As Demand Improves, Time to Focus More on Supply

IMF Blog, April 8, 2014

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As Demand Improves, Time to Focus More on Supply

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• Authors: Olivier Blanchard
• Published: April 8, 2014

Recovery and Growth Forecasts

• World growth forecast: 3.6 percent this year and 3.9 percent next year, up from 3.0 percent last year.
• Advanced economies: growth forecast to reach 2.2 percent in 2014, up from 1.3 percent in 2013.
• United States: growth forecast to be 2.8 percent in 2014.
• United Kingdom: growth forecast to be 2.9 percent in 2014.
• Germany: growth forecast to be 1.7 percent in 2014.
• Japan: growth forecast to be 1.4 percent in 2014; fiscal stimulus has played a large role and recovery strength depends on private demand.
• Euro area southern periphery: for the first time in two years, forecast to have positive growth (described as low); exports generally strong but internal demand still weak.
• Emerging and developing economies: growth forecast to reach 4.9 percent this year, slightly up from 4.7 percent last year.
  • China: growth forecast of 7.5 percent.
  • India: growth forecast of 5.4 percent.
  • Sub Saharan Africa: growth forecast of 5.4 percent.

Evolving Macroeconomic Environment and Risks

• Key improvements noted:
  • Fiscal consolidation is slowing.
  • Investors are less worried about debt sustainability.
  • Banks are gradually becoming stronger.
  • Normalization of monetary policy—both conventional and unconventional—is now on the agenda.
• Recovery remains uneven; brakes are loosened at different paces across countries.
• External environment for emerging markets:
  • Stronger growth in advanced economies implies increased demand for exports.
  • Normalization of U.S. monetary policy implies tighter financial conditions and a tougher financial environment.
  • Foreign investors are less forgiving; macroeconomic weaknesses are more costly.
  • Financial bumps like those seen last summer and earlier this year may recur.
• Residual and acute risks:
  • Japan needs "all three arrows" to sustain growth and maintain fiscal sustainability.
  • Adjustment and recovery in southern Euro countries are not guaranteed, especially if Euro area inflation remains very low or turns to deflation.
  • Financial reform is incomplete and the financial system remains at risk (as discussed in the Global Financial Stability Report).
  • Geopolitical risks have arisen but have not yet had global macroeconomic repercussions.

Supply-Side Focus: Three Core Points and Policy Implications

• Overarching message: As demand conditions improve, policy focus must increasingly shift to the supply side.

• Point 1 — Low potential growth in many advanced economies:
  • Consequence: Low potential growth makes fiscal adjustment more difficult.
  • Policy responses suggested:
  • Rethink the shape of some labor market institutions.
  • Increase competition and productivity in a number of non-tradable sectors.
  • Rethink the size of the government.
  • Reexamine the role of public investment.

• Point 2 — Potential growth in emerging markets:
  • Observation: Evidence is not yet clear, but potential growth in many emerging market economies appears to have decreased.
  • Country distinctions:
  • In some countries (e.g., China), lower growth may partly reflect a desirable byproduct of more balanced growth.
  • In other countries, there is scope for structural reforms to improve outcomes.
  • Implication: Structural reforms in emerging markets deserve attention to raise potential growth where needed.

• Point 3 — Rising inequality as a forthcoming macroeconomic theme:
  • Trend: As effects of the financial crisis diminish, rising inequality may come to dominate.
  • Implication: How inequality affects the macroeconomy and the design of macroeconomic policy will likely become increasingly important on the policy agenda for a long time.

Ancillary

• Embedded video referenced: http://www.youtube.com/watch?v=2GEVhrMD5K4

Source: Olivier Blanchard, April 8, 2014 — "As Demand Improves, Time to Focus More on Supply" (IMF blog).

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• 需要は改善、供給サイドをより重視すべき: オリビエ・ブランシャール iMFdirect ブログ 2014年4月8日掲載
  • 需要は改善、供給サイドをより重視すべき: オリビエ・ブランシャール iMFdirect ブログ 2014年4月8日掲載 (Markdown version)
  • 需要は改善、供給サイドをより重視すべき: オリビエ・ブランシャール iMFdirect ブログ 2014年4月8日掲載 (PDF)
• Спрос улучшается, пришло время уделять больше внимания предложению
  • Спрос улучшается, пришло время уделять больше внимания предложению (Markdown version)
  • Спрос улучшается, пришло время уделять больше внимания предложению (PDF)

References

• عربي
• October 2013 World Economic Outlook
• World Economic Outlook