financial stability report - Banka Qendrore e Republikës së Kosovës

Number 3
Financial Stability Report
3. World Economy
Global economic activity is experiencing growth slowdown in 2012. Global economic growth
is estimated to have slowed at 3.3 percent compared to the annual growth of 3.8 percent in
2011. The slowdown in economic growth was more significant in European countries, where
the decline in domestic demand as well as uncertainty caused by fiscal sector during 2012
have contributed to the decline in consumption and investments. Even the developing
countries are expected to be characterized by a slowdown in economic growth, as growth in
domestic demand is expected to be reduced due to tightened monetary policies. According to
IMF projections, in 2012 the United States is expected to expand economic activity with
real GDP growth of 2.2 percent compared with 1.8 percent in 2011. This growth is expected
to be driven mainly by investments which are expected to be 4.6 percent higher compared
with the previous year (Table 1).
Eurozone economy is expected to shrink by 0.4 percent in 2012 compared with the growth of
1.4 percent in 2011. Unlike the U.S., in eurozone the main cause of the recession is
expected to be the investments, which are expected to be reduced by 1.5 percent compared
with the previous year. Almost all the eurozone countries are expected to have a decline or
lower economic growth rate compared to 2011, except Germany, which is expected to have a
positive growth rate of 1.9 percent compared with 1.3 percent in the previous year.
Economic contraction in the eurozone is expected to have consequences on fiscal and
financial sector in the following periods, which will hinder the overcoming of the public debt
crisis and decrease the confidence level in the markets as well as increase the financing cost
and non-performing loans in financial institutions.
Table 1. Main macroeconomic indicators
Description
GDP
Inflation
Current account (% of GDP)
2011 2012 2011 2012 2011 2012
World economy 3.8 3.3 6.9 6.2 0.6 0.3
USA 1.8 2.2 3.1 2.0 -3.1 -3.1
Eurozone 1.4 -0.4 2.7 2.3 0.4 1.1
Developing countries 6.2 5.3 7.2 6.1 1.9 1.3
Central and Southeastern Europe 5.3 2.0 5.3 5.6 -6.1 -5.0
Source: IMF (2012)
Recent global financial crisis was reflected in the continued growth of public debt in
developed countries. Meanwhile, the forecasts on a weaker performance of the real sector in
most developed countries have increased the uncertainty of market participants about the
sustainability of fiscal policy and public debt. Consequently, at the end of 2011, the level of
public debt in the eurozone reached at 87.3 percent of GDP (27.3pp above the Maastricht
criteria), compared with 85.3 percent of GDP recorded in 2010. Data for the end of the first
half of 2012 show a further increase of the public debt, which reached 90.0 percent of GDP.
Almost all countries of the eurozone deepened the level of public debt in the first half of
2012, especially states that already had high level of public debt. On the other hand,
Greece, which has the highest level of public debt in the eurozone, managed to reduce it for
21.0pp (Table 2).
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