Report to Congress on International Economic and Exchange Rate Policies, U.S. Department of the Treasury Office of International Affairs. May 25, 2012
“Global economic growth weakened in the second half of 2011. Strains from Europe’s sovereign debt crisis and stresses in some European banking sectors weighed on confidence and economic activity. In addition, the rise in oil prices in the first half of 2011 weighed on the pace of growth in the latter half of 2011. In emerging markets, the effects of the policy tightening that was introduced in 2011 in response to concerns about inflation also reduced growth. In early 2012, the global environment improved as a result of efforts by central banks, such as the ECBs long-term refinancing operations (LTRO) liquidity injection, and extended policy stimulus from the Federal Reserve, the Bank of Japan, and the Bank of England. In late April, tensions in the euro area sovereign debt market rose again and conditions worsened through mid-May. Risks to the outlook remain elevated. Conditions in Europe continue to pose a risk to the U.S. recovery. European first quarter GDP numbers showed a stabilization in activity across the euro area as a whole, but with marked divergence between the core countries, where output returned to modestly positive growth after a weak fourth quarter, and the periphery, which remained mired in recession. However, the latest high-frequency business surveys (e.g., Purchasing Managers Index (PMI)) indicate that, even in the core economies, growth momentum has begun to slow again. Amidst this deteriorating macro backdrop and ongoing political uncertainty in Greece, market pressures on Spain and Italy have renewed, pushing Spanish longer-term borrowing rates up close to the peaks achieved in the fourth quarter of 2011. While oil prices have moderated recently, the price of oil remains elevated. A reversal of the recent moderation remains a risk to the global outlook.”
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