A Firming Recovery

By Maurice Obstfeld

July 24, 2017

A building in Tokyo, Japan. The global recovery is on a firmer footing, with growth revised up for Japan, the euro area, China, and for emerging and developing economies more generally (photo: Issei Kato/Reuters/Newscom)

The recovery in global growth that we projected in April is on a firmer footing; there is now no question mark over the world economy’s gain in momentum.

As in our April forecast, the World Economic Outlook Update projects  3.5 percent growth in global output for this year and 3.6 percent for next.

The distribution of this growth around the world has changed, however: compared with last April’s projection, some economies are up but others are down, offsetting those improvements.

Notable compared with the not-too-distant past is the performance of the euro area, where we have raised our forecast. But we are also raising our projections for Japan, for China, and for emerging and developing Asia more generally. We also see notable improvements in emerging and developing Europe and Mexico.

Where are the offsets to this positive news on growth? From a global growth perspective, the most important downgrade is the United States. Over the next two years, U.S. growth should remain above its longer-run potential growth rate. But we have reduced our forecasts for both 2017 and 2018 to 2.1 percent because near-term U.S. fiscal policy looks less likely to be expansionary than we believed in April. This pace is still well above the lacklustre 2016 U.S. outcome of 1.6 percent growth. Our projection for the United Kingdom this year is also lowered, based on the economy’s tepid performance so far. The ultimate impact of Brexit on the United Kingdom remains unclear.

Overall, though, recent data point to the broadest synchronized upswing the world economy has experienced in the last decade. World trade growth has also picked up, with volumes projected to grow faster than global output in the next two years.

There do remain areas of weakness, however, among middle- and low-income countries, notably commodity exporters who continue to adjust to reduced terms of trade. Latin America still struggles with sub-par growth, and we have lowered projections for the region over the next two years. Growth this year in sub-Saharan Africa is projected to be higher than last year, but remains barely above the population growth rate, implying stagnating per capita incomes.

Risks

There are risks that the outcome could be better or worse than we now project. Near term, there is the possibility of even stronger growth in continental Europe, as political risks have diminished.

On the downside, however, many emerging and developing economies have been receiving capital inflows at favorable borrowing rates, possibly leading to risks of balance of payments reversals later. Strains could emerge if advanced economy central banks show an increasing preference for monetary tightening, as some have in recent months. Core inflation pressures remain low in advanced economies and measures of longer-term inflation expectations show no indications of upward drift beyond targets, so central banks should proceed cautiously based on incoming economic data, reducing the risk of a premature tightening in financial conditions.

Supportive policy has promoted China’s recent high growth rates, and we have upgraded our 2017 and 2018 forecasts for China, by 0.1 and 0.2 percentage point, respectively, to 6.7 and 6.4 percent. But higher growth is coming at the cost of continuing rapid credit expansion and the resulting financial stability risks. China’s recent moves to address nonperforming loans and to coordinate financial oversight therefore are welcome.

Finally, the threat of protectionist actions and responses remains salient in the near and medium terms, as do geopolitical risks.

The longer horizon

Despite the current improved outlook, longer-term growth forecasts remain subdued compared with historical levels, and tepid longer-term growth also carries risks.

In advanced economies, median real incomes have stagnated and inequality has risen over several decades. Even as unemployment is falling, wage growth still remains weak. Thus, continuing slow growth not only holds back the improvement of living standards, but also carries risks of exacerbating social tensions that have already pushed some electorates in the direction of more inward-looking economic policies. In emerging economies in contrast, despite generally higher inequality than in advanced economies, substantial income gains have accrued even to those low in the income distribution.

The current cyclical upswing offers policymakers an ideal opportunity to tackle some of the longer-term forces behind slower underlying growth. Suitable structural reforms can raise potential output in all countries, especially if supported by growth-friendly fiscal policies including productive infrastructure investment, provided there is room in the government budget. In addition, investment in people is critical—whether in basic education, job training, or reskilling programs. Such initiatives will both increase labor markets’ resilience to economic transformation and raise potential output. The same policy measures that can help economies adjust to globalization—as described in the recent report we co-authored with the World Bank and World Trade Organization—are more broadly necessary to meet the challenges of technology and automation.

Strengthening multilateral cooperation is another key to prosperity, in a range of areas including trade, financial stability policy, corporate taxation, climate, health, and famine relief. Where domestic developments have a strong international impact, policies based narrowly on national advantage are at best inefficient and at worst highly damaging to all.


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Migration and Remittances in Latin America and the Caribbean: Brain Drain Versus Economic Stabilization

By Svetlana Cerovic and Kimberly Beaton

June 29, 2017

Versions in Español (Spanish) and Português (Portuguese)

People waiting to withdraw money in La Cruz, Costa Rica: emigrants from Latin America send home sizable remittances (photo: Juan Carlos Ulate/Reuters/Newscom)

Many people from Latin America and the Caribbean live and work abroad. Migrants have been motivated to leave their home country in search of better job opportunities and, in some cases, a more secure environment. Their families at home often benefit from the remittances migrants send home, which help improve their standard of living, health care, and education. Remittances also provide financial resources for trade and investment, which helps boost the country’s growth. Continue reading “Migration and Remittances in Latin America and the Caribbean: Brain Drain Versus Economic Stabilization” »

Restarting the Growth Engine in Sub-Saharan Africa

By IMFBlog

May 19, 2017

Version in Français (French)

The IMF’s latest economic health check of sub-Saharan Africa shows that growth fell to its lowest level in 20 years.

