## Four Forces Facing the Global Economy

_IMF Blog, April 14, 2015_

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**Canonical URL:** [Four Forces Facing the Global Economy](https://www.imf.org/en/blogs/articles/2015/04/14/four-forces-facing-the-global-economy)

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## Bibliographic details
- Authors: Olivier Blanchard
- Published: April 14, 2015

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### Overview and headline forecasts (World Economic Outlook, April 2015)
- Global growth forecast: "roughly the same this year than last year, 3.5% versus 3.4%."
- Advanced economies growth: "2.4% versus 1.8%."
- Emerging market and developing economies growth: "4.3% versus 4.6% last year."
- Overall characterization: growth is “moderate and uneven”.

### Legacies from crises
- Persisting legacies from the financial and euro crises in many advanced economies:
  - Weak banks and high levels of debt—public, corporate, or household—still weigh on spending and growth.
  - Low growth slows deleveraging: "Deleveraging will take time."

### Decline in potential growth
- Pre-crisis trend: potential growth in advanced economies was already declining due to aging and a slowdown in total productivity.
- Crisis effects: large decrease in investment led to lower capital growth; capital growth will recover, but aging and weak productivity will continue to limit growth.
- Emerging markets: decline in potential growth is more pronounced—"aging, lower capital accumulation and lower productivity growth are combining to significantly lower potential growth in the future."
- Conclusion: prospects are "more subdued" (but "It would be wrong to speak, as some have done, of stagnation").

### Oil price decline and real income reallocation
- The decline in the price of oil has produced a "large reallocation of real income from oil exporters to oil importers."
- Early evidence:
  - In oil importers (United States, euro area, China, India), the increase in real income is increasing spending.
  - Oil exporters have cut spending but to a smaller extent because many "have substantial financial reserves and are in a position to reduce spending slowly."

### Exchange rate movements
- Exchange rate volatility described as "unusually large":
  - The dollar has seen a major appreciation.
  - The euro and the yen have seen major depreciations.
- These movements reflect differences in monetary policy:
  - United States expects to exit "the zero lower bound this year."
  - No such prospects for the euro area or Japan.
- Implications:
  - Euro and yen depreciations will help those economies if they were at risk of another relapse.
  - The United States "has the policy room to offset the adverse effects of the dollar appreciation."
  - Net assessment: "this adjustment of exchange rates must be seen, on net, as good news for the world economy."

### Combined effects and diversity of outcomes
- Heterogeneous impacts across countries:
  - Some countries face adverse legacies; others do not.
  - Some countries face lower potential growth; others do not.
  - Some countries gain from lower oil prices; others lose.
  - Currency movements differ across countries (dollar-linked vs euro/yen-linked).
  - Idiosyncratic developments (e.g., economic trouble in Russia, weakness of Brazil) add to diversity.
- Baseline forecasts: increase in growth in advanced economies and decrease in growth in emerging markets and developing economies, but these aggregates "do not do full justice to the diversity of underlying evolutions."

### Risks to the outlook
- Overall assessment: "macroeconomic risks as having slightly decreased."
  - Major risk last year—a recession in the Euro area—has decreased.
  - Risk of deflation has decreased.
- Rising risks:
  - Financial and geopolitical risks have increased.
  - Large movements in relative prices (exchange rates, oil price) create losers and winners; energy companies and oil-producing countries face tougher conditions and higher risks.
  - Continued large exchange rate movements could create further financial risks and ignite international tensions.
  - A Greek crisis "cannot be ruled out" and could unsettle financial markets.
  - Turmoil continues in Ukraine and in the Middle East, "although so far without systemic economic implications."

### Policy recommendations (general principles)
- Policy advice must be country-specific given diverse situations.
- General principles that "continue to hold":
  - Sustain growth in the short and longer term.
  - Monetary policy in advanced economies has "largely accomplished what it can" with the introduction of quantitative easing in the euro area.
  - Fiscal policy: the decrease in the price of oil creates an opportunity to decrease energy subsidies and replace them with better-targeted programs.
  - Infrastructure investment: the case for more infrastructure investment "we made in the previous World Economic Outlook remains."
  - Structural reforms: cannot do miracles but can increase the level of output and increase growth for some time; "The proper menu differs by country."
  - Political economy: given short-term political costs of many reforms, "the challenge remains to choose carefully, and to implement them."

*Olivier Blanchard, April 14, 2015*

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## References

- [عربي](http://blog-montada.imf.org/?p=3618)
- [World Economic Outlook](http://www.imf.org/external/pubs/ft/weo/2015/01/)
- [last week](http://www.imf.org/external/np/speeches/2015/040915.htm)
- [numbers](http://www.imf.org/external/pubs/ft/survey/so/2015/NEW041415A.htm)
- [https://www.imf.org/wp-content/uploads/2015/04/weo_tbl_0415.jpg](https://www.imf.org/wp-content/uploads/2015/04/weo_tbl_0415.jpg)
- [Potential growth](http://www.imf.org/external/pubs/ft/survey/so/2015/NEW040715A.htm)
- [infrastructure investment](http://blogs.imf.org/2014/09/30/now-is-a-good-time-to-invest-in-infrastructure/)

_Source: https://www.imf.org/en/blogs/articles/2015/04/14/four-forces-facing-the-global-economy_