By Vivienne Russell | 21 January 2014
Global growth is set to pick up pace this year and reach 3.7% – up from 3% in 2013 – the International Monetary Fund said today as it issued its first forecast of 2014.
Issuing its World economic outlook update, the fund said the upward trend would continue into 2015, when growth is forecast to hit 3.9%.
‘The basic reason behind the stronger recovery is that the brakes to the recovery are progressively being loosened,’ said Olivier Blanchard, the IMF’s chief economist.
‘The drag from fiscal consolidation is diminishing. The financial system is slowly healing.’
While the overall picture is one of strengthening activity, the update highlighted major differences between major economies and regions.
In the US, for example, growth is expected to reach 2.8% in 2014, up from 1.9% in 2013, thanks largely to the reduction in fiscal drag resulting from the recent budget agreement.
The eurozone, in contrast, is only just turning the corner from recession to recovery, according to the report. The IMF expects growth to hit 1% in 2014 and 1.4% in 2015 in the currency bloc, with pick-up generally being more modest in those countries that have been facing various degrees of financial stress, such as Greece, Spain, Cyprus and Portugal.
In Japan, the IMF said it expected growth to decelerate in 2014-15 after a strong pick-up last year.
Emerging markets and developing economies are expected to see a growth increase of 5.1% this year and 5.4% next year.
‘Many emerging market and developing economies have started to benefit from stronger external demand in advanced economies and China,’ the IMF said.
‘In many, however, domestic demand has remained weaker that expected. This reflects, to varying degrees, tighter financial conditions and policies since mid 2013, as well as policy or political uncertainty and bottlenecks, with the latter weighing on investment in particular.’
The fund added that downside risks remained, noting that the balance of risks was shifting only very slowly.
In advanced economies, and the eurozone in particular, low inflation had emerged as a fresh risk.
‘Inflation is projected to remain below target for some time,’ said the IMF.
‘If people’s expectations of future inflation drift down in response, actual inflation could turn out even lower than projected. That would increase real debt burdens and raise real interest rates, hampering growth.’
