Emerging Market Slowdown Adds to Global Economy Pains

  • IMF projects global growth in 2013 unchanged from 2012 at just over 3 percent
  • Weakness in emerging market economies will dampen global growth prospects
  • Risks to growth remain low in advanced economies but are more worrying in emerging markets
  • Global growth increased only slightly in the first quarter of 2013, instead of accelerating further as expected at the time of the April 2013 WEO. The underperformance was due to continuing growth disappointments in major emerging market economies, a deeper recession in the euro area, and a slower U.S. expansion than expected. By contrast, growth was stronger than expected in Japan.

    Looking ahead, the IMF expects the brakes behind the recent underperformance to ease, but only gradually. Growth in the United States is forecast to rise to rise from 1¾ percent in 2013 to 2¾ percent in 2014, as fiscal consolidation slows and private demand remains solid. In Japan, growth in 2013 is now expected to be 2 percent, up ½ percent from the last WEO, reflecting the boost to confidence and private demand from recent accommodative policies. The euro area is forecast to remain in recession in 2013 before growing again in 2014. Activity in the region continues to suffer from the combined effects of low demand, depressed confidence, financial market fragmentation, weak balance sheets, and fiscal consolidation.

    Growth in emerging market and developing economies is expected to moderate to 5 percent in 2013 and about 5½ percent in 2014, some ¼ percentage point lower than projected in the April 2013 WEO. The weaker prospects reflect, to varying degrees, infrastructure bottlenecks and other capacity constraints, lower export growth, lower commodity prices, financial stability concerns, and, in some cases, weaker monetary policy support. In China, growth will average 7¾ percent in 2013–14, ¼ and ½ percentage point lower in 2013 and 2014, respectively, than in the April 2013 forecast.

    Risks, old and new, still on the downside

    Financial market volatility increased globally in May and June after a period of calm since last summer. Emerging market economies have generally been hit hardest. Recent increases in advanced economy interest rates and asset price volatility combined with weakness in emerging market domestic activity led to some capital outflows, equity price declines, rising local yields, and currency depreciation in the latter.

    The WEO forecast assumes that the rise in volatility and yields will partly reverse, as...

    To continue reading

    Request your trial

    VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT