The recent IMF World economic outlook published on 25^th April is likely to give mixed signals to investors concerning future economic outlook. The good news is that the global economy is on its way to a recovery. However, this recovery appears to be gradual and fragile with the report hinting that “downside risks remain elevated”. The weak recovery mostly alludes to the sluggish growth of developed countries and the fear of another downturn is mostly based on the fears concerning the ongoing Euro Zone crisis. As the United States shows signs of recovery, the same story does not ring true throughout the developed nations. The IMF report forecasts that the Euro zone is expected to go into a mild recession in 2012 and points that this is an “immediate concern”.

Almost in tandem with the IMF report, Standard and Poor’s has downgraded Spain’s credit rating from A to BBB+ in light of growing concerns that the Spanish government is not likely to make substantial progress in reducing their debt despite austerity measures. The IMF report brings into light that further austerity are required in the Euro Zone, but the few measures taken have already been met with “unreceptive” response by their citizens especially in countries like Greece, Spain and England instigating civil unrest. The IMF claims that the current reaction by the Euro zone in curbing the problem might prove insufficient and too late, and that “almost certainly, a further financial crisis will have to be the trigger that actually results in timely and strong actions being taken.”

Geopolitically speaking, the report also paints a somber picture with fears of conflict in the Middle East which could further put pressures on oil prices and seriously hamper the “fragile” global recovery. IMF is also concerned with the increasingly polarized nature of American politics which will make any effort at re-allocation of wealth in the country increasingly difficult.

However, the report is not all bad.  The IMF claims that economic growth in the developing and emerging nations is “relatively solid”. In light of the weak recovery in the developed countries, this “solid” growth is certainly contingent on the continuation of the recovery in the US and the Euro Zone. The bottom line of the report is that the Euro Zone needs to get its act together quick or else risk plunging the world economy back into a recession.