IMF Survey : Policy Actions Improve Prospects for Global Economy

IMF News, April 16, 2013

Source details

Canonical URL: IMF Survey : Policy Actions Improve Prospects for Global Economy

The WEO forecasts real global GDP growth of 3.3 percent on an annual average basis in 2013, about the same as the 3.2 percent growth seen in 2012, and expects growth to rise to 4 percent in 2014.
Growth in emerging market and developing economies is expected to strengthen from about 5 percent in 2012 to 5¼ percent in 2013 and 5¾ percent in 2014.
Over 2013–14, divergences between advanced economies are projected to narrow, assuming policymakers deliver on their commitments, with a strengthening of real GDP growth in advanced economies from the second half of 2013.

The IMF describes the global recovery as having moved "from a two-speed recovery to a three-speed recovery."
United States:
- Private demand has been showing strength as credit and housing markets heal.
- Larger-than-expected fiscal adjustment is projected to keep real GDP growth to about 2 percent in 2013.
Euro area:
- Real GDP is projected to contract by about ¼ percent this year before growing again in 2014.
- Credit channels are broken: better financial conditions are not yet passing through to companies and households because banks are still hobbled by poor profitability and low capital.
- Other brakes on growth include continued fiscal adjustment, competitiveness problems, and balance sheet weaknesses.
Japan:
- New fiscal and monetary stimulus is expected to drive a rebound in activity, with real GDP growth reaching 1½ percent in 2013.
The WEO notes that fiscal brakes in some advanced economies and uneven benefits from improved financial market conditions explain why advanced economies have not all benefited equally.

These economies are identified as "persisting in leading global growth."
Activity has picked up after a slowdown in 2012 due to resilient consumer demand, supportive macroeconomic policies, and a revival of exports.
Emerging Europe: the recovery should gain speed as demand from advanced economies in Europe picks up.
Some economies in the Middle East and North Africa continue to struggle with difficult internal transitions.

Short-term risk picture has improved due to policy actions in Europe and the United States, but dangers remain.
Euro area downside risks: adjustment fatigue, weak balance sheets, broken credit channels in the periphery, and insufficient progress toward stronger economic and monetary union.
United States downside risks: larger-than-expected fiscal adjustment from automatic spending cuts (the so-called budget sequester) or failure to raise the debt ceiling.
Medium-term downside risks include:
- Absence of strong fiscal consolidation plans in the United States and Japan.
- High private sector debt, limited policy space, and insufficient institutional progress in the euro area, potentially leading to a protracted period of low growth.
- Distortions from easy and unconventional monetary policy in major advanced economies.
- Overinvestment and high asset prices in many emerging market and developing economies.

Policymakers cannot relax their efforts; fiscal, monetary, and financial policies must be appropriately calibrated.
Advanced economies:
- Fiscal adjustment must progress gradually to limit short-term damage to demand given risks from high sovereign debt and limited fiscal room.
- Monetary policy must remain supportive of private demand.
- Financial policies need to improve the pass-through of monetary policy.
- The United States and Japan should design and implement comprehensive medium-term deficit-reduction plans; this is described as an urgent requirement for Japan given risks from renewed fiscal stimulus combined with very high public debt levels.
- Structural reforms to rebuild competitiveness and boost medium-term growth prospects are critical for many euro area economies, alongside further progress on architecture reforms to complete the economic union.
Emerging market and developing economies:
- Need to tighten policies and rebuild buffers.
- Tightening should begin with monetary policy and, when needed, be supported with prudential measures to rein in budding excesses in financial sectors.
- Fiscal balances should be returned to levels that afford ample room ("buffers") for policy maneuver should growth fall below trend in the future.

Global growth: 3.3 percent in 2013; 4 percent in 2014.
Global growth in 2012: 3.2 percent.
United States real GDP growth projected: about 2 percent in 2013.
Euro area real GDP projected change in 2013: contract by about ¼ percent.
Japan real GDP growth projected in 2013: 1½ percent.
Emerging market and developing economies growth: about 5 percent in 2012; 5¼ percent in 2013; 5¾ percent in 2014.

IMF Survey : Policy Actions Improve Prospects for Global Economy — April 16, 2013, IMF Research Department