Global Growth on the Rise but Risks Remain, Predicts IMF WEO

  • IMF projects global growth at 3.7 percent in 2014, rising to 3.9 percent in 2015
  • Growth pickup stronger in advanced economies; higher external demand to benefit emerging markets
  • Downside risks to global growth include low inflation in advanced economies
  • Global activity and world trade picked up in the second half of 2013, as anticipated in the October 2013 World Economic Outlook (WEO). In advanced economies, final demand has increased broadly as expected. In emerging markets, a rebound in exports was the main driver of better activity, while domestic demand generally remained subdued except in China.

    The Update expects the strengthening of activity to carry over into 2014, and projects global growth to increase from 3 percent in 2013 to 3.7 percent in 2014 and 3.9 percent in 2015. “The basic reason behind the stronger recovery is that the brakes to the recovery are progressively being loosened,” said Olivier Blanchard, the IMF’s chief economist and director of its Research Department. “The drag from fiscal consolidation is diminishing. The financial system is slowly healing."

    Around the world

    The overall picture is one of strengthening activity. But the Update also points to important differences across major economies and regions.

    Growth in the United States is expected to be 2.8 percent in 2014, up from 1.9 percent in 2013. This pickup is partly thanks to a reduction in the fiscal drag that will result from the recent budget agreement. But the budget agreement also implies that most of the sequester cuts will remain in place in FY2015, instead of being reversed as assumed in the October 2013 WEO. So growth in 2015 is now expected to be only slightly higher than in 2014.

    The euro area is turning the corner from recession to recovery. Growth is projected to strengthen to 1 percent in 2014 and 1.4 percent in 2015. The pickup will generally be more modest in the European countries that have been facing varying degrees of financial stress (Greece, Spain, Cyprus, Italy and Portugal), where higher exports would help boost growth while high debt, both public and private, and financial fragmentation will hold back domestic demand.

    In Japan, growth is now expected to decelerate in 2014–15 after a strong pickup in 2013. The slowing will be more gradual than expected, with the new temporary fiscal stimulus partly offsetting the drag on demand from the consumption tax increase in early 2014.

    Emerging market and developing economies are expected to...

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