April 16, 2013 2:00 pm
IMF cuts global economic Outlook
The International Monetary Fund warned that an “uneven recovery is also a dangerous one” for the global recovery as it again downgraded its growth forecasts for 2013, while holding out the prospect of relief late in the year.
In its twice-yearly World Economic Outlook, the fund outlined high medium-term risks stemming from doubts about the eurozone’s ability to claw its way out of its crisis and in US and Japanese ability to reduce public sector deficits and debt.
But the IMF recognised that short-term perils had abated as financial markets approved of the eurozone’s crisis management last year and the US authorities’ willingness to come to arrangements to limit planned dangerously rapid fiscal tightening.
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Highlighting the differential outlook for countries’ economic prospects, Olivier Blanchard, chief economist of the IMF, said: “Given the strong interconnections between countries, an uneven recovery is also a dangerous one. Some tail risks have decreased, but it is not time for policy makers to relax”.
Mr Blanchard also repeated the recent comments by Christine Lagarde, IMF’s managing director, that there was now a “three-speed” global economy. “Emerging market and developing economies are still going strong, but in advanced economies, there appears to be a growing bifurcation between the United States on one hand and the eurozone on the other,” he noted.
The IMF revised down its 2013 global growth forecast 0.2 percentage points to 3.3 per cent and kept the 2014 forecast constant at 4 per cent. The downward revision was shared among emerging and advanced economies, with the exception of Japan, where the IMF became markedly more optimistic following the strenuous efforts of Tokyo to defeat deflation through its revolution on monetary policy.
The IMF expects the US to grow 1.9 per cent this year and 3 per cent next, while the eurozone will contract 0.3 per cent in 2013 and grow only 1.1 per cent in 2014.
The downgrades to 2013 growth, however, were almost entirely the result of bad figures for the end of last year and the fund was optimistic that a stronger recovery was now in train. While it said the recovery would be bumpy, the IMF said “global economic prospects have improved again”, adding “activity is expected to gradually accelerate starting in the second half of 2013”.
Even in the eurozone, the IMF expected growth to pick up modestly as fiscal tightening would prove to be a more modest headwind in 2013 and 2014.
Leading the global recovery are emerging economies, the IMF said. Even though the annual rate of Chinese economic growth slowed to 7.7 per cent in the first quarter of 2013, the fund expects the world’s second-largest economy to achieve 8 per cent growth in 2013 and 8.2 per cent in 2014, both better than 2012, although significantly slower than what China achieved for much of the past decade.
And in many of the poorest developing countries, the prospects were better than they had been in China and the large emerging economies when they had similarly low levels of development. “The prospects of many of today’s dynamic low-income countries appear stronger than those of their peers during the 1960s and 1970s,” the WEO said.
Hampered by divergences in growth rates around the world, the fund was pleased that it saw global trade imbalances continuing to moderate, not solely because demand in countries with high rates of imports were weak.
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This improvement in global imbalances was reflected in a softening of its concern about currencies. It said the US dollar and the euro were “moderately overvalued and the renminbi moderately undervalued”. It had no concerns about Japanese monetary policy pushing the yen down too far, saying that “complaints about competitive exchange rate depreciations appear overblown”.
While it said there was “no silver bullet” that could simultaneously solve problems of deficient demand and high public debt in any country, it recommended the US and Japan work harder to sort out their medium-term budget deficits. In the eurozone, it urged countries with “fiscal space”, code for Germany, to ease further and it called on Britain to “consider” less austerity.
While the IMF said central banks should consider what more they could do to underpin the recovery, it acknowledged that there were concerns that the extraordinary stimulus of recent years might be building some difficult side effects, such as emerging market companies increasing foreign currency borrowing, making the eventual exit towards more normal policy difficult.
Copyright The Financial Times Limited 2013
In its twice-yearly World Economic Outlook, the fund outlined high medium-term risks stemming from doubts about the eurozone’s ability to claw its way out of its crisis and in US and Japanese ability to reduce public sector deficits and debt.
But the IMF recognised that short-term perils had abated as financial markets approved of the eurozone’s crisis management last year and the US authorities’ willingness to come to arrangements to limit planned dangerously rapid fiscal tightening.
Highlighting the differential outlook for countries’ economic prospects, Olivier Blanchard, chief economist of the IMF, said: “Given the strong interconnections between countries, an uneven recovery is also a dangerous one. Some tail risks have decreased, but it is not time for policy makers to relax”.
Mr Blanchard also repeated the recent comments by Christine Lagarde, IMF’s managing director, that there was now a “three-speed” global economy. “Emerging market and developing economies are still going strong, but in advanced economies, there appears to be a growing bifurcation between the United States on one hand and the eurozone on the other,” he noted.
The IMF revised down its 2013 global growth forecast 0.2 percentage points to 3.3 per cent and kept the 2014 forecast constant at 4 per cent. The downward revision was shared among emerging and advanced economies, with the exception of Japan, where the IMF became markedly more optimistic following the strenuous efforts of Tokyo to defeat deflation through its revolution on monetary policy.
The IMF expects the US to grow 1.9 per cent this year and 3 per cent next, while the eurozone will contract 0.3 per cent in 2013 and grow only 1.1 per cent in 2014.
The downgrades to 2013 growth, however, were almost entirely the result of bad figures for the end of last year and the fund was optimistic that a stronger recovery was now in train. While it said the recovery would be bumpy, the IMF said “global economic prospects have improved again”, adding “activity is expected to gradually accelerate starting in the second half of 2013”.
Even in the eurozone, the IMF expected growth to pick up modestly as fiscal tightening would prove to be a more modest headwind in 2013 and 2014.
Leading the global recovery are emerging economies, the IMF said. Even though the annual rate of Chinese economic growth slowed to 7.7 per cent in the first quarter of 2013, the fund expects the world’s second-largest economy to achieve 8 per cent growth in 2013 and 8.2 per cent in 2014, both better than 2012, although significantly slower than what China achieved for much of the past decade.
And in many of the poorest developing countries, the prospects were better than they had been in China and the large emerging economies when they had similarly low levels of development. “The prospects of many of today’s dynamic low-income countries appear stronger than those of their peers during the 1960s and 1970s,” the WEO said.
Hampered by divergences in growth rates around the world, the fund was pleased that it saw global trade imbalances continuing to moderate, not solely because demand in countries with high rates of imports were weak.
.
This improvement in global imbalances was reflected in a softening of its concern about currencies. It said the US dollar and the euro were “moderately overvalued and the renminbi moderately undervalued”. It had no concerns about Japanese monetary policy pushing the yen down too far, saying that “complaints about competitive exchange rate depreciations appear overblown”.
While it said there was “no silver bullet” that could simultaneously solve problems of deficient demand and high public debt in any country, it recommended the US and Japan work harder to sort out their medium-term budget deficits. In the eurozone, it urged countries with “fiscal space”, code for Germany, to ease further and it called on Britain to “consider” less austerity.
While the IMF said central banks should consider what more they could do to underpin the recovery, it acknowledged that there were concerns that the extraordinary stimulus of recent years might be building some difficult side effects, such as emerging market companies increasing foreign currency borrowing, making the eventual exit towards more normal policy difficult.
Copyright The Financial Times Limited 2013
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