The International Monetary Fund today offered an update on its World Economic Outlook forecasts (PDF), predicting global growth of 3.5%. That’s more than in 2012 but less than the fund had hoped in October, so the global fiscal scolds don’t want policymakers to get complacent. Some more predictions:
The euro zone will be in a recession in 2013, contracting by .2%. Once again, the troubled continent is the “large downside risk to the global outlook.” What is the IMF warning them about? Failing to integrate its financial center and support “adjustment efforts in the periphery countries”—meaning, fiscal transfers from countries like France and Germany to Greece, Spain, and Italy.
Japan will come out of recession. Despite current growth problems, the IMF expects Prime Minister Shinzo Abe’s stimulus plan to keep the country on a slow path to expansion, while political disputes with China that hurt trade will be resolved. What is the IMF warning them about? Not backstopping its ambitious stimulus plans with some structural reforms and tax hikes in 2014 and 2015.
Emerging markets doing better than expected but not as well as in 2010 and 2011. The world’s developing economies will grow faster than last year, at about 5.5%, but without high commodity prices or demand from the slow-growing advanced economies, domestic conditions will have a bigger effect on their futures. What is the IMF warning them about?
The US will grow about 2% on the year, thanks to avoiding the fiscal cliff, the housing market recovery, and American consumers’ successful deleveraging process. What is the IMF warning them about? Cutting the budget too fast. If scheduled spending cuts go into effect and the US reduces its deficit by more than 1.25% of GDP, the increased pace of public money flowing out of the US economy will mean slower growth.
By the way, with all this stimulus, will there be currency wars? “This increasing talk of currency wars is very much overblown,” IMF Chief economist Oliver Blanchard declares. Capital flows to emerging markets haven’t been notable in recent years, and the effects of domestic stimulus on exchange rates aren’t damaging to the global economy.