News Column

IMF- Slow but Steady Global Recovery in Need of Strong Policy Support

July 25, 2014



ENP Newswire - 25 July 2014

Release date- 24072014 - The IMF's latest World Economic Outlook (WEO) Update says that global recovery continues but at an uneven pace, and that downside risks remain.

Continued policy efforts are needed to secure a more robust recovery.

Global growth decelerated more than expected in the first quarter of 2014, largely because of temporary setbacks, including a sharp correction to an earlier inventory buildup and the effects of a harsh winter on domestic demand in the United States.

Growth also disappointed in China as policies were tightened to dampen credit growth and housing market activity. Growth moderated in other emerging markets due to softer external demand and also because of slower-than-expected investment growth.

The WEO Update projects that global growth will rebound as the temporary constraints recede and recent policy actions to support expansion gain ground. For example, in China, limited stimulus measures have been deployed to support demand.

Global growth is projected to rise from 3.2 percent in 2013 to 3.4 percent in 2014 and 4.0 percent in 2015. The forecast is 0.3 percent weaker for 2014 relative to the April 2014 WEO (see table), reflecting actual first-quarter outcomes and a slower domestic demand path in emerging markets. For 2015, the forecast is unchanged from the April WEO, as stronger growth in some advanced economies is expected to offset weaker growth in emerging markets.

Advanced economies

Growth in advanced economies is projected to pick up from 1.3 percent in 2013 to 1.8 percent in 2014 and further to 2.4 percent in 2015.

In the United States, a rebound in activity is already under way, but the recovery will provide only a partial offset to the first-quarter outcome. Growth is projected to average 1.7 percent in 2014, rising to 3 percent in 2015.

The outlook for the euro area is broadly unchanged compared to the April WEO, but performance will remain uneven across the region. Continued financial and balance sheet difficulties coupled with high unemployment will result in weaker growth in some economies.

In Japan, growth is projected to decelerate slightly in 2015, mostly due to the planned reversal of the fiscal stimulus that was deployed earlier this year.

Emerging markets and developing economies

Growth in emerging market and developing economies is expected to decline from 4.7 percent in 2013 to 4.6 percent in 2014 and then accelerate to 5.2 percent in 2015 on stronger exports.

Growth in China is forecast to average 7.4 percent in 2014 as recent measures boost domestic demand. Growth will moderate to 7.1 percent in 2015 as the economy transitions to a more balanced growth path.

In India, investment is expected to pick up gradually in the rest of the year, which will offset the weak first-quarter agricultural performance.

Growth in Brazil is expected to slow in 2014 before recovering in 2015, as investment and consumption continue to be affected by weak confidence and tight financial conditions.

Growth will pick up in 2014-15 in Mexico, but the forecast for 2014 is weaker than that in the April WEO, reflecting the delayed U.S. recovery and softer construction activity.

Ongoing geopolitical tensions took a sharp toll on domestic demand in the first quarter of 2014 in Russia. Growth has been revised down and is expected to remain subdued over 2014-15.

In South Africa, growth is likely to remain weak because of electricity constraints and labor strikes.

Downside risks

Downside risks continue to fester, the IMF says. Risks from geopolitical tensions have risen as those related to Ukraine are still alive and new risks have emerged in the Middle East.

Financial market volatility could rise with capital flow reversals and the widening of risk spreads, set off by falling investor appetite or a sharper-than-expected rise in U.S. long-term rates.

Risks also include a prolonged period of subpar growth arising from insufficient demand in advanced economies, or from the effects of adverse financial market conditions on emerging markets. Some economies could also suffer from persistent weaknesses in investment.

Policy implications

Policy support is needed to achieve a more robust recovery with stronger actual and potential growth in many economies.

For major advanced economies, the IMF suggests that the supportive monetary policy stance should continue, with normalization proceeding gradually-at different speeds in different economies-as economic slack diminishes. Fiscal adjustment should maintain a balance between supporting short-term and medium-term growth. Financial regulatory reforms should be completed, and macroprudential tools should be developed and used to limit financial instability risks.

Although priorities differ across emerging market and developing economies, many have limited policy buffers to raise growth if downside risks materialize. The Update recommends that these economies contain external vulnerability, including by allowing the exchange rate to adjust to external financial shocks. Some need to contain fiscal imbalances and inflationary pressures.

Finally, many economies need to implement structural reforms to lift investment and growth.


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: ENP Newswire


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters