IMF World Economic Outlook (WEO) Update: An Uneven Global Recovery Continues
World Economic Outlook, July 24, 2014
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- Published: July 24, 2014
- Series: World Economic Outlook
Global outlook and recent revisions
- The global growth projection for 2014 has been marked down by 0.3 percent to 3.4 percent.
- The global growth projection for 2015 remains at 4 percent.
- Global growth moderated in Q1 2014 from an annual rate of 3¾ percent in the second half of 2013 to 2¾ percent—some ½ percentage point lower than the April 2014 WEO forecast.
- Global growth is projected to rise to 3.4 percent in 2014 and 4 percent in 2015 (computed using the new 2011 purchasing power parities).
- Average global growth during 2011–13 was 3.6 percent, some ¼ percentage point higher than the level based on the old PPP weights.
- Over the forecast horizon, global growth in 2014–15 is projected to average 3.7 percent, about 0.1 percentage point higher than the level based on the old weights.
Major advanced economies — projections and drivers
- United States: growth is now projected at 1.7 percent for 2014, rising to 3 percent in 2015. Weak Q1 outcomes reflected a larger-than-expected inventory overhang, a harsh winter, and a sharp decline in exports after a strong Q4 2013.
- Euro area: growth is expected to strengthen to 1.1 percent in 2014 and 1½ percent in 2015, with continued unevenness across the region due to financial fragmentation, impaired balance sheets, and high unemployment in some economies.
- Japan: with stronger-than-expected Q1 performance, growth in 2014 is now projected at 1.6 percent, decelerating to 1.1 percent in 2015, mostly because of the planned unwinding of fiscal stimulus.
- Advanced-economy monetary and financial conditions: long-term interest rates in advanced economies have declined further; indicators of expected price volatility have declined; equity prices have strengthened. The European Central Bank cut its policy rate and deployed other easing measures at its June meeting.
Emerging market and developing economies — projections and country notes
- Emerging market and developing economies: growth is projected to decrease to 4.6 percent in 2014 and then strengthen to 5.2 percent in 2015.
- China: growth in 2014 is projected at 7.4 percent after limited and targeted policy measures; projected to moderate to 7.1 percent in 2015 as the economy transitions to a more sustainable growth path.
- India: growth appears to have bottomed out; activity is projected to pick up gradually after the postelection recovery in business sentiment, offsetting the effect of an unfavorable monsoon on agricultural growth.
- Brazil: marked down for 2014–15 due to tighter financial conditions and continued weakness in business and consumer confidence, which hold back investment and dampen consumption.
- Mexico: weaker construction and a slower U.S. recovery are projected to result in slower growth in 2014 relative to the previous forecast.
- Russia: activity decelerated sharply; investment is expected to remain weaker for longer given geopolitical tensions.
- South Africa: growth is expected to stay sluggish as a result of electricity constraints and labor conflicts.
Key numerical datapoints and prices
- Q1 2014 global annual growth rate: 2¾ percent (down from 3¾ percent in H2 2013).
- Global growth projections: 2014 = 3.4 percent; 2015 = 4 percent.
- United States: 2014 = 1.7 percent; 2015 = 3 percent.
- Euro area: 2014 = 1.1 percent; 2015 = 1½ percent.
- Japan: 2014 = 1.6 percent; 2015 = 1.1 percent.
- Emerging market and developing economies: 2014 = 4.6 percent; 2015 = 5.2 percent.
- China: 2014 = 7.4 percent; 2015 = 7.1 percent.
- Average price of oil (U.S. dollars a barrel): $104.07 in 2013; assumed price based on futures markets is $104.14 in 2014 and $99.62 in 2015.
Downside risks and financial vulnerabilities
- Geopolitical risks have risen since April 2014: higher probability of an oil price spike due to developments in the Middle East; risks related to Ukraine persist.
- Financial market risks include:
- A renewed rise in longer-term interest rates, particularly if U.S. long-term rates increase more sharply and rapidly than expected as monetary policy normalization proceeds.
- A reversal in risk sentiment and a reversal of risk premium compression.
- Sudden worsening of financial conditions and reversal in capital flows for emerging market economies with domestic weaknesses and external vulnerabilities.
- In major advanced economies, a risk of medium-term stagnation remains; in the euro area, adverse domestic or external shocks could lead to persistently lower inflation or price declines.
- Some demand weakness from Q1 appears more persistent—especially in investment globally—which will result in lower global growth in 2014 relative to the April 2014 WEO.
Policy recommendations and priorities
- Monetary policy: should remain accommodative in all major advanced economies, with gradual normalization timed according to prospects for inflation and economic slack.
- Fiscal policy: the pace and composition of fiscal adjustment should be attuned to supporting both the recovery and long-term growth.
- Financial regulation and stability: complete reform of financial regulation; further develop and deploy macroprudential tools to limit financial stability risks related to continued low interest rates.
- Emerging markets with limited policy space: allow exchange rates to respond to changing fundamentals; address inflation pressure and policy credibility where relevant to build monetary policy space.
- Structural reforms: urgently needed in many advanced and emerging market economies to close infrastructure gaps, strengthen productivity, and lift potential growth.
Revised Purchasing Power Parity (PPP) weights — implications
- The WEO estimates use new 2011 ICP PPP weights; global and regional growth figures in this Update are not comparable with figures in the April 2014 WEO.
- The 2011 ICP revisions increase the PPP weight of emerging market and developing economies as a group: their share in global PPP GDP in 2013 rose from 51 percent (2005 survey) to 56 percent (2011 survey).
- Higher PPP weights for emerging markets, combined with stronger real GDP growth relative to advanced economies, imply higher estimated recent global growth and slightly higher projected global growth over 2014–15 relative to old weights.
- When weighted by GDP at market exchange rates, emerging market and developing economies account for less than 40 percent of global GDP, illustrating differences between PPP and market-exchange-rate measures.
IMF World Economic Outlook Update: An Uneven Global Recovery Continues (July 2014).
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