Global Economy Reviews

07.02.2014 15:55 World Economy Review - January 2014

The International Monetary Fund raised its global economic growth outlook for the year, with expansion to be fueled by U.S., euro-zone and Japanese growth, though deflation and financial-sector risks threaten a full recovery. "The recovery is strengthening," though it is still weak and uneven, IMF Chief Economist Olivier Blanchard said as the fund released its latest World Economic Outlook report.
The IMF raised its 2014 global growth forecast to 3.7%, up 0.1 percentage point from its last outlook in October. Mr. Blanchard said the financial system is slowly healing, uncertainty among investors is abating and the drag from budget belt-tightening around the globe is decreasing.
Advanced economies are fueling the world`s economic expansion, unlike the years following the 2008 financial crisis when emerging markets were the primary drivers of global growth.
The U.S. leads the recovery. The IMF raised its forecast for U.S. economic growth this year by 0.2 percentage point to 2.8%, though it downgraded its 2015 outlook by 0.4 percentage point to 3% amid the fights in Congress over the federal balance sheet and spending.
The fund said the Federal Reserve`s plans to exit its easy-money policies are broadly appropriate, and it expects an increase in the Fed`s policy rate in 2015.
For Europe, however, officials warned that rising risks of falling prices threaten to stall the anemic recovery. Although the fund raised its growth forecast for the U.K., Germany and Spain, Mr. Blanchard said, "Southern Europe continues to be the more worrisome part of the world economy."
Exports are strengthening in the Southern euro-zone countries. But demand is slack, with weakness among banks and businesses. More budget tightening is needed as well, the IMF said, and unemployment remains at dangerously high levels, especially among youth.
To avoid a deflationary spiral that could reignite the euro zone`s crisis, the IMF said the European Central Bank can do more to stimulate growth in the 18-member currency union. The ECB should be prepared to act "if the next few numbers on inflation turn out to be weaker than they expect," Mr. Blanchard said, through measures including cutting interest rates or targeted injection of cheap cash for lending to small and midsize companies.
Estimating a 10%-20% risk of deflation, "it`s important for the central bank to commit to do anything needed to maintain inflation, thereby anchoring expectations, and to sustain demand," Mr. Blanchard said. Also, the ECB`s bank balance sheet review is likely the area`s most important short-term task, the IMF said.
For Japan, the IMF raised its growth forecast for the year by 0.4 percentage point to 1.7%. It said Japan`s government will continue to face the challenge of trimming its budget enough to reassure investors, while not slowing the recovery.
The fund also raised the growth forecast for the world`s No. 2 economy, China, by 0.3 percentage point to 7.5%. Mr. Blanchard said, however, that China`s need to contain escalating risks in the financial sector without excessively slowing growth will be a major challenge "and a delicate balancing act."
The IMF downgraded its outlook for many other major emerging-market economies. Most notably, it cut Russia`s growth forecast for the year by 1 percentage point to 2% and Brazil`s growth outlook by 0.2 percentage point to 2.3%.
Stronger growth in advanced economies should boost demand for emerging-market exports enough to offset an expected rise in borrowing costs as the U.S. Fed begins to wind down its easy-money policies this year, the fund said.
Still, Mr. Blanchard said that while some of the rise in interest rates has already been factored into investors` outlook for emerging markets, "we can expect complex capital movements across countries for some time to come."

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08.01.2014 20:21 World Economy Review - December 2013

The global economy may be entering a new phase as the year draws to a close. New data suggest some of the uncertainty that has characterized much of 2013 appears to be lifting as a new year begins, though economists are cautious. Despite steady improvement, U.S. unemployment remains high, Europe`s debt crisis is far from over, and China`s economy continues to slow.

As the year ends, more people are finding work in the United States, the economy is growing at the fastest pace in two years and Congress has a new budget that effectively removes the threat of another costly government shutdown.

Barring another political standoff, small business advocate John Arensmeyer sees an improved business climate in 2014. Could be a better year than 2013, particularly if we don`t see the type of shenanigans we saw with the shutdown.

Across the Pacific, China`s economy has slowed after decades of double-digit expansion. But even with a relatively modest outlook of seven percent growth, international economist Uri Dadush said China continues to exert strong economic influence in the region. It`s going to be somewhat slower going forward over the next year or two, but still sufficient to pull a large number of countries along, said Dadush.

But while improving demand is likely to benefit countries from Cambodia to Japan, European economies remain weak. The European Commission says growth will slow in the 18 nations that use the euro - with unemployment likely to inch higher in the new year. Despite recent banking reforms, Dadush said tough austerity measures in countries that received bailouts continue to weigh on Europe`s economy. Italy`s in deep trouble, and it`s going to take some years even for the Spains and the Portugals and the Irish to come out of the mess, said Dadush.

