8th April 2014
The IMF chief economist Oliver Blanchard has admitted that previous forecasts for the United Kingdom were too pessimistic when he warned the Chancellor of Exchequer George Osborne that he was playing with fire given his austerity programme.
However Blanchard said that the IMF was right to warn of such risks in answer to questions from Sky News.
The UK is expected to be the best performing developed economy in the world this year with growth of 2.9% and a more muted 2.5% next year in the latest World Economic Outlook.
The IMF forecasts global growth to average 3.6 percent in 2014―up from 3 percent in 2013―and to rise to 3.9 percent in 2015. But it says that growth remains subpar and uneven across the globe. The US is described as a major impulse to world growth.
“Although we are far short of a full recovery, the normalization of monetary policy—both conventional and unconventional—is now on the agenda,” said Blanchard.
The report says that new worries on the horizon include persistently low inflation in advanced economies, a weaker outlook for emerging markets than thought in the second half of last year, and recent geopolitical strains.
Russia’s growth forecast was cut by 0.6 percentage points to 1.3% for the rest of 2014, because of “emerging market financial turbulence and geopolitical tensions relating to Ukraine… on the back of already weak activity.”
The report then gives the following thoughts on different regions.
A major impulse to global growth has come from the United States, where annual growth in 2014–15 is projected to be above trend at about 2¾ percent. More moderate fiscal consolidation helps; support also comes from accommodative monetary conditions, a recovering real estate sector, and higher household wealth.
In the euro area, growth has turned positive. Across the euro area, a strong reduction in the pace of fiscal tightening is expected to help lift growth. Outside the core euro area, contributions from net exports have helped the turnaround, as has the stabilization of domestic demand. However, growth in demand is expected to remain sluggish, given continued financial fragmentation, tight credit, and a high corporate debt burden. Growth performance will therefore continue to lag the core euro area.
• In Japan economic activity is expected to get a boost from some underlying growth drivers, notably private investment and exports. Nevertheless, economic activity overall is projected to slow moderately in response to a tightening fiscal policy stance in 2014–15, starting with the rise in consumption tax.
Emerging markets and developing economies
• Emerging market and developing economies continue to contribute more than two-thirds of global growth, and their growth is projected to increase moderately from 4.7 percent in 2013 to 4.9 percent in 2014 and 5.3 percent in 2015. The weaker momentum compared with advanced economies reflects in part the adjustment to a less favorable external financial environment and, in some cases, continued weak investment and other domestic structural constraints. Going forward, stronger exports to advanced economies are expected to underpin moderate increase in growth.
• The forecast for China is that growth will remain broadly unchanged at about 7½ percent in 2014–15 as the authorities seek to put the economy on a more balanced and sustainable growth path. In India, real GDP growth is projected to strengthen, partly due to government efforts to revive investment growth.
• Only a modest acceleration in activity is expected for regional growth in Latin America, with growth rising from 2½ percent in 2014 to 3 percent in 2015). Some economies have recently faced strong market pressure.
• In sub-Saharan Africa, growth continues at a strong pace, and is expected to increase from 4.8 percent in 2013 to 5½ percent in 2014–15. Commodity-related projects elsewhere in the region are expected to support higher growth.
Middle East and North Africa
• The Middle East and North Africa face challenging conditions, with regional growth projected to rise only moderately in 2014–15. Most of the recovery is due to the oil-exporting economies, while many oil-importing economies continue to struggle with difficult socio-political and security conditions.