Global Economy: Moving towards crisis management

After a roller-coaster year CY11, not much optimism was left for the ongoing year CY12. The investors sentiments changed from a bullish outlook to a more tapered one. Where the eurozone dilemma ratcheted up towards the close of CY11, good news flowed in with US growth figures and employment data, and modest growth in China.
The outlook early this year is hinged upon geopolitical qualms rather than market forces. The sloppy nature of the oil market particularly tagged to the Iranian nuclear threat treaded global economic recovery on a fragile boulevard.
As the year progressed, the global recovery, which was not strong to start with, started to show signs of further deterioration.
This year had begun with rallying stock markets, as investors appeared increasingly confident regarding prospects in financial markets. In search of growth, yield-hungry investors saw some opportunity in the wake of some easing of the European debt debacle and improvement in the US economy.
However, it seems that the investors were holding too much hope on what appeared to a slight respite in the financial markets. The economic recovery during the latter half of the year continued to remain wary on account of high level of sovereign debt and low level of capital investment.
Contrary to the generally held opinion that the smaller emerging markets would continue to perform strongly with the expectations of a slowdown in India and a soft landing by China, the growth in many of these economies has remained lower than forecasted so far during CY12. Focusing on the emerging markets, the IMF has stressed that the policy makers should divert attention to the declining trade and volatile capital flows.
In its latest update of the world economic outlook, the International Monetary Fund (IMF) has downgraded the global economic forecast. Accordingly, where the first quarter has seen modest growth, the second quarter of CY12 has plunged due to the fleeting effects of easing of the financial traction of the eurozone, better global and Asian industrial production, and stronger than anticipated demand in Japan.
The downside risks that have undermined the global economic salvage remain with the neglect of the eurozone crisis, fiscal tightening of the US economy and the lower than expected growth in the smaller, emerging economies on account of weaker global development, heightened risk aversion and domestic debt positions.
With the world economy juggling its way through heightened oil price mess on one hand, and the euro debt crisis on the other, the global recovery remains hugely at risk.