IMF Survey : Global Growth Revised Down, Despite Cheaper Oil, Faster U.S. Growth

IMF News, January 20, 2015

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Global growth forecast at 3.5 percent for 2015, revised down by 0.3 percent.
Global growth projected at 3.7 percent in 2016.
Global growth was 3.3 percent in 2014.
Recent developments: lower oil prices and depreciation of the euro and yen support growth, but persistent negative forces—lingering legacies of the crisis and weak investment—more than offset those gains.

IMF commentary: “At the country level, the cross currents make for a complicated picture.”
Net effects:
- Good news for oil importers; bad news for oil exporters.
- Good news for commodity importers; bad news for commodity exporters.
- Diverging effects depending on links to the euro/yen versus the dollar.

Advanced economies growth projected at 2.4 percent in both 2015 and 2016.
United States:
- 2015 U.S. economic growth revised up to 3.6 percent.
- Drivers: more robust private domestic demand, cheaper oil boosting real incomes and consumer sentiment, accommodative monetary policy despite projected gradual rise in interest rates.
Euro area:
- 2015 growth revised down to 1.2 percent.
- Factors: weaker investment prospects, but supported by lower oil prices, further monetary policy easing, a more neutral fiscal policy stance, and recent euro depreciation.
Japan:
- 2015 growth revised down to 0.6 percent after a technical recession in Q3 2014.
- Expected strengthening in 2015–16 from policy responses, oil price boost, and yen depreciation.

Growth projected at 4.3 percent in 2015 and 4.7 percent in 2016.
Forecasts revised weaker compared with October 2014 WEO. Three main factors:
- China: growth forecast marked down to below 7 percent due to slower investment growth and policy emphasis on reducing vulnerabilities from rapid credit and investment growth.
- Russia: growth forecast downgraded to –3.0 percent for 2015 owing to the economic impact of sharply lower oil prices and increased geopolitical tensions.
- Commodity exporters: projected rebound weaker or delayed; lower oil and other commodity prices harm terms of trade and real incomes, reducing medium-term growth. For many oil importers, more of the windfall gains accrue to governments (for example, in the form of lower energy subsidies), lessening the private-sector boost.

Distribution of risks to global growth is more balanced than in October.
Upside risk: lower oil prices could provide a greater boost than assumed.
Downside risks: possible shifts in sentiment and volatility in global financial markets, especially in emerging market economies.
Risk exposure shifted with oil price fall:
- Increased in oil exporters (external and balance sheet vulnerabilities).
- Declined in oil importers (windfall provided increased buffers).

Need to raise actual and potential growth in most economies via decisive structural reforms.
Macroeconomic policy priorities differ by country group:
- Advanced economies:
- Monetary policy should stay accommodative to prevent real interest rates from rising, including through other means if policy rates cannot be reduced further.
- In some economies, there is a strong case for increasing infrastructure investment.
- Lower oil prices lower inflation and may increase the risk of deflation by lowering inflation expectations.
- Emerging market economies:
- Macroeconomic policy space to support growth remains limited in many cases.
- Lower oil prices can alleviate inflation pressure and external vulnerabilities, giving room for central banks to delay raising policy interest rates.
- Oil exporters:
- Those with accumulated funds from past higher prices can let fiscal deficits increase and draw on these funds for a more gradual public spending adjustment.
- Others can allow substantial exchange rate depreciation to cushion the shock.
- Energy subsidy and tax reform:
- Lower oil prices offer an opportunity to reform energy subsidies and taxes in both oil exporters and importers.
- In oil importers, savings from removing general energy subsidies should be used toward more targeted transfers to protect the poor, lower budget deficits where relevant, and increase public infrastructure if conditions are right.

IMF Survey : Global Growth Revised Down, Despite Cheaper Oil, Faster U.S. Growth — January 20, 2015