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News : Global Economy Last Updated: Oct 7, 2014 - 12:18 PM


Global economic recovery is stalling; Too reliant on US economy
By Finfacts Team
Oct 6, 2014 - 3:00 AM

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The global economic recovery is stalling and too reliant on the US economy, according to the latest Brookings Institution-Financial Times tracking index published days before the annual meetings of the International Monetary Fund and World Bank.

Eswar Prasad, Karim Foda and Arnav Sahu say that the latest release of TIGER (Brookings-FT Tracking Indices for the Global Economic Recovery) paints a grim picture. The world economy is in a parlous state, with just a couple of bright spots discernible through the gloom.

The global economic recovery has stalled and become unbalanced, with the U.S. now the sole major economy still showing signs of strength. Growth in China and many other major emerging markets seems to be losing momentum. The world economy is now being powered along essentially by one engine, with the US business cycle at least temporarily delinking from the rest of the world.

India stands out as one emerging market economy with positive momentum, although coming off a rough period of declining growth. The new government, along with a reform-minded and credible central bank governor, appears to have inspired some confidence—or at least diminished the angst—among domestic and foreign investors. India’s growth prospects have improved in recent months but are likely to remain muted in the absence of broad-ranging structural reforms. Industrial production growth remains weak.

The Brazilian and Russian economies remain in a torpor, implying that overall emerging market growth is likely to remain weak for the remainder of this year. Concerns are also mounting that policy tightening by the Federal Reserve could trigger a pullback of capital flows from the more vulnerable emerging markets, especially those such as Brazil and Turkey that have large current account deficits.

The world economy is now being powered mostly by the US growth engine, a situation that is untenable for a sustained and durable global economic recovery. "To support more balanced growth, other economies will have to start pulling their weight, ideally by generating more domestic demand rather than replying on exports. A revival of growth cannot be engineered just by relying on central banks, a lesson that still seems beyond the grasp of political leaders."

Charts [pdf]

IMF's Lagarde warns of a world stuck in a "mediocre" era of growth


© Copyright 2011 by Finfacts.com

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