Recovery Strengthening, but Requires Stronger Policy Effort

Global economy to grow 3.6 percent in 2014 and 3.9 percent in 2015

Pick up in advanced economies but global recovery still uneven and subpar

Risks include low inflation, potential capital flow reversals, and geopolitical uncertainties

The IMF forecasts global growth to average 3.6 percent in 2014―up from 3 percent in 2013―and to rise to 3.9 percent in 2015.

The strengthening of the recovery from the Great Recession in the advanced economies is a welcome development, according to IMF staff. But the latest WEO also emphasizes that growth remains subpar and uneven across the globe.

“The recovery which was starting to take hold in October is becoming not only stronger, but also broader,” said Olivier Blanchard, Economic Counsellor and head of the IMF’s Research Department. “Although we are far short of a full recovery, the normalization of monetary policy—both conventional and unconventional—is now on the agenda.”

Blanchard cautioned, however, that while “acute risks have decreased, risks have not disappeared”.

In this setting, the global economy is still fragile despite improved prospects, and important risks—both old and new—remain. Risks identified previously include finishing the financial sector reform agenda, high debt levels in many countries, stubbornly high unemployment, and concerns about emerging markets.

New worries on the horizon include persistently low inflation in advanced economies, a weaker outlook for emerging markets than thought in the second half of last year, and recent geopolitical strains. Against this background, the WEO underscores that stronger policy efforts are needed to fully restore confidence and ensure a durable and sustained global recovery.

Overall, the outlook remains broadly unchanged from the October 2013 WEO (see table).

Advanced economies strengthening

• A major impulse to global growth has come from the United States, where annual growth in 2014–15 is projected to be above trend at about 2¾ percent. More moderate fiscal consolidation helps; support also comes from accommodative monetary conditions, a recovering real estate sector, and higher household wealth.

• In the euro area, growth has turned positive. Across the euro area, a strong reduction in the pace of fiscal tightening is expected to help lift growth. Outside the core euro area, contributions from net exports have helped the turnaround, as has the stabilization of domestic demand. However, growth in demand is expected to remain...