Growth Slows in Emerging Markets, Picks Up in Advanced Economies

SUMMARY

Moderate growth continues, with global growth forecast to be slightly down for 2015, reflecting an unexpected setback to economic activity in the first quarter of 2015, mostly in North America, says the IMF’s latest WEO Update.

 
FREE EXCERPT

  • Global growth forecast at 3.3 percent this year and 3.8 percent in 2016
  • Improving recovery in advanced economies; slowdown in emerging markets
  • Risks of financial market volatility persist
  • General evolutions are unfolding very much as forecast in April, said Olivier Blanchard, IMF Economic Counselor and Director of Research, “namely, an improving recovery in advanced economies and a slowdown in underlying growth in emerging markets and developing economies.” Forecasts for the world economy are for 3.3 percent this year, marginally lower than in 2014, and 3.8 percent next year (see table).

    “As dramatic as the events in Greece are,” Blanchard said, “effects on the rest of the world economy from the further suffering of the Greek economy are likely to be limited.” Of course, he said, “we continue to hope for and work toward a positive solution by which Greece remains in the Eurozone.”

    As for other developments, the WEO Update says that oil prices rebounded during the second quarter of 2015, the risk of deflation decreased, and financial conditions for corporate and household borrowers in most advanced economies remained broadly favorable.

    Advanced economies are improving

    The increase in global growth in 2015 will be driven by stronger growth in advanced economies. Growth in these economies is forecast to increase from 1.8 percent in 2014 to 2.1 percent in 2015 (falling about 0.3 percentage points short of the forecast in April), and 2.4 percent in 2016. The report notes that the unexpected weakness in North America in early 2015, which accounts for most of the growth forecast revision for 2015, will likely prove to be a temporary setback. The underlying drivers for consumption and investment in the United States—wage growth, labor market conditions, easy financial conditions, lower fuel prices, and a strengthening housing market—remain intact.

    The economic recovery in the euro area is more solidly anchored, with signs of increase in both domestic demand and inflation. Growth projections were revised up for many euro area economies (e.g., Spain, Italy), but in Greece, unfolding developments are likely to take a much heavier toll on activity relative to previous expectations.

    Japan saw a stronger than expected growth in the first quarter of 2015, but much of the surprise reflected inventory accumulation. With weaker underlying momentum in real wages and consumption, the pickup in growth in 2015 is now projected to be more modest.

    Emerging...

    To continue reading

    REQUEST YOUR TRIAL