On October 8, the IMF released the second 2013 installment of its biannual World Economic Outlook report. Its observations broke dramatically not only with global economic trends of the past few years, but also with the conclusions of the most recent WEO report, released only in April this year. Three themes in particular stand out: a 1.98%
- Developed countries are leading the recovery: For the first time since possibly 2008, developed economies are setting the pace of global economic growth, while developing countries lick their wounds from a bruising summer caused by massive stock market sell-offs in response to private capital flight (in turn caused by speculation of a U.S. Fed tapering that would have . The IMF expects developing countries to grow by around 5% in 2014 (down from the 5.4% predicted by the April WEO), with Chinese growth expected to slow to 7.3% and India managing a hard-fought 5.1% expansion. Among the developed economies, the U.S. is expected to clip past the 2% mark, its potential for stronger growth undermined by self-flaggelatory domestic factors: federal government sequestration (OK, so it’s doing the budget deficit some good) and the double madness that was the October partial government shutdown and threatened debt default.
- The Eurozone is expected to return to (nominal) growth in 2014: Again, in a departure from recent trends, the October WEO expects the Eurozone to exit contraction territory and post a 1% growth in 2014. This perhaps isn’t all too surprising: Spain’s economy, which has been contracting since late 2011, is expected to return to growth in the last quarter of 2013, or so its August Article IV consulation with the IMF suggests (read however the FT’s cautious commentary on the Spanish recovery process). The Greek government expects the economy to expand by 0.6 next year – its first , though Greece’s reliance on bond financing means that, like many emerging economies this summer, it too has taken a
- Talk about the “three-speed recovery” (coined by the April WEO) no longer being operative is a little overblown – we are still witnessing a three-speed recovery, just that the players have switched places over the summer. Back in April, the IMF spoke of the global recovery led by “rapidly growing” emerging economies, followed by the U.S. and trailed by the Eurozone. As the October WEO shows, developed economies have slipped ahead of the emerging economies in the recovery game, with the Eurozone
Poking a wounded tiger
Just as surprising, developed economies used this month’s annual IMF meetings to urge developing countries to get their economies in order – something they haven’t had to do (or rather had the privilege of doing) in a very long while. While the IMF’s October WEO has tried very hard to be as constructive and nuanced with apportioning blame for the summer mess in emerging economies (the cause, according to the IMF, was a combination of developing countries’ failure to rein in procyclicality , developing countries in (the IMF had . In fact, the IMF over the summer released a working paper (an easier summary here) in which it