NIESR’s global economic forecast
4 May 2012 11:56 AM
Economic prospects deteriorated sharply towards the end of 2011, as the Euro Area sovereign debt crisis threatened to ignite a second global banking crisis.
Policy actions by the European Central Bank appear to have averted the immediate danger, by pumping €530 billion in 3-year longer-term refinancing operations (LTROs) into the European banking system in February. Tensions in European financial markets have eased since February.
However, fiscal austerity is depressing growth in those countries most affected by the crisis; this in turn reduces tax revenues, making the restoration of fiscal sustainability and hence market confidence even more difficult. This risks a negative feedback loop; downside risks, both economic and political, therefore remain high.