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04/17/2013

The global economy is operating on three speeds

Bigben
Big Ben at dusk. British Prime Minister David Cameron's tough-minded austerity plan was somewhat panned by the IMF in Washington, D.C. on Tuesday. (Tanya Talaga/Toronto Star)

Global finance ministers, central bankers, academics and soothsayers have gathered this week in Washington, D.C., at the International Monetary Fund's semi-annual meeting.

The IMF unveiled its report card, of sorts, on the state of the global economy on Tuesday. Some countries were lauded for their economic efforts and others were given a bit of a slap.

Basically, as IMF chief economist Olivier Blanchard described it, the world's economy seems to be operating on three speeds -- emerging and developing nations are moving along, the United States seems to have backed away from the fiscal cliff nicely, and then, there is Europe.

Growth in developing markets should hit 5.3 per cent this year and 5.7 per cent in 2014. In the U.S., growth will be 1.9 per cent this year and 3 per cent next year. And in the eurozone area, growth is -0.3 per cent this year, rising to 1.1 per cent in 2014.

No surprises here -- Germany's economy continues to strengthen, Italy and Spain are expected to have "substantial contractions" this year and France is struggling with poor export performance, low confidence issues and labour reform dilemmas.

"Low growth in the euro core is bad news not only on its own, but is clearly bad news for euro periphery countries which depends very much on the core," Blanchard said during the World Economic Outlook 2013 release.

To reporters, Blanchard made special mention of the United Kingdom, which has followed a harsh austerity agenda - even though the IMF, and others, have warned them to stop because their tough medicine seems to be doing more harm than good.

In the face of "very weak private demand it may be time to consider an adjustment to the initial fiscal consolidation plans which were chosen a few years back."

Translation: It's time for Prime Minister David Cameron to forget this austerity agenda and get back to the drawing board.

Tanya Talaga is the Star's global economics reporter. Follow her on Twitter @tanyatalaga

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