Lingering questions also remain about the international impact of the U.S. central bank`s decision to scale back monetary stimulus. With prices of raw materials likely to fall next year, economists say commodity-dependent countries could see their revenues fall. That includes Brazil, but it also includes Turkey, it includes Hungary, it may include Indonesia, that is also commodity-dependent by the way, said Dadush. In the Middle East, some of the Arab Spring countries, which remain politically unstable, are expected to experience economic difficulties in 2014.

Pinfan Hong, chief of global economic monitoring at the United Nations, said, Nevertheless, we believe some improvements are building the momentum for next year. So we expect the world economy to grow by about three percent for 2014.

2014 also bodes well for Africa. After expanding at an annual pace of 4.8 percent in 2013, the African Development Bank projects growth to accelerate to 5.3 percent, bolstered by strong growth in the service sector and increased agricultural and mining activity.

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05.12.2013 19:27 World Economy Review - November 2013

The Organization for Economic Cooperation and Development said world economic output would expand 2.7% this year and 3.6% in 2014. Those figures are down from the group`s May forecast of 3.1% growth this year and 4% next year. Global "outcomes this year and near-term prospects appear a little weaker than had been expected in May, at the time of the previous Economic Outlook," the OECD said.
The future of monetary stimulus in the United States has become a central risk worldwide, the OECD said, adding to long-standing problems, such as the fragility of eurozone banks and a decade of soaring Japanese public debt. The OECD urged the US Federal Reserve central bank to maintain its ultra-easy monetary policy for some time, and it suggested that the European Central Bank consider extra action to relax monetary conditions if deflationary pressures increased.
The OECD, which is composed of the world`s 34 most advanced economies, said growth in its member countries would be 1.2% this year and 2.3% in 2014, the same as forecast in May. Growth in advanced economies will pick up speed this year and next, but mostly at a slower pace than forecast as new risks loom, especially from emerging economies, the OECD said. Japan and the eurozone will do slightly better than expected in both years as austerity policies retreat, monetary stimulus is maintained and financial conditions improve, the OECD said. But the US economy will grow less quickly than forecast, with the OECD pointing to political dysfunction in Washington and the eventual tapering of monetary stimulus as factors that could hamper recovery.
The latest OECD outlook report said that old worries "have been augmented by new concerns, most notably the possibility of significant financial instability in advanced and, especially, (emerging economies) during the exit from unconventional monetary policies in the United States."
Moreover, the OECD warned, if political battles in Washington were to make a debt ceiling in the United States binding next year, the outcome could have "extreme" effects on the world economy. The forecast for US growth in 2013 was slashed to 1.7 percent from 1.9 percent, but edged up to 2.9 percent for 2014.
The OECD said that efforts to slow fiscal consolidation in the US and the eurozone were appropriate given slightly improving public finances and the uncertain economic outlook.
Japan on the other hand, must implement "strong fiscal tightening" in order to cut its debt. But despite this overhang, Japan`s recent efforts to jumpstart the economy will bear fruit with the OECD now forecasting 1.8-percent growth in 2013 instead of 1.6 percent. In 2014, Japanese growth will slow to 1.5 percent, hobbled by debt.
The OECD said that the eurozone still had the potential to unsettle the world economy and urged the currency bloc to press on with its banking union reform which includes a stringent stress test for banks. The OECD weakened its recession outlook in the currency area this year to contraction of 0.4 percent instead of 0.6 percent, and forecast growth of 1.0 percent in 2014.
The OECD said the UK would grow by 1.4% this year, an upgrade from its forecast in May of 0.8%. UK growth would accelerate to 2.4% in 2014, above economists` expectations of 2.2%, it said. It said signs of improvement were "particularly apparent" in the UK, and monetary policy was likely to remain "appropriate" for some time. The OECD also revised down its global growth forecast for 2014, which it now estimates at 3.6%. In May, it had forecast 4%. In a first estimate for 2015, it predicts growth of 3.9%.
China, less dependent on foreign funds, avoided the brunt of the tapering talk, but the OECD did lower the Chinese growth forecast to 7.7 percent this year, from 7.8 percent, and to 8.2 percent for next year.
In China, the OECD said growth was picking up "aided by a small fiscal stimulus and rapid credit expansion that did not slacken until June 2013" when state leadership changed hands. The OECD said that by past standards, "the recovery is subdued, reflecting a marked slowing in potential growth in the past few years".

