IMF raises global growth outlook for the first time in almost 2 years
Print Edition
The International Monetary Fund raised its global growth forecast for the first time in nearly two years yesterday amid rising demand and inventories in advanced economies, which picked up the mantle of growth from emerging markets.
But the IMF warned richer nations were still growing below full capacity, and added the specter of deflation to its long list of risks that could derail the nascent recovery.
In an update to its “World Economic Outlook,” the IMF predicted 3.7 percent global economic growth this year, 0.1 percentage point higher than its October projections, and sees growth of 3.9 percent in 2015. It saw higher growth in advanced economies this year but kept its outlook unchanged for the developing world, where higher exports to rich nations should be offset by weak demand at home.
“There will be more growth rotation from emerging market economies to advanced economies in 2014-15,” Olivier Blanchard, the IMF’s chief economist, said in a statement.
The United States is likely to be one of the bright spots, after a budget deal in Congress reduced some of the government spending cuts that had weighed on domestic demand.
US data last month showed a pile-up in business inventories, the most since 1998, helped boost third-quarter GDP, and the IMF expects domestic demand to lift growth to 2.8 percent in 2014.
The IMF also saw a rosier outlook for Britain, amid cheap credit and greater confidence, boosting its forecast for growth to 2.4 percent in 2014 from 1.9 percent in October.
Japan’s prospects also surprised to the upside, as the IMF predicted further fiscal stimulus should offset some impact from a higher consumption tax planned for this spring.
Japan launched an ambitious economic program last year to shock the economy out of nearly two decades of deflation.
The IMF warned other rich nations now risk the same problem of sluggish price growth, which can happen when economies linger well below their full potential.
“It also raises the likelihood of deflation in the event of adverse shocks to activity,” the IMF said.
A falling spiral of prices would weaken demand by making cash more valuable over time, discouraging consumption. It also increases the value of debt, a big problem for highly indebted places like the US and the eurozone.
The IMF urged central banks to avoid raising interest rates too soon while growth remains fragile.
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