The IMF’s latest World
Economic Outlook (WEO) Update published Thursday says that global recovery continues but at an
uneven pace, and that downside risks remain. The Fund has cut its 2014 forecast
and it said continued policy efforts are needed
to secure a more robust recovery.
Global growth decelerated more than expected in the first quarter of 2014,
largely because of temporary setbacks, including a sharp correction to an
earlier inventory buildup and the effects of a harsh winter on domestic demand
in the United States.
The IMF says growth also disappointed in China as policies were tightened to dampen credit
growth and housing market activity. Growth moderated in other emerging markets
due to softer external demand and also because of slower-than-expected
WEO Update projects that global growth will rebound as the
temporary constraints recede and recent policy actions to support expansion gain
ground. For example, in China, limited stimulus measures have been deployed to
Global growth is projected to rise from 3.2% in 2013 to 3.4% in
2014 and 4.0% in 2015. The forecast is 0.3% weaker for 2014
relative to the April 2014 WEO (see chart above), reflecting actual first-quarter
outcomes and a slower domestic demand path in emerging markets. For 2015, the
forecast is unchanged from the April WEO, as stronger growth in some advanced
economies is expected to offset weaker growth in emerging markets.
Growth in advanced economies is projected to pick up from 1.3%
in 2013 to 1.8% in 2014 and further to 2.4% in 2015.
- In the United States, a rebound in activity is already under way,
but the recovery will provide only a partial offset to the first-quarter
outcome. Growth is projected to average 1.7% in 2014, rising to 3%
- The outlook for the Eurozone is broadly unchanged compared to the
April WEO, but performance will remain uneven across the region. Continued
financial and balance sheet difficulties coupled with high unemployment will
result in weaker growth in some economies.
- In Japan, growth is projected to decelerate slightly in 2015, mostly
due to the planned reversal of the fiscal stimulus that was deployed earlier
Emerging markets and developing economies
- Growth in emerging market and developing economies is expected to
decline from 4.7% in 2013 to 4.6% in 2014 and then accelerate to
5.2% in 2015 on stronger exports.
- Growth in China is forecast to average 7.4% in 2014 as recent
measures boost domestic demand. Growth will moderate to 7.1% in 2015 as
the economy transitions to a more balanced growth path.
- In India, investment is expected to pick up gradually in the rest of
the year, which will offset the weak first-quarter agricultural performance.
- Growth in Brazil is expected to slow in 2014 before recovering in
2015, as investment and consumption continue to be affected by weak confidence
and tight financial conditions.
- Growth will pick up in 2014–15 in Mexico, but the forecast for 2014
is weaker than that in the April WEO, reflecting the delayed U.S. recovery and
softer construction activity.
- Ongoing geopolitical tensions took a sharp toll on domestic demand in the
first quarter of 2014 in Russia. Growth has been revised down and is
expected to remain subdued over 2014-15.
- In South Africa, growth is likely to remain weak because of
electricity constraints and labour strikes.
Downside risks continue to fester, the IMF says. Risks from geopolitical
tensions have risen as those related to Ukraine are still alive and new risks
have emerged in the Middle East.
Financial market volatility could rise with capital flow reversals and the
widening of risk spreads, set off by falling investor appetite or a
sharper-than-expected rise in US long-term rates.
Risks also include a prolonged period of subpar growth arising from
insufficient demand in advanced economies, or from the effects of adverse
financial market conditions on emerging markets. Some economies could also
suffer from persistent weaknesses in investment.
Policy support is needed to achieve a more robust recovery with stronger
actual and potential growth in many economies.
For major advanced economies, the IMF suggests that the supportive
monetary policy stance should continue, with normalization proceeding
gradually—at different speeds in different economies—as economic slack
diminishes. Fiscal adjustment should maintain a balance between supporting
short-term and medium-term growth. Financial regulatory reforms should be
completed, and macroprudential tools should be developed and used to limit
financial instability risks.
Although priorities differ across emerging market and developing
economies, many have limited policy buffers to raise growth if downside
risks materialize. The Update recommends that these economies contain
external vulnerability, including by allowing the exchange rate to adjust to
external financial shocks. Some need to contain fiscal imbalances and
Finally, many economies need to implement structural reforms to lift
investment and growth.