Global Growth Patterns Shifting, Says IMF WEO

IMF projects global growth at 2.9 percent in 2013, rising to 3.6 percent in 2014

Growth to be driven more by advanced economies; emerging markets weaker than expected

Risks to forecast remain on the downside

Much of the pickup in growth is expected to be driven by advanced economies. Growth in major emerging markets, although still strong, is expected to be weaker than the IMF forecast in its July 2013 WEO Update. This is partly due to a natural cooling in growth following the stimulus-driven surge in activity after the Great Recession. Structural bottlenecks in infrastructure, labor markets, and investment have also contributed to slowdown in many emerging markets.

“This transition is leading to tensions, with emerging market economies facing both the challenge of slowing growth and changing global financial conditions,” said Olivier Blanchard, the IMF’s chief economist and head of the Research Department.

Indeed, these growth transitions, combined with an approaching turning point in U.S. monetary policy, have led to new challenges and risks. In particular, long-term interest rates in the United States and many other economies have increased more than expected. Although the U.S. Federal Reserve recently decided to not slow the pace of its asset purchases yet and capital outflows from emerging markets have subsided somewhat, bond yields remain well above levels of early May. And there is a distinct risk that financial conditions will tighten from their current, still supportive levels.

• In the United States, the projections are based on the key assumption that the ongoing shutdown in the federal government will be short-lived and the debt ceiling will be raised on time. Growth is expected to rise from 1½ percent this year to 2½ percent in 2014 driven by continued strength in private demand, which is supported by a recovering housing market and rising household wealth.

• In the euro area, policy actions have reduced major risks and stabilized financial conditions, although growth in the periphery is still constrained by credit bottlenecks. The region is expected to gradually pull out of recession, with growth reaching 1 percent in 2014.

• In Japan, fiscal stimulus and monetary easing under the authorities’ new policy package—the so-called Abenomics—has enabled an impressive rebound in activity. But the expected unwinding of fiscal stimulus and reconstruction spending together with consumption tax hikes will lower growth from 2 percent...