The Slow Recovery Continues
IMF Blog, July 24, 2014
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Bibliographic details
- Authors: Olivier Blanchard
- Published: July 24, 2014
Overview
- The recovery continues, but it remains weak, and "a bit weaker than we forecast in April."
- World growth forecast for 2014 revised from 3.7 percent in April to 3.4 percent.
- This revision reflects the large negative US growth rate in the first quarter and a number of small downward revisions in both advanced and emerging economies.
- Overall narrative:
- Advanced economies: high public and private debt act as brakes; brakes are coming off at different rates across countries.
- Emerging markets: slowing from pre-crisis growth rates; need structural reforms and must manage implications of US monetary policy normalization.
Advanced economies
The United States
- First quarter growth in the US, as currently reported, was far worse than anticipated and appears largely due to one-off factors (inventory correction, unusually bad weather).
- Forecasts:
- US growth for the rest of the year is forecast to be 3.25 percent.
- US growth forecast for 2015 is 3 percent.
- Policy issues and stance:
- Appropriate speed of monetary policy normalization is the main policy question.
- Given unusual labor participation behavior and uncertainty about the equilibrium rate of unemployment, assessing slack is difficult.
- Current plans—end of tapering later this year and increases in the policy rate from the middle of next year—are appropriate, but timing may need adjustment based on inflation and unemployment developments.
- BIS report highlighted potential for excessive risk taking from extended low rates; some financial market valuations "appear perhaps optimistic."
- No systemic threat to financial stability seen overall due to lower leverage in banks and measurable non-banks.
- If risks increase, macroprudential tools should be the first line of defense; readiness to use them should be a policy priority.
The Euro area
- Recovery remains weak; inflation remains too low.
- Forecasts:
- Euro area growth forecast for 2014 is 1.1 percent.
- Euro area growth forecast for 2015 is 1.5 percent.
- Forecasts revised up for Germany, down for France; in the periphery, revised up for Spain, down for Italy.
- Policy needs:
- Demand-side policies remain essential given unemployment far above equilibrium and low Euro-wide inflation.
- Fiscal space is tight; monetary policy must continue to support activity.
- Recent ECB measures are welcome; if inflation remains stubbornly low, more measures should be considered.
- Monetary policy alone is insufficient:
- Asset quality review in European banks is critical to reestablish confidence and improve intermediation.
- Structural measures needed to raise very low potential growth rates, varying by country (re-enfranchising unemployed youth, increasing competition in non-tradable sectors, infrastructure spending).
Japan
- Forecasts:
- Japan growth forecast for 2014 revised upwards to 1.6 percent, reflecting effects of Abenomics and stronger domestic demand including investment.
- Japan growth forecast for 2015 is 1.1 percent, reflecting in part the adverse effects on demand of the planned increase in consumption taxes later in the year.
- Fundamental challenge: decrease public debt and increase growth both in the short and the long run.
Emerging market and developing economies
- Forecasts:
- Growth for emerging market and developing economies forecast at 4.6 percent for 2014 (a revision down of 0.2 percent).
- Growth forecast at 5.2 percent for 2015 (a revision down of 0.1).
- Major country revisions:
- Russia: 2014 growth revised from 1.3 percent to 0.2 percent; 2015 growth revised from 2.3 percent to 1 percent. Revision reflects deterioration of business confidence aggravated by geopolitical tensions, large capital outflows, and a near freeze in investment decisions.
- China:
- Housing investment has slowed; slowdown expected to continue.
- Government has counteracted with targeted stimulus in priority areas (railway investment and social housing), higher credit flows, increasing infrastructure spending, and improving exports.
- Forecast for China this year broadly unchanged at around 7½ percent growth.
- Main challenge: achieve more balanced growth with less investment and more consumption.
- Two forward-looking challenges for emerging and developing economies:
- Implement reforms to rebalance economies and strengthen growth (Mexico noted among countries embarking on ambitious reforms).
- Adapt to changing global environment:
- Recovery in advanced economies increases demand for exports.
- US monetary policy normalization implies some capital flows will return home, leading to tighter financial conditions and a tougher financial environment.
- Foreign investors become less forgiving; macroeconomic weaknesses are more costly.
- Financial bumps, like those seen in May 2013, may occur again.
Policy implications and recommendations
- Advanced economies:
- Continue monetary support where fiscal space is limited.
- Use macroprudential tools as first-line defense if financial risks increase; prepare to deploy them.
- In the Euro area, consider further monetary measures if inflation remains too low; complete and act on asset quality review; implement country-specific structural reforms and infrastructure spending.
- Emerging markets:
- Implement structural reforms to rebalance growth toward consumption and lift potential growth.
- Strengthen resilience to tighter global financial conditions (recognize potential return of capital to advanced economies).
- Prepare for and manage capital flow volatility and potential financial shocks.
Key statistics and forecasts (preserved exactly as in source)
- World growth forecast for 2014: revised from 3.7 percent to 3.4 percent.
- US growth forecast for the rest of the year: 3.25 percent.
- US growth forecast for 2015: 3 percent.
- Euro area growth forecast for 2014: 1.1 percent.
- Euro area growth forecast for 2015: 1.5 percent.
- Japan growth forecast for 2014: 1.6 percent.
- Japan growth forecast for 2015: 1.1 percent.
- Emerging market and developing economies growth forecast for 2014: 4.6 percent (revision down of 0.2 percent).
- Emerging market and developing economies growth forecast for 2015: 5.2 percent (revision down of 0.1).
- Russia growth forecast for 2014: revised from 1.3 percent to 0.2 percent.
- Russia growth forecast for 2015: revised from 2.3 percent to 1 percent.
- China growth for this year: "around 7½ percent growth."
Source: The Slow Recovery Continues — Olivier Blanchard, July 24, 2014
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- 続く緩慢な回復: オリビエ・ブランシャール; iMFdirect ブログ2014年7月24日掲載