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07.11.2013 18:17 World Economy Review - October 2013

Global growth is still in low gear and the drivers of growth are shifting, says the IMF`s latest World Economic Outlook (WEO) report. The IMF forecasts global growth to average 2.9 percent in 2013 - below the 3.2 percent recorded in 2012 - and to rise to 3.6 percent in 2014.
Much of the pickup in growth is expected to be driven by advanced economies. Growth in major emerging markets, although still strong, is expected to be weaker than the IMF forecast in its July 2013 WEO Update. This is partly due to a natural cooling in growth following the stimulus-driven surge in activity after the Great Recession. Structural bottlenecks in infrastructure, labor markets, and investment have also contributed to slowdown in many emerging markets.
This transition is leading to tensions, with emerging market economies facing both the challenge of slowing growth and changing global financial conditions, said Olivier Blanchard, the IMF`s chief economist and head of the Research Department.
Indeed, these growth transitions, combined with an approaching turning point in U.S. monetary policy, have led to new challenges and risks. In particular, long-term interest rates in the United States and many other economies have increased more than expected. Although the U.S. Federal Reserve recently decided to not slow the pace of its asset purchases yet and capital outflows from emerging markets have subsided somewhat, bond yields remain well above levels of early May. And there is a distinct risk that financial conditions will tighten from their current, still supportive levels.
In the United States, the projections are based on the key assumption that the ongoing shutdown in the federal government will be short-lived and the debt ceiling will be raised on time. Growth is expected to rise from 1,5 percent this year to 2,5 percent in 2014 driven by continued strength in private demand, which is supported by a recovering housing market and rising household wealth.
In the euro area, policy actions have reduced major risks and stabilized financial conditions, although growth in the periphery is still constrained by credit bottlenecks. The region is expected to gradually pull out of recession, with growth reaching 1 percent in 2014.
In Japan, fiscal stimulus and monetary easing under the authorities` new policy package - the so-called Abenomics - has enabled an impressive rebound in activity. But the expected unwinding of fiscal stimulus and reconstruction spending together with consumption tax hikes will lower growth from 2 percent this year to 1,25 percent in 2014.
In China, growth is projected to decelerate slightly from 7,5 percent this year to 7,25 percent in 2014. Policymakers have refrained from stimulating activity amid concerns for financial stability and the need to support a more balanced and sustainable growth path.
Overall, growth in emerging market and developing economies is expected to remain strong at 4,5-5 percent in 2013-14, supported by solid domestic demand, recovering exports, and supportive fiscal, monetary and financial conditions. Commodity prices will continue to boost growth in many low-income countries, including those in sub-Saharan Africa. But economies in the Middle East and North Africa, Afghanistan, and Pakistan region will continue to struggle with difficult economic and political transitions.

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07.10.2013 13:29 World Economy Review - September 2013

Fitch international ratings agency revised outlook for global GDP growth in 2013 downwards, Global Economic Outlook report published by the agency said. "The agency`s experts forecast global GDP growth in 2013 at 2.3 percent, which is 0.1 percent lower than the expected outlook for June of this year. In 2014, the global GDP growth will amount to 2.9 percent, decreasing by 0.2 percent in comparison to the previous outlook," report said.
The agency left the same outlook for 2015 unchanged and in particular, Fitch expects global GDP growth of 3.2 percent. "The outlook revision was caused by softer data from the U.S., than it was expected, as well as lowering of outlooks for most emerging markets, which indicates the increasing influence of developing countries in the global economy," the document said.
Alongside with this, the agency`s experts, underscored that the dynamics of growth of the world economy will improve in the second half of 2013 and in 2014. "GDP in most developed world economies will grow on average by 0.9 percent in 2013, by 1.8 percent in 2014, as well as by 2.1 percent in 2015," the report said.
Fitch has trimmed its forecast of the US economy from 1.9 per cent to 1.6 per cent on the back of recent data revisions and mixed economic indicators in the third quarter. US growth is expected to strengthen to 2.6 per cent in 2014 and 3 per cent in 2015.
In Japan, the agency says GDP growth could be as high as 1.8 per cent for 2013 aided by a short-term buoying caused by the reflationary `Abenomics` strategy. However, it is likely to moderate to 1.5 per cent in 2014 and 1.2 per cent in 2015 as momentum slows.
Looking to emerging markets, Fitch has downgraded its outlook for all four of the so-called Bric economics of Brazil, Russia, India and China. For example, the Chinese economy is tipped to expand by 7.5 per cent this year while Indian growth is viewed as coming in at just 4.8 per cent. Higher interest rates and less buoyant capital inflows will complicate policy trade-offs in many emerging markets, adding to growth strains from domestic structural bottlenecks, declining returns on investment and China`s rebalancing, Fitch says.
Fitch confirmed the expectations on lowering the prices for oil to $105 and $100 per barrel in 2013 and 2014 respectively, and kept the forecasted price per barrel of oil in 2015 at the level of $100.

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