## Recovery Strengthening, but Much Work Remains

_IMF Blog, January 21, 2014_

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**Canonical URL:** [Recovery Strengthening, but Much Work Remains](https://www.imf.org/en/blogs/articles/2014/01/21/recovery-strengthening-but-much-work-remains)

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## Bibliographic details
- Authors: Olivier Blanchard
- Published: January 21, 2014

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### Opening remarks and context
- Tribute: remembrance of Wabel Abdallah, IMF resident representative in Afghanistan, killed in the terrorist attack in Kabul.
- Overall framing: update of the World Economic Outlook distilled into three main messages.

### Main messages from the World Economic Outlook update
- Recovery strengthening:
  - World growth: increase from 3% in 2013 to 3.7% in 2014.
  - Advanced economies: increase from 1.3% in 2013 to 2.2% in 2014.
  - Emerging market and developing economies: increase from 4.7% in 2013 to 5.1% in 2014.
- Recovery largely anticipated:
  - Forecast revision for world growth in 2014: revised by just 0.1% relative to the October forecast.
  - Underlying reasons: diminishing drag from fiscal consolidation, slow healing of the financial system, decreasing uncertainty.
- Recovery remains weak and uneven:
  - Stronger in the US than in Europe; stronger in the Euro core than in Southern Europe.
  - Unemployment remains much too high in most advanced economies.
  - Downside risks remain.

### Regional tour d’horizon — key forecasts and observations
- United States:
  - US growth forecast: 2.8% for 2014, compared to 1.9% in 2013.
  - Drivers: strong private demand; December budget agreement limits fiscal consolidation in 2014.
  - Monetary policy: remains very accommodative; focus turning to monetary policy exit; expectation that the policy rate will rise in 2015.
- Japan:
  - Japan grew at 1.7% in 2013; forecast is 1.7% for 2014.
  - Source of growth: largely fiscal stimulus and exports.
  - Policy challenge: need for consumption and investment to take over; challenge of achieving enough fiscal consolidation to reassure debt holders without slowing the recovery.
- Europe (Euro core and UK):
  - UK growth forecast: 2.4% for 2014.
  - Germany growth forecast: 1.6% for 2014.
  - France growth forecast: 0.9% for 2014.
  - Conditions: public debts on sustainable paths in core; fiscal consolidation slowing; favorable credit conditions; confidence remains low in France.
- Southern Europe:
  - 2014: forecast positive growth, but fragile.
  - Dynamics: strong exports versus weak internal demand driven by loops among weak activity, weak banks, weak firms, and fiscal consolidation.
  - Policy implication: sustained growth requires cutting those loops and relying on both external and internal demand.
- Emerging market and developing economies:
  - Growth: lower than in the past but expected to remain high.
  - External influences: benefit from higher advanced-economy growth; face tighter financial conditions as US monetary policy normalizes.
  - IMF view: for most countries, higher advanced growth will dominate tighter financial conditions.
  - Domestic challenge highlighted: China needs to contain building risks in the financial sector without excessively slowing growth.

### Risks to the outlook and policy priorities
- Monetary policy normalization risks:
  - Normalizing policy in advanced economies could produce complex and sometimes disruptive capital movements across countries.
  - Emerging market economies with weak macro frameworks are most vulnerable.
  - Required responses: clear communication by advanced-economy central banks; stronger domestic policies in stressed emerging market economies.
- Deflation risk in the Euro area:
  - Baseline: forecasts for low but positive inflation in the Euro area.
  - Risk scenario: inflation could turn into deflation, which would raise real interest rates, increase public and private debt burdens, lower demand and growth, and generate further deflationary pressure.
  - Policy priorities to avoid deflation: accommodative monetary policy by the ECB; strengthening of banks’ balance sheets.
  - Operational priority: carrying out the balance sheet assessment and stress test process now under way is highlighted as possibly the most important short-term task facing the Euro area.
- Summary judgment:
  - Recovery is indeed strengthening, but much work remains to address unevenness, financial vulnerabilities, and macroeconomic risks.

*Source: “Recovery Strengthening, but Much Work Remains,” Olivier Blanchard, January 21, 2014.*

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## References

- [عربي](http://blog-montada.imf.org/?p=2686)
- [Wabel Abdallah](http://www-stg-ext.imf.org/external/pubs/ft/survey/so/2014/NEW012214A.htm)

_Source: https://www.imf.org/en/blogs/articles/2014/01/21/recovery-strengthening-but-much-work-remains_