In this podcast, the IMF African Department’s Celine Allard, who oversaw the report, says that this drop brought a halt to the 5 to 6 percent growth rate that was enjoyed in the last two decades. Some factors contributing to this slowdown are lower commodity prices, the devastation of a severe drought—exacerbating crop infestation and leading to a famine affecting some 20 million people—and political conflicts that affect trade.

Continue reading “Restarting the Growth Engine in Sub-Saharan Africa” »

Chart of the Week: Conflict’s Legacy for Growth

By IMFBlog

Versions in عربي (Arabic)

May 8, 2017

Conflict has been on the rise since the early 2000s given the wars in Afghanistan, Iraq, and Syria.

 Conflict leads not only to immeasurable human costs, but also to substantial economic losses with consequences that can persist for years. The tragic rise in conflict has weighed on global GDP growth in recent years, given the increasing number of countries experiencing strife, the severe effect on economic activity, and the considerable size of some of the affected economies.

The IMF’s most recent World Economic Outlook (Box 1.1) takes a closer look through the lens of conflict’s impact on economic growth and migration.  Continue reading “Chart of the Week: Conflict’s Legacy for Growth” »

Global Economy Gaining Momentum—For Now

By Maurice Obstfeld

Versions in عربي (Arabic), 中文 (Chinese), Français (French), 日本語 (Japanese), Русский (Russian), and Español (Spanish)

Momentum in the global economy has been building since the middle of last year, allowing us to reaffirm our earlier forecasts of higher global growth this year and next. We project the world economy to grow at a pace of 3.5 percent in 2017, up from 3.1 percent last year, and 3.6 percent in 2018. Acceleration will be broad based across advanced, emerging, and low-income economies, building on gains we have seen in both manufacturing and trade.

Our new projection for 2017 in the April World Economic Outlook is marginally higher than what we expected in our last update. This improvement comes primarily from good economic news for Europe and Asia, as well as our continuing expectation for higher growth this year in the United States.

Continue reading “Global Economy Gaining Momentum—For Now” »

The Case for Fiscal Policy to Support Structural Reforms

By Angana Banerji, Era Dabla-Norris, Romain Duval, and Davide Furceri

Versions in 中文 (Chinese), Français (French),Deutsch (German), Русский (Russian), and Español (Spanish)

Many advanced countries need  structural reforms to make their economies more productive and raise long-term living standards.  Our new research shows that provided countries can afford it, fiscal policy, through spending or tax incentives, can help governments overcome some obstacles to the reforms, particularly in the early stages.   Continue reading “The Case for Fiscal Policy to Support Structural Reforms” »

Trade, Labor, and Trust

By iMFdirect

“If we’re fighting each other because we can’t design a system that actually works for everybody, then working people will again continue to mistrust our institutions, and the threat to democracy is very real; you see it.” – Sharan Burrow

Burrow is General Secretary of the International Trade Union Confederation, and in this podcast she says collective action is needed to help better distribute the benefits of growth.  Continue reading “Trade, Labor, and Trust” »

By | February 24th, 2017|Gender issues, Globalization, IMF|0 Comments

Big Bad Actors: A Global View of Debt

By Vitor Gaspar and Marialuz Moreno Badia

Versions in: عربي (Arabic), 中文 (Chinese), Français (French), 日本語 (Japanese), Русский (Russian), and Español (Spanish)

In the midst of the Great Depression, the American economist Irving Fisher warned of the dangers of excessive debt and the deflationary pressures that follow on its tail. He saw debt and deflation as the big, bad actors. Now, their close relatives—too high debt and too low inflation—are still in play, at least for advanced economies.

Continue reading “Big Bad Actors: A Global View of Debt” »

The Whole Can Be Greater Than the Sum of its Parts

By Vitor Gaspar, Maurice Obstfeld and Ratna Sahay

There are policy options to bring new life into anemic economic recoveries and to counteract renewed slowdowns.  Our new paper, along with our co-authors, debunks widespread concerns that little can be done by policymakers facing a vicious cycle of (too) low growth, (too) low inflation, near-zero interest rates, and high debt levels.

Continue reading “The Whole Can Be Greater Than the Sum of its Parts” »

G-20: Five Ways to Spark Growth

By iMFdirect

Once again, we face the prospect of weak and fragile global growth. Released earlier this week, the IMF’s update to the global economic outlook expects global growth at 3.1 percent and 3.4 percent in 2016 and 2017, respectively, slightly down from April estimates. The global outlook, which was set for a small upward revision prior to the U.K.’s referendum, has been revised downward, reflecting the increased economic, political, and institutional uncertainty. Continue reading “G-20: Five Ways to Spark Growth” »

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