the next 12 months, and Japan’s 1.5 percent expansion, El-Erian said.
El-Erian popularized the “new normal” term to describe how growth patterns in the world economy changed after the worst recession since the Great Depression. The firm under-performed most of its bond mutual fund peers this year after a February decision to eliminate U.S. Treasuries from its Total Return Fund backfired as the securities rallied.
JPMorgan Chase & Co. Chief Economist Bruce Kasman said in Washington that Greece is already insolvent and headed toward a depression that will roil the euro area. His team revised their forecasts last week to show the region entering a recession in the next quarter and the ECB cutting its key interest rate on Oct. 6 to 1 percent from 1.5 percent.
“I fear very much that the situation will deteriorate further before it improves,” said Axel Weber, the former president of the Bundesbank, in Washington yesterday. “We will see much more drastic action” by policy makers if the situation in financial markets gets worse.
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