Low-income countries still leaders of economic growth
McPherse Thompson, Assistant Editor - Business
Low-income developing countries continue to perform remarkably with their growth rate forecast of 6.1 per cent in 2014, rising further to 6.5 per cent in 2015, according to the International Monetary Fund (IMF).
Comparatively, the forecast is for global growth to average 3.3 per cent in 2014 - unchanged from 2013 - and rise to 3.8 per cent in 2015, said Olivier Blanchard, economic counsellor and head of the IMF's Research Department.
A weak and uneven global economic recovery continues, but is reflecting different evolutions across various countries and regions, Blanchard told a press briefing at the launch of the October 2014 World Economic Outlook at the IMF and World Bank annual meetings.
The weaker growth outlook for 2014 reflects setbacks to economic activity in advanced economies during the first half of the year, and a less optimistic outlook for several emerging market economies, says the report.
Potential growth rates - that is, the pace at which annual output can expand without pushing up inflation - are also being revised down. "These worse prospects are in turn affecting confidence, demand and growth today," Blanchard said.
Pointing to two underlying forces which weighed on global recovery, Blanchard said that "in advanced economies, the legacies of the pre-crisis boom and the subsequent recession, notably high debt burdens and unemployment, still cast a shadow on the recovery, and low potential growth ahead is a concern."
Across the globe, investment has been weaker than expected for some time. As a result, "global growth is still mediocre," Blanchard said.
In advanced economies, growth is forecast to rise to 1.8 per cent in 2014 and 2.3 per cent in 2015.
The IMF said much of the projected strengthening in activity reflected faster growth in the United States following a temporary setback in the first quarter. It said employment growth has been strong, and household balance sheets have improved amid favourable financial conditions and a recovering housing market.
In the eurozone, recent growth disappointments highlight lingering fragilities. A gradual, but weak recovery is projected to take hold, supported by a sharp compression in interest spreads for stressed economies and record low, long-term interest rates in core euro area economies.
The Fund said growth in emerging markets and developing economies will continue to account for the lion's share of global growth. However, at 4.4 per cent for 2014, the forecast is a bit weaker than in the April 2014 economic outlook, partly attributed to lacklustre domestic demand and the impact of increasing geopolitical tensions, especially on Russia and neighbouring countries.
In Latin America, the growth rate is forecast to decrease by half this year to around 1.3 per cent due to declining exports as well as domestic constraints. However, growth is expected to rebound to around 2.2 per cent in 2015, the report said.
In the face of weaker-than-expected global growth for the first half of 2014 and increased downside risks, growth may again fail to pick up or may fall short of expectations, the Fund said. "This underscores that in most economies across the globe, raising actual and potential output must remain a priority," it added.
"The challenge for both advanced and emerging market economies is to go beyond the general mantra of 'structural reforms', to identify which reforms are most needed, which reforms are politically feasible," Blanchard said.
More generally, policymakers need to "re-establish confidence through clear plans to deal with both the legacies of the crisis and the challenge of low potential growth," he added.