The global recovery is likely to gather momentum this year and next, but at a slightly slower pace than seemed likely three months ago, the International Monetary Fund predicted yesterday.
Without any signs of an end to the “two-speed” world economy – with emerging economies powering ahead while high-income countries languish in the slow lane – the fund called for action to boost confidence and growth in advanced countries.
“Policy actions have lowered acute crisis risks in the euro area and the United States. But in the euro area, the return to recovery after a protracted contraction is delayed,” the update to the fund’s world economic outlook concluded.
It noted that the latest data for the third-quarter of 2012 were strong but this good news “masked old and new areas of weakness”, while output in peripheral euro zone countries and in Japan was even weaker than the fund had expected.
The IMF trimmed its 2013 forecast for global growth to 3.5 per cent from the 3.6 per cent it projected in October, but said it looked for expansion of 4.1 per cent in 2014 if the euro zone recovery takes a firm hold.
It said the world economy grew 3.2 per cent last year.
Healthy global growth rates of above 4 per cent were last seen in 2010, when output expanded 5.1 per cent as the financial crisis eased.
Optimism
“Optimism is in the air, particularly in financial markets, and some cautious optimism may indeed be justified,” the IMF’s chief economist, Olivier Blanchard, said at a news conference. “Comparing to where we were at the same time last year, acute risks have decreased,” he said.
He noted that Washington had largely dodged the “fiscal cliff” of tax hikes and spending cuts that were seen as a risk to growth and that policy actions in Europe had helped calm the region’s debt crisis.
Still, the IMF warned that big downside risks remain, including that the euro zone’s crisis could flare anew and the US Congress could tighten the budget excessively.
Mr Blanchard said growth would be too tepid this year to lower unemployment in advanced economies.
– Copyright The Financial Times Limited 2013/Reuters
