Policy Actions Improve Prospects for Global Economy: IMF
(Global growth for 2013 is projected to reach 3.3%, which will accelerate to 4% by 2014, even as India is estimated to grow at 5.7% in 2013 and 6.2% in 2014 as against 4% in 2012.)
According to the World Economic Outlook
(WEO) published by International Monetary Fund (IMF), during
the past six months global economic conditions have improved. Advanced economy policymakers
successfully defused two of the biggest short-term risks to global activity-
the threat of a euro area breakup and a sharp fiscal contraction in the United States.
Financial markets have rallied in response, and financial stability has improved.
WEO
reports that the global economy is expected to continue mending gradually, and
forecasts real global GDP growth of 3.3% in 2013, about the same as the
3.2% growth seen in 2012, and expects that the growth will rise to 4% in 2014.
The WEO says the main reason behind the
broadly unchanged growth prospects this year is that advanced economies have
not all benefited to the same extent from the improved financial market
conditions and confidence. In advanced economies, there appears to be a growing
bifurcation between the United
States on the one hand and the euro area on
the other, but emerging market and developing economies (EMDEs) are still going
strong.
United
States- With
increasingly robust private demand, growth in the US is projected to be 1.9% in 2013,
despite a major fiscal tightening, and accelerate to 3% in 2014. Weak growth in
the fourth quarter of 2012 reflected the unwinding of a spurt of inventory
investment and defense spending during the third quarter. Preliminary
indicators suggest that private demand remained resilient this year, but
across-the-board public spending cuts are expected to take a toll on the
recovery going forward.
Euro Area- Growth in the euro area is forecast to be –0.3% in 2013
and 1.1% in 2014. Germany’s
growth is strengthening but is still forecast to be less than 1% in 2013. France’s
growth is forecast to be negative in 2013, reflecting a combination of fiscal
consolidation, poor export performance, and low confidence. Italy and Spain are expected to have substantial
contractions in 2013. Activity in the euro area will pick up very gradually,
helped by appreciably less fiscal drag and some easing of lending conditions.
However, output will remain subdued because of continued fiscal adjustment,
financial fragmentation, and ongoing balance sheet adjustments in the periphery
economies. Additionally, better financial conditions are not yet passing
through to companies and households because banks are still hobbled by poor
profitability and low capital.
Japan- A new fiscal and monetary policy, based on aggressive
quantitative easing, a positive inflation target, fiscal stimulus, and
structural reforms, is expected to drive a rebound in nation’s activity,
with real GDP growth reaching 1.5% in 2013. According to WEO projections,
growth will soften only slightly in 2014 as private demand continues to garner
speed, helped by aggressive new monetary easing offset by the winding down of
the stimulus and the consumption tax increase.
Emerging market and
developing economies- Growth in EMDEs is expected to remain robust,
strengthening from about 5% in 2012 to 5.3% in 2013 and 5.7% in 2014. Activity
in most of these economies has already picked up after a slowdown in 2012,
thanks to resilient consumer demand, supportive macroeconomic policies, and a
revival of exports.
China- Growth has already
returned to a healthy pace in China.
The country’s growth is set to accelerate slightly to about 8% in 2013, reflecting
continued robust domestic demand in both consumption and investment and renewed
external demand. Inflation will pick up only modestly to an average of 3% in
2013.
India- Growth will rise in India to 5.7% in 2013 and 6.2% in 2014 as
a result of improved external demand, solid consumption, a better monsoon
season and recently implemented pro-growth measures. Significant structural
challenges will likely lower potential output over the medium term and also
keep inflation elevated by regional standards.
Brazil- Activity is expected
to recover in Brazil,
in response to the large policy rate cuts deployed during the past year as well
as to measures targeted at boosting private investment.
Emerging Europe- In emerging Europe, the recovery should gain speed
as demand from advanced economies in Europe
picks up.
Sub-Saharan Africa- Activity
in sub-Saharan Africa is forecast to remain
robust, with both resource-rich and lower-income economies benefiting from
robust domestic demand.
Middle
East and
North Africa- A pause in oil production growth among
oil-exporting countries is expected to lead to a temporary deceleration in the
region’s economic growth, while ongoing political transitions and a
difficult external environment are preventing a quicker recovery in some
oil-importing countries.
IMF Projections
(Percentage change)
Source:
IMF
Stabilization requirement
for robust growth -- However, old dangers remain and new risks have come
to the fore. In the short term, risks mainly relate to developments in the euro
area, including uncertainty about the fallout from events in Cyprus and politics in Italy as well as vulnerabilities in
the periphery. In the medium term, the key risks relate to adjustment fatigue,
insufficient institutional reform, and prolonged stagnation in the euro area as
well as high fiscal deficits and debt in the US and Japan. In this setting,
policymakers cannot afford to relax their efforts. In advanced economies, the
right macroeconomic approach continues to be gradual. The US and Japan
still need to devise and implement strong medium-term fiscal consolidation
plans. The euro area needs to strengthen the Economic and Monetary Union (EMU).
In emerging market and developing economies, some tightening of policies
appears appropriate in the medium term. This tightening should begin with
monetary policy and be supported with prudential measures as needed to rein in
budding excesses in financial sectors.
Warm regards,
Dr. S P Sharma
Chief Economist
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