IMF World Economic Outlook (WEO) Update -- Growing Pains, July 2013
World Economic Outlook, July 9, 2013
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- Published: July 9, 2013
- Series: World Economic Outlook
Global outlook and key projections
- Global growth is projected to remain subdued at "slightly above 3 percent" in 2013, the same as in 2012.
- Global growth will recover from "slightly above 3 percent in 2013 to 3¾ percent in 2014".
- At "5 percent in 2013 and about 5½ percent in 2014", growth in emerging market and developing economies is expected to evolve at a more moderate pace, "some ¼ percentage points slower than in the April 2013 WEO".
- In China, growth will average "7¾ percent in 2013-14", "¼ and ½ percentage points lower in 2013 and 2014, respectively, than the April 2013 forecast".
- United States: growth is projected to rise from "1¾ percent in 2013 to 2¾ percent in 2014".
- Japan: growth will average "2 percent in 2013, moderating to about 1¼ percent in 2014".
- Euro area: "will remain in recession in 2013, with activity contracting by over ½ percent. Growth will rise to just under 1 percent in 2014".
- World trade and commodity price signals (as reported in Table 1 excerpts):
- Average price of oil in U.S. dollars a barrel was "$105.01 in 2012"; assumed price based on futures markets is "$100.09 in 2013 and $95.36 in 2014".
- Real effective exchange rates are assumed to remain constant at the levels prevailing during "May 6–June 3, 2013".
Recent developments and downside risks
- Financial market volatility increased globally in May and June after a period of calm; longer-term interest rate and financial market volatility have risen in advanced economies.
- Emerging market economies have generally been hit hardest: recent increases in advanced economy interest rates and asset price volatility, combined with weaker domestic activity, have led to "some capital outflows, equity price declines, rising local yields, and currency depreciation".
- Three main factors behind global underperformance versus April projections:
- Continuing growth disappointments in major emerging market economies (infrastructure bottlenecks, capacity constraints, slower external demand growth, lower commodity prices, financial stability concerns, weaker policy support).
- A deeper recession in the euro area driven by low demand, depressed confidence, weak balance sheets, and tight fiscal and financial conditions.
- The U.S. economy expanded at a weaker pace as stronger fiscal contraction weighed on improving private demand.
- New and persistent downside risks include the possibility of a longer growth slowdown in emerging market economies, "risks of lower potential growth, slowing credit, and possibly tighter financial conditions if the anticipated unwinding of monetary policy stimulus in the United States leads to sustained capital flow reversals".
- Forecasts assume recent rise in financial market volatility and associated yield increases will "partly reverse", but note that if underlying vulnerabilities lead to additional portfolio shifts, the result could be "sustained capital flow reversals and lower growth in emerging economies".
Regional and country observations
- BRICS: forecasts for the remaining BRICS have been revised down by "¼ to ¾ percentage points".
- Commodity exporters: outlooks have deteriorated due to lower commodity prices.
- Sub-Saharan Africa: growth will be weaker as some large economies (Nigeria, South Africa) struggle with domestic problems and weaker external demand.
- Middle East and North Africa: growth in some economies remains weak because of difficult political and economic transitions.
Policy recommendations and priorities
- Major advanced economies:
- Maintain a "supportive macroeconomic policy mix", combined with "credible plans for reaching medium-term debt sustainability" and reforms to restore balance sheets and credit channels.
- Continue monetary policy stimulus "until the recovery is well established" given low inflation and sizable economic slack; contain adverse side-effects with regulatory and macroprudential policies.
- Provide "clear communication on the eventual exit from monetary stimulus" to reduce volatility in global financial markets.
- Further progress in financial sector restructuring and reform to "recapitalize and restructure bank balance sheets and improve monetary policy transmission".
- Euro area-specific measures:
- Conduct a "bank asset review" to identify problem assets and quantify capital needs, supported by ESM direct recapitalization where appropriate.
- Make progress toward a fuller banking union, including a strong "Single Resolution Mechanism".
- Implement policies to reduce financial market fragmentation, support demand, and reform product and labor markets to boost growth and job creation.
- Emerging market and developing economies:
- Manage tradeoffs between policies to support weak activity and those to contain capital outflows amid prospects of U.S. monetary policy normalization.
- Use monetary easing as a first line of defense where appropriate, recognizing constraints from low real policy rates, capital outflows, and exchange rate depreciation.
- Strengthen regulatory oversight and macroprudential policies to address potential increases in financial stability risks stemming from legacy rapid credit growth.
- Recognize that lower-than-expected potential output in some economies implies "there may be less fiscal policy space than previously estimated".
- Structural reforms:
- Across all major economies, implement structural reforms to lift global growth and support global rebalancing, including measures to sustainably raise consumption (China) and investment (Germany), and improve competitiveness in deficit economies.
IMF World Economic Outlook Update — Growing Pains, July 2013
Content in this bundle
- Figure 1. Global GDP Growth
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References
- IMF says Emerging Market Slowdown Adds to Global Economy Pains
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