IMF Survey : Uneven Global Recovery, Complex Underlying Currents
IMF News, April 14, 2015
Source details
- Canonical URL
- IMF Survey : Uneven Global Recovery, Complex Underlying Currents
Other formats
Bibliographic details
- Published: April 14, 2015
World Economic Outlook forecasts and central findings
- Overall global growth forecast: 3.5 percent in 2015 and 3.8 percent in 2016.
- Aggregate forecast masks diverse developments across countries and regions.
- Key structural pressures: legacies of the financial and the euro area crises (weak banks; high levels of public, corporate, and household debt), population aging, lower investment, and sluggish productivity advances—leading to lower potential growth in both advanced and emerging market economies.
- Major distributional forces dominating the current scene: the decline in the price of oil and exchange rate movements.
- Quoted assessment: “A number of complex forces are shaping the prospects around the world,” and “More subdued growth prospects lead, in turn, to lower spending and lower growth today.” — Olivier Blanchard, IMF Economic Counselor and Director of Research.
Advanced economies: rebound and drivers
- Advanced-economy growth projected to increase from 1.8 percent in 2014 to 2.4 percent in 2015.
- United States: growth projected to exceed 3 percent in 2015–16; domestic demand supported by lower oil prices, more moderate fiscal adjustment, and an accommodative monetary policy stance despite projected gradual rise in interest rates and some drag on net exports from recent dollar appreciation.
- Euro area: after weak Q2 and Q3 2014, growth is showing signs of picking up, supported by lower oil prices, low interest rates, and a weaker euro.
- Japan: a weaker yen and lower oil prices expected to lead to a pickup of growth after a disappointing 2014.
- Policy implications for many advanced economies:
- Continued accommodative monetary policy to support activity and lift inflation expectations.
- Increase infrastructure investment where feasible.
- Implement structural reforms to strengthen labor force participation (Japan and the euro area), raise employment, and tackle private debt overhang.
Emerging market and developing economies: slowing and heterogeneity
- Group forecast: growth projected to slow from 4.6 percent in 2014 to 4.3 percent in 2015.
- Notable exception: India (explicitly identified as an important exception to the general slowdown).
- Specific factors weighing on growth:
- Oil price declines sharply slow growth for oil exporters, especially those with difficult initial conditions (e.g., geopolitical tensions in Russia).
- Chinese policy emphasis on reducing vulnerabilities from rapid credit and investment growth likely to slow investment, particularly in real estate.
- Latin America: outlook weakening due to lower commodity prices; Brazil additionally affected by drought, tighter macroeconomic policies, and weak private sector sentiment.
- Oil importers vs. exporters:
- In many emerging market and developing oil importers, windfall gains from lower oil prices are not passed through directly to consumers; benefits may accrue more to governments (for example, savings from lower energy subsidies) and be used to shore up public finances.
- Oil exporters face terms-of-trade shock and greater fiscal and external vulnerabilities; those with fiscal space can allow public spending to adjust gradually; others with some exchange rate flexibility could use depreciation to aid adjustment.
- Low-income countries as a group:
- Growth expected to slow only slightly to 5½percent in 2015, from 6 percent in 2014, and then to rebound in 2016, partly thanks to increased external demand from advanced economy trading partners.
- Structural reform priorities for emerging market and developing economies:
- Ease limits on trade and investment.
- Remove infrastructure bottlenecks (examples cited: India, South Africa).
- Improve business conditions (examples cited: Indonesia and Russia).
- Reforms to education, labor, and product markets to raise labor force participation and productivity (examples cited: Brazil, India, and South Africa).
- Use lower oil prices as opportunity to decrease energy subsidies and replace them with better-targeted programs; reform energy taxation (including in advanced economies).
Risks to the outlook
- Overall: Risks to global growth now more balanced relative to six months ago, but remain tilted to the downside.
- Risk-category shifts: Macroeconomic risks have slightly decreased (example: recession and deflation in the euro area), while financial and geopolitical risks have increased.
- Upside scenario: The decline in oil prices could provide a greater boost to global growth than anticipated.
- Downside risks highlighted:
- A further sharp dollar appreciation could trigger financial tensions elsewhere, particularly in emerging markets.
- Disruptive asset price shifts amid low term and risk premiums in bond markets; as the environment for these asset price configurations—very accommodative monetary policies and large output gaps in advanced economies—is changing, there is scope for surprises and strong market reactions.
- Geopolitical tensions stemming from ongoing events in Ukraine, the Middle East, and West Africa could generate regional and global spillovers.
- Stagnation and low inflation in advanced economies, notwithstanding the recent upgrade to the near-term growth forecasts for some of these economies, could hamper the recovery.
Policy priorities and recommendations
- Urgent need for decisive policies to boost actual and potential output.
- Advanced economies:
- Maintain accommodative monetary policy where needed.
- Increase infrastructure investment and implement structural reforms to address crisis-era weaknesses, generate investment, and boost potential output.
- Prioritize reforms to strengthen labor force participation and overall employment given aging populations; address private debt overhang.
- Emerging market and developing economies:
- Limited macroeconomic policy space in many countries; policy response must be country-specific.
- In oil importers: lower oil prices can reduce inflation pressure and external vulnerabilities; use opportunity to strengthen fiscal positions (especially by reducing energy subsidies).
- In oil exporters: absorb terms-of-trade shock carefully; where fiscal space exists, allow gradual public spending adjustment; where exchange rate flexibility exists, depreciation can aid adjustment.
- Pursue structural reforms to reap productivity gains (trade and investment liberalization, infrastructure, business environment improvements, education, labor, and product market reforms).
- Political economy note: “The proper menu differs by country,” and the short-term political costs of reforms mean the challenge will be to choose carefully among them. — Olivier Blanchard.
IMF Survey : Uneven Global Recovery, Complex Underlying Currents — April 14, 2015.
Content in this bundle
References
- https://www.imf.org/en/News/country-focus
- PRESS CENTER
- In The News
- Read the report
- Watch video
- Read Oliver Blanchard blog
- January 2015 WEO Update
- New reality of lower potential growth
- Blog: No puzzle about weak business investment
- Lagarde speech
- 2015 Spring Meetings
- price of oil
- outlook
- infrastructure investment
- structural reform agenda
- https://www.imf.org/en/home