DOWNSIDE SCENARIO

Watch what happens if the world economy goes wrong this year

April 9, 2014
April 9, 2014

The IMF just released its latest attempt to forecast the health of the global economy, which it thinks will expand by 3.6% this year. The forecast also comes with a warning about what will happen if things go wrong, with growth instead falling to 2.4%, just above the 2% cut-off point that the IMF considers a global recession:

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The good news is that the IMF thinks the risk of a global recession is the lowest it has been for years—a mere 0.1% chance in 2014, down from 6% only six months ago. But it is still reckons Europe and Japan have a 20% chance of suffering economic shrinkage. The biggest fear in IMF’s downside scenario is that emerging markets will enter a protracted slowdown, as the foreign capital on which these countries rely drains away in fear of structural challenges or geopolitical tensions.

If the world economy goes wrong, who are the biggest losers? Venezuela’s recession could become even deeper; Nigeria, now Africa’s largest economy, could miss its forecast growth by more than a percentage point of GDP; Egypt could also lose nearly a percentage point of growth thanks to political strife; and Russian growth could fall below one percent. Major emerging markets like China, Indonesia, and Brazil would not falter by as much, but even modest dips in growth could stoke social upheaval and generate further skepticism from foreign investors in these countries.

But hey, wherever there’s a potential downside, there’s a potential upside, too. While we don’t have data broken out by country for this case, the IMF thinks that there’s an equal chance of an upside scenario in which the global economy grows 5% in 2014. Cross your fingers!

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