As Demand Improves, Time to Focus More on Supply


2010 WEO BLANCHARD By Olivier Blanchard

(Version in  FrançaisEspañol, Русский, عربي中文  and 日本語)

The dynamics that were emerging at the time of the October 2013 World Economic Outlook are becoming more visible. Put simply, the recovery is strengthening.

In our recent World Economic Outlook, we forecast world growth to be 3.6 percent this year and 3.9 percent next year, up from 3.0 percent last year.

In advanced economies, we forecast growth to reach 2.2 percent in 2014, up from 1.3 percent in 2013.

The recovery which was starting to take hold in October is becoming not only stronger, but also broader.  The various brakes that hampered growth are being slowly loosened.   Fiscal consolidation is slowing, and investors are less worried about debt sustainability. Banks are gradually becoming stronger. Although we are far short of a full recovery, the normalization of monetary policy—both conventional and unconventional—is now on the agenda.

Brakes are loosened at different paces however, and the recovery remains uneven.

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Jobs and Growth: Supporting the European Recovery


MD's Updated HeadshotBy Christine Lagarde

(Version in Français and Español)

As we begin the new year, Europe confronts both good and bad news. First the good news. Growth is finally picking up in the euro area as it is slowly emerging from the deep recession.  The bad news? Still nearly 20 million people are unemployed. Until the effects on employment have been reversed, we cannot say that the crisis is over.

Two trends are particularly troubling, now and for the future. First, the high level of long-term unemployment gives me great cause for concern: almost half of those without a job have been unemployed for more than a year. Second, I still worry about the large number of young people without jobs: nearly one quarter of Europeans under the age of 25 who are looking for a job cannot find one. In Italy and Portugal, more than one third of under-25s are unemployed, and in Spain and Greece more than one half are.

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Jobs and Growth in Europe


The IMF’s Christine Lagarde is in Brussels on January 28 to talk about jobs and growth in Europe.

The good news is growth is finally picking up in the euro area as it is slowly emerging from the deep recession.  But nearly 20 million people are unemployed.

The most effective way of boosting jobs is to get growth going again.

The IMF has a new book that analyzes today’s challenges head-on and proposes a roadmap for the continent’s recovery.

Christine Lagarde will discuss the book along with Wolfgang Schäuble, Finance Minister of Germany, and Luis de Guindos, Minister of Economy and Competitiveness of Spain. The event will be chaired by Fabian Zuleeg, Chief Executive of the European Policy Centre.

Watch the live webstream on this page from 8.00-9.30 a.m. (Central European Time).

Recovery Strengthening, but Much Work Remains


WEOBy: Olivier Blanchard

(Versions in Español عربيРусский,  Français, and 中文 )

I want to take a moment today to remember our colleague Wabel Abdallah, who was our resident representative in Afghanistan and who, as many of you know, was killed in the terrorist attack in Kabul on Friday. We are mourning a colleague, a friend to many of us, above all a dedicated civil servant who represented the best the Fund has to offer, and gave his life in the line of duty, helping the Afghan people. Our hearts go out to his family and to the many victims of this brutal attack.

Let me now turn to our update of the World Economic Outlook and distill its three main messages:

First, the recovery is strengthening.  We forecast world growth to increase from 3% in 2013 to 3.7% in 2014.  We forecast growth in advanced economies to increase from 1.3% in 2013 to 2.2% in 2014.  And we forecast growth in emerging market and developing economies to increase from 4.7% in 2013 to 5.1% in 2014.

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The World’s Three-Speed Economic Recovery


WEOBy Olivier Blanchard

(Versions in عربي , 中文, 日本語, Русский, and Español)

The main theme of our latest outlook is one that you have now heard for a few days: we have moved from a two-speed recovery to a three-speed recovery.

Emerging market and developing economies are still going strong, but 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.

