Global growth projections predominantly positive
What is the global outlook for the second half of 2014?
ACCORDING TO the International Monetary Funds's (IMF) World Economic Outlook (WEO) October 2014, the world economy is expected to grow at an average rate of 3.7 per cent this year.
Improvements in growth projections are endorsed by a slightly better global economic performance in the second half of the year relative to the first half. This increase in economic growth globally in the latter part of the year can be attributed to adjustments to government policy to facilitate growth in the more advanced economies, which will increase world demand as a result of increased income.
What are the projections?
The WEO October 2014 explains that growth in the more developed countries, including the US and China, will pick up towards the end of the year. Growth is expected to be restored as temporary disadvantages to demand and production arising from geopolitical and other issues gradually disappear. The revised global output projection for US and China are projected to improve. Growth for other countries, however, are expected to be slightly less than that which was predicted earlier this year, with a minor decline in growth projections for Japan, the Middle East, the euro area, Latin America and emerging markets.
What will drive growth in the US and China?
Growth in the US is expected to average roughly three per cent in the second half of 2014. Improvements in economic growth in the US will arise from the implementation of the correct monetary policy stance and good conditions in financial markets balanced by a more favourable fiscal policy, stronger household income and restored strength in the housing market. The increase in output and demand should result in lower unemployment rate, which might not appear so if the labour force participation rate increases.
Growth projections in China are expected to be less than predicted earlier this year due to weak first-quarter performance in 2014. The government has subsequently altered fiscal policy providing tax breaks and incentives to business to improve performance.
Subsequently, growth in output will continue to increase and the country's economic performance is expected to be better towards the end of the year.
What about growth for other advanced economies?
Growth projections for other advanced economies are expected to improve towards the latter part of this year. Growth in the euro area is expected to average 0.8 per cent, a slightly weaker projection made earlier this year. Growth in the second half of the year is expected to be better than growth in the first half of the year arising from an improved fiscal and monetary policy stance.
Growth projections are positive for the other advanced countries, including the UK, Canada and Sweden. Growth for the UK, in particular, is expected to be approximately 3.2 per cent this year, slightly better than the original predictions. This will arise from marginal improvements in consumption patterns and business investments, along with improved credit and financial market conditions.
What about emerging markets and developing economies?
Increases in demand in the more developed countries will help to drive growth in emerging market and developing countries. Growth in deve-loping countries, including Jamaica, is expected to improve towards the latter part of this year due to increased domestic demand, global demand and better overall market conditions arising from faster growth in the more advanced economies. Global growth will be driven by growth in the more developed countries and emerging markets, with less growth occurring in the developing world.
Growth projections, although positive, are slightly less than that predicted earlier this year due to weaker-than-expected performance in the first quarter of 2014.
What about Jamaica?
Economic projections for Jamaica remain positive towards the end of the year. Growth is expected to be little over one per cent, the usual. Based on the IMF agreement, a primary surplus of 7.5 per cent of GDP must be maintained, which limits fiscal policy as a tool to propel growth further. Doing business requirements have improved on the index. However, tax rates remain high and small businesses still face problems when trying to access credit. Overall, unless there is a permanent positive productivity shock, do not expect any astronomical increase in economic growth this year or any years to come.
Dr Andre Haughton is a lecturer in the Department of Economics on the Mona campus of the University of the West Indies. Follow him on Twitter @DrAndreHaughton; or email firstname.lastname@example.org. You can check out his blog: Economics for Busy People https://andrehaughton.wordpress.com or facebook: https://www.facebook.com/DrAndreHaughton.