## As Demand Improves, Time to Focus More on Supply

_IMF Blog, April 8, 2014_

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## Bibliographic details
- Authors: Olivier Blanchard
- Published: April 8, 2014

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### 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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## References

- [عربي](http://blog-montada.imf.org/?p=2879)
- [October 2013 World Economic Outlook](http://www.imf.org/external/pubs/ft/survey/so/2013/NEW100813A.htm)
- [World Economic Outlook](http://www.imf.org/external/pubs/ft/survey/so/2014/RES040814A.htm)

_Source: https://www.imf.org/en/blogs/articles/2014/04/08/as-demand-improves-time-to-focus-more-on-supply_