The latest monthly briefing on the world economy published by DESA’s Division for Development Policy and Analysis, reveals that weak demand in Europe is dragging down the growth prospects of its trading partners. It also highlights new government bond-buying programmes announced by the European Central Bank (ECB) and the Federal Reserve Bank of the US. A continued slowdown in growth in Brazil is also seen.

The Monthly Briefing on the World Economic Situation and Prospects covers recent events affecting the world economy such as the connection between slowing growth in Europe and weaker exports from Asia. The recessionary environment in Europe is reducing growth prospects for some developing economies as it weakens demand for those economies’ exports. This has been felt most strongly in East and South Asia, where exports to the EU are down by 7.2 per cent year on year, and Western Asia (including Iran) where exports are down 18 per cent.

Both the European Central Bank (ECB) and the Federal Reserve Bank of the United States (the Fed) announced new programmes designed to stimulate their economies and calm financial markets. The ECB announced a programme to buy short term bonds from countries that have signed on to one of the European rescue packages in order to stabilize bond yields and correct some of the divergences in borrowing costs. The Fed will continue “Operation Twist” to extend the maturity of its holdings and will also begin a programme to purchase $40 billion in agency mortgage-backed securities per month.

Growth in the United States decelerated in the second quarter and recent data do not point to a coming rebound. A slowdown in private consumption in the second quarter appears to have contributed to sluggish growth for Japan. A number of countries in South-Eastern Europe as well as some new EU members appear to be in recession as well, as the continued slowdown in the EU as well as drought affecting some countries drag down growth.

In addition, Chinese exports have slowed dramatically, particularly to a number of large trading partners. Finally, Brazil’s economy only grew 0.4 per cent between the first and the second quarter, weighed down by slowing world demand and an end to the commodity price boom.

Source: DESA’s Division for Development Policy and Analysis