The World’s Three-Speed Economic Recovery
IMF Blog, April 16, 2013
Source details
- Canonical URL
- The World’s Three-Speed Economic Recovery
Other formats
Bibliographic details
- Authors: Olivier Blanchard
- Published: April 16, 2013
Overview and main thesis
- The recovery has shifted from a two-speed to a three-speed pattern: emerging market and developing economies; the United States; and the Euro area.
- Emerging market and developing economies are "still going strong"; advanced economies show a growing bifurcation between the United States and the Euro area.
- Japan is following a distinct path driven by aggressive macro policy, making the characterization closer to "three and a half" speeds.
Key growth forecasts and country figures
- Emerging market and developing economies: growth is forecast to reach 5.3% in 2013, and 5.7% in 2014.
- United States: growth is forecast to be 1.9% in 2013, and 3.0% in 2014.
- Euro area: growth is forecast to be -0.3% in 2013, and 1.1% in 2014.
- Germany: forecast growth is 0.6% in 2013.
- France: growth is forecast to be slightly negative in 2013.
- Italy and Spain: expected to have substantial contractions in 2013.
- Japan: forecast growth is 1.4% for 2013.
- China: forecast growth is 8.0% in 2013.
- India: forecast growth is 5.7% in 2013.
- Brazil: forecast growth is 3.0% in 2013.
- United States fiscal consolidation noted as "about 1.8% of GDP."
Analysis of drivers and risks
- United States
- Underlying private demand described as "actually strong" due to anticipation of low policy rates under the Fed’s "forward guidance", improving banking conditions, and pent up demand for housing and for durables.
- 2013 growth of 1.9% is insufficient to make a large dent in high unemployment.
- The sequester is characterized as "the wrong way to proceed"; recommended approach is "both less and better fiscal consolidation now, and a commitment to more fiscal consolidation in the future."
- Euro area
- Negative growth reflects weaknesses in both periphery and core countries.
- Low growth in the euro core is "bad news on its own, and bad news for the euro area periphery countries."
- Adverse feedback loops exist among weak banks, weak sovereigns, low activity, and low confidence.
- Interest rates facing borrowers in periphery countries remain too high to secure recovery.
- Japan
- New policy combines "aggressive quantitative easing, a positive inflation target, fiscal stimulus, and structural reforms."
- Policy will boost growth in the short run, but fiscal stimulus without a medium-run consolidation plan is risky given "the very high level of public debt" and could raise the probability that investors require a risk premium, threatening debt sustainability.
- Emerging markets
- High commodity prices, low interest rates, and large capital inflows historically lead to credit booms and overheating; so far policymakers have generally succeeded in keeping aggregate demand in line with potential.
- Potential growth has declined in a number of emerging economies; past high growth rates are unlikely to return.
- Fundamentally attractive prospects plus low interest rates in advanced economies are likely to lead to continuing net capital inflows and exchange rate pressure—described as "fundamentally desirable" and part of necessary global rebalancing.
- Capital flows can be volatile; the challenge is to accommodate underlying trends while reducing volatility when flows threaten economic or financial stability.
Policy recommendations and priorities
- United States
- Define the right path of fiscal consolidation: reduce government debt and deficits.
- Favor "less and better fiscal consolidation now" combined with a commitment to more consolidation in the future.
- Euro area
- Continue institutional progress (noting prior steps such as a road map for a banking union and the Outright Monetary Transaction program).
- Take further and urgent measures to strengthen banks without weakening sovereigns.
- Allow automatic stabilizers to operate where scope exists; in some countries with fiscal space, reconsider the speed of fiscal adjustment and potentially go beyond automatic stabilizers.
- Emerging market countries
- Manage capital inflows: accommodate desirable underlying trends while reducing flow volatility when it threatens stability.
Concluding assessment
- Recent improving news on the United States has renewed worries about the euro area.
- An uneven, connected global recovery is dangerous: "the world economy is as weak as its weakest link."
- While some tail risks have decreased, it "is not time for policy makers to relax."
Olivier Blanchard — April 16, 2013
Content in this bundle
- iMFdirect 博客: 全球三速经济复苏, 2013年4月16日
- 三極化した世界経済の回復; オリビエ・ブランシャール; iMF direct ブログ 2013年4月16日掲載
- Трехскоростной подъем экономики; Оливье Бланшар; Блог iMFdirect; 16 апреля 2013 года