Highlights:

   A recovery in advanced economies will be more than offset by a gradual slowdown in emerging ones as they mature, with the net result that global growth will slow. But the biggest risk ahead for the global economy is not this slower overall growth in output but a slowdown in average output per capita, which will determine how fast living standards can be supported and raised.

  Global growth is projected to grow at 3.2 percent in 2012, then accelerate somewhat to 3.5 percent from 2013-2016, and then show a further slowdown to 2.7 percent from 2017-2025. At 3 percent, on average, global growth will still be somewhat higher than the period 1980-1995 but between half and a full percentage point below the growth rate from 1995-2008.

  Advanced economy growth is expected to slow down from an already meager 1.6 percent in 2011 to 1.3 percent in 2012. For 2013-2016, the outlook suggests some recovery in advanced economies, bringing these countries back to the pre-recession growth trend of a little more than 2 percent.

   In 2012 emerging economies will slow in growth by 1.3 percentage points on average, going from 6.4 percent growth in 2011 to 5.1 percent in 2012, partly as a result of slower export growth and partly because several of them have been growing above trend. From 2017-2025 emerging and developing countries are projected to grow at 3.4 percent. Many economies will begin to show signs of maturing, at which point the rapid catch-up growth abates.

   The greatest challenge for the global economy in this slow growth environment is to raise productivity without losing job opportunities for the millions who are looking for reasonably paid jobs to support their living standards. The growth rate of per capita income globally has been around 2.4 percent since the beginning of the century but sometime between 2017 and 2025, this rate will fall below 2 percent. In contrast to the past half century, that slowdown will also be accompanied by slower growth in population.

Highlights:

   The global economy is in a dangerous new phase.

   The crisis in the euro area runs beyond the control of policymakers despite the strong policy response agreed at the July 21, 2011, EU summit.

   Advanced economies with current account deficits -- the United States, in particular -- need to compensate for low domestic demand through an increase in foreign demand.

   Worries about sovereigns have translated into worries about the banks holding these sovereign bonds, mainly in Europe.

   Global growth will moderate to about 4 percent through 2012, from over 5 percent in 2010.

   Real GDP growth in the United States, euro area, and Japan is forecast to rise modestly -- from about ¾ percent in the first half of 2011 to about 1½ percent in 2012.

   Policymakers in crisis-hit economies must resist the temptation to rely mainly on accommodative monetary policy to mend balance sheets and accelerate repair and reform of the financial sector.

   In view of the slow pace of global demand rebalancing, high commodity prices and the modest growth outlook for advanced economies, long-term interest rates for key sovereigns are likely to stay low.

   To ensure that trade remains supportive of the global recovery, policymakers must continue to resist protectionist pressures.
   The shocks to Japan and the oil supply have had a temporary effect on global growth, which is beginning to unwind.

   Activity in developing Asia weakened modestly in response to global supply-chain disruptions and destocking in the face of more uncertain demand from advanced economies.

   In advanced economies, unemployment is likely to stay high for some time.

  Monetary policy remains highly accommodative in many advanced economies (Figure 1.10, top panels), notwithstanding the end of the second round of quantitative easing (QE2) in the United States and rate hikes in a number of advanced economies, including the euro area.

   Manufacturing and Services PMI indicators still stand above 50 and thus point to continued expansion in the near term but at a slower pace than in 2010.

  Unemployment rates are higher than the typical rates during the 2002-08 expansion in only a few economies--these include the United Kingdom and the United States.

   Emerging and developing economies are more likely to experience second-round effects on wages from past food and energy price hikes, because these account for a larger share of their consumption baskets

   In emerging and developing economies, headline inflation is expected to settle at about 6 percent in 2012, down from over 7½ percent in 2011, as energy and food prices stabilize but demand pressures raise core inflation.

   European banks are heavily exposed to economies that have recently seen sharply wider sovereign spreads.
  Output in major advanced economies has returned close to or above precrisis levels, with some notable exceptions. In emerging and developing economies, it is already well above pre-crisis levels, except in the CEE and CIS economies, which were hit hard by the financial crisis.

  Inflation has been moving up, reflecting the sharp recovery of commodity prices and emerging capacity constraints. However, core inflation remains low in the major advanced economies.

  In most advanced economies with crisis legacies - such as overleveraged household and financial sectors and overstretched public balances - real GDP growth and employment are anemic, and ongoing fiscal withdrawal will continue to weigh on demand.

   In the United States and Japan, political commitment to a well-paced, credible fiscal consolidation plan is an urgent priority, and renewed action to revive the U.S. housing market is also crucial.

   A fiscal consolidation of 1percent of GDP typically improves an economy's current account balance by over a half percent of GDP.

   The share of food in the CPI consumption basket is typically higher in emerging and developing economies than in advanced economies.