This is reflected in our forecasts. Growth in emerging market and developing economies is forecast to reach 5.3% in 2013, and 5.7% in 2014. Growth in the United States is forecast to be 1.9% in 2013, and 3.0% in 2014. In contrast, growth in the Euro area is forecast to be -0.3% in 2013, and only 1.1% in 2014.

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Europe: Toward A More Perfect Union


Nemat Shafik 4

By Nemat Shafik

During the years that followed the euro’s introduction, financial integration proceeded rapidly and markets and governments hailed it as a sign of success. The widespread belief was that it would benefit both south and north—capital was finally able to flow to where it would best be used and foster real convergence.

But in fact, a lasting convergence in productivity did not materialize across the European Union. Instead, a competitiveness divide emerged. As the financial crisis gripped the euro area in 2010, these and other problems came to the fore.

Three years later, the financial symptoms of the crisis are thankfully receding with a new sense of optimism in markets. But the underlying problems—lack of convergence of productivity and the structural flaws in the architecture of the monetary union—have only been partially addressed.

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We May Have Avoided the Cliffs, But We Still Face High Mountains


WEO

by Olivier Blanchard

Version in Español  and عربي

Optimism is in the air, particularly in financial markets. And some cautious optimism may indeed be justified.

Compared to where we were at the same time last year, acute risks have decreased. The United States has avoided the fiscal cliff, and the euro explosion in Europe did not occur. And uncertainty is lower.

But we should be under no illusion. There remain considerable challenges ahead. And the recovery continues to be slow, indeed much too slow.

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The Ties That Bond Us: What Demand For Government Debt Can Tell Us About the Risks Ahead


by Serkan Arslanalp and Takahiro Tsuda

It’s not news that emerging markets can be vulnerable to bouts of market volatility. Investors often pull sudden stops—they stop buying or start selling off their holdings of government bonds.

But what has become apparent in recent years is that advanced economy government bond markets can also experience investor outflows, and associated runs. At the same time, some traditional and new safe haven countries have seen their borrowing costs drop to historic lows as they experience rising inflows from foreign investors.

Our new research shows that advanced economies’ exposure to refinancing risk and changes in government borrowing costs depend mainly on who is holding the bonds— the demand side for government debt.

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World Faces Weak Economic Recovery


By Olivier Blanchard

(Versions in  عربي中文EspañolFrançaisРусский日本語)

The global recovery continues, but the recovery is weak; indeed a bit weaker than we forecast in April.

In the Euro zone, growth is close to zero, reflecting positive but low growth in the core countries, and negative growth in most periphery countries.  In the United States, growth is positive, but too low to make a serious dent to unemployment.

Growth has also slowed in major emerging economies, from China to India and Brazil.

Downside risks, coming primarily from Europe, have increased.

Let me develop these themes in turn.

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Mediocre Growth, High Risks, and The Long Road Ahead


By Olivier Blanchard

(Versions in Español, عربي)

For the past six months, the world economy has been on what is best described as a roller coaster.

Last autumn, a simmering European crisis became acute, threatening another Lehman-size event, and the end of the recovery.  Strong policy measures were taken, new governments came to power in Italy and Spain, the European Union adopted a tough fiscal pact, and the European central bank injected badly needed liquidity.   Things have quieted down since, but an uneasy calm remains.  At any moment, it seems, things could get bad again.

This shapes our forecasts.  Our baseline forecast, released by the IMF on April 17,  is for low growth in advanced countries, especially in Europe.  But downside risks are very much present.

Brakes hampering growth

This baseline is constructed on the assumption that another European flare-up will be avoided, but that uncertainty will linger on.   It recognizes that, even in this case, there are still strong brakes to growth in advanced countries:  Fiscal consolidation is needed and is proceeding, but is weighing on growth.  Bank deleveraging is also needed, but is leading, especially in Europe, to tight credit.  In many countries, in particular in the United States, some households are burdened with high debt, leading to lower consumption. Foreclosures are weighing on housing prices, and on housing investment.

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