By Peter OBIORA InvestAdvocate
Lagos (INVESTADVOCATE)-The International Monetary Fund (IMF) has said in its World Economic Outlook (WEO) July, 2013 that global growth is projected to remain subdued at slightly above 3 percent (3%) in 2013, the same as in 2012.
”In sum, global growth will recover from slightly above 3 percent in 2013 to 3¾ percent in 2014, some ¼ percent weaker for both years than the April 2013 projections,” the report said.
According to the IMF, this is less than forecast in the April 2013 World Economic Outlook (WEO), driven to a large extent by appreciably weaker domestic demand and slower growth in several key emerging market economies, as well as by a more protracted recession in the euro area.
”Downside risks to global growth prospects still dominate: while old risks remain, new risks have emerged, including the possibility of a longer growth slowdown in emerging market economies, especially given risks of lower potential growth, slowing credit, and possibly tighter financial conditions if the anticipated unwinding of monetary policy stimulus in the United States leads to sustained capital flow reversals,” the IMF said.
The IMF in its World Economic Outlook said that stronger global growth will require additional policy action. It said specifically, major advanced economies should maintain a supportive macroeconomic policy mix, combined with credible plans for reaching medium-term debt sustainability and reforms to restore balance sheets and credit channels.
”Many emerging market and developing economies face a trade-off between macroeconomic policies to support weak activity and those to contain capital outflows. Macroprudential and structural reforms can help make this trade-off less stark,” the IMF said.
The report affirmed that global growth increased only slightly from an annualised rate of 2½% in the second half of 2012 to 2¾% in the first quarter of 2013, instead of accelerating further as expected at the time of the April 2013 WEO.
The IMF said the underperformance was due to three factors:
First, growth continued to disappoint in major emerging market economies, reflecting, to varying degrees, infrastructure bottlenecks and other capacity constraints, slower external demand growth, lower commodity prices, financial stability concerns, and, in some cases, weaker policy support.
Second, the recession in the euro area was deeper than expected, as low demand, depressed confidence, and weak balance sheets interacted to exacerbate the effects on growth and the impact of tight fiscal and financial conditions.
Third, the U.S. economy expanded at a weaker pace, as stronger fiscal contraction weighed on improving private demand. By contrast, growth was stronger than expected in Japan, driven by consumption and net exports.
”The euro area will remain in recession in 2013, with activity contracting by more than ½%. Growth will rise to just less than 1% in 2014, weaker than previously projected, in part due to the persistent effects of the mentioned constraints and the expected delays in policy implementation in key areas, but also due to base effects from the delayed recovery in 2013.
The IMF says at 5% in 2013 and about 5½% in 2014, growth in emerging market and developing economies is now expected to evolve at a more moderate pace, some ¼% point slower than in the April 2013 WEO.
According to the IMF, policies to generate strong growth include: key advanced economies should pursue a policy mix that supports near-term growth, anchored by credible plans for medium-term public debt sustainability.
”This would also allow for more gradual near-term fiscal adjustment. With low inflation and sizable economic slack, monetary policy stimulus should continue until the recovery is well established,” the IMF said.
The Fund affirmed that potential adverse side effects should be contained with regulatory and macroprudential policies. ”Clear communication on the eventual exit from monetary stimulus will help reduce volatility in global financial markets. Further progress in financial sector restructuring and reform is needed to recapitalise and restructure bank balance sheets and improve monetary policy transmission, the report said.
Click here to view report by IMF
