IMF: Global growth disappoints, pace of recovery uneven and country-specific
A weak and uneven global economic recovery continues, but reflecting different evolutions across various countries and regions, says the IMF’s latest World Economic Outlook, released on October 7 2014.
The IMF forecasts global growth to average 3.3 per cent in 2014―unchanged from 2013―and to rise to 3.8 per cent in 2015.
The weaker than expected growth outlook for 2014 reflects setbacks to economic activity in the advanced economies during the first half of 2014, and a less optimistic outlook for several emerging market economies, says the report.
Potential growth rates—that is, the pace at which annual output can expand without pushing up inflation—are also being revised down. “These worse prospects are in turn affecting confidence, demand, and growth today,” says Olivier Blanchard, Economic Counsellor and head of the IMF’s Research Department.
Two underlying forces weigh on global recovery, according to Blanchard. “In advanced economies, the legacies of the precrisis boom and the subsequent recession, notably high debt burdens and unemployment, still cast a shadow on the recovery, and low potential growth ahead is a concern.” Several emerging markets are also adjusting to lower potential growth.
Across the globe, investment has been weaker than expected for some time. As a result, “global growth is still mediocre,” says Blanchard.
At the same time, Blanchard notes, economic evolution is becoming more differentiated in major countries and regions, with the pace of recovery reflecting various country-specific conditions.
In advanced economies, growth is forecast to rise to 1.8 per cent in 2014 and 2.3 per cent in 2015.
Much of the projected strengthening in activity reflects faster growth in the United States following a temporary setback in the first quarter of this year. Employment growth has been strong, and household balance sheets have improved amid favourable financial conditions and a recovering housing market.
In the euro area, recent growth disappointments highlight lingering fragilities. A gradual, but weak recovery is projected to take hold, supported by a sharp compression in interest spreads for stressed economies and record-low long-term interest rates in core euro area economies.
In Japan, GDP contracted more than expected in the second quarter of 2014 in the wake of an increase in the consumption tax. Looking ahead, private investment is forecast to recover and growth to remain broadly stable in 2015.
Growth in emerging market and developing economies will continue to account for the lion’s share of global growth. Still, at 4.4 per cent for 2014, the growth forecast is a bit weaker than in the April 2014 IMF World Economic Outlook.
This slowdown is due to lacklustre domestic demand and the impact of increasing geopolitical tensions, especially on Russia and neighbouring countries.
• In China, growth is expected to decline slightly in 2014-15 to 7.4 per cent, as the economy transitions to a more sustainable path. Growth is expected to remain strong elsewhere in emerging and developing Asia.
• In Latin America, the growth rate is forecast to decrease by half this year, to around 1.3 per cent, due to declining exports as well as domestic constraints. Growth is expected to rebound to around 2.2 per cent in 2015.
• In sub-Saharan Africa, stronger growth is expected because of supportive external demand conditions and strong investment demand, although prospects vary across countries.
• In the Middle East and North Africa, the recovery remains fragile even as growth is expected to start picking up modestly on the back of improving domestic security conditions and improving external demand. Similar considerations underpin modest improvements in activity in Russia and other economies of the Commonwealth of Independent States.
(Photo: Piotr Lewandowski)
