Tag: macroeconomic environment

The IMF has just published its 6-monthly World Economic Outlook report. The report is moderately optimistic, arguing that ‘global activity has broadly strengthened and is expected to improve further in 2014–15’. World growth is expected to rise from 3.0% in 2013 to 3.6% in 2014 and 3.9% in 2015,

Much of the impetus for an acceleration in growth is expected to come from advanced countries. Growth in these countries is expected to average 2¼% in 2014–15, a rise of 1 percentage point compared with 2013. Part of the reason is that these countries still have large output gaps and thus have considerable scope to respond to rises in aggregate demand.

Monetary policy in advanced countries remains accommodative, although the USA has begun to taper off its quantitative easing programme. It is possible, however, that the ECB may make its monetary policy more accommodative, with signs that it might embark on quantitative easing if eurozone growth remains weak and if the risks of deflation rise. If the average price level in the eurozone does fall, this could dampen demand as consumers defer consumption until prices have fallen.

As far as emerging economies are concerned, growth is projected to ‘pick up gradually from 4.7 percent in 2013 to about 5 percent in 2014 and 5¼% in 2015’. Although predicted growth is higher in emerging countries than in advanced countries, its acceleration is less, and much of the predicted growth is dependent on rising export sales to the advanced countries.

Global growth, however, is still fragile. Emerging market economies are vulnerable to a slowing or even reversal of monetary flows from the USA as its quantitative easing programme winds down. Advanced countries are vulnerable to deflationary risks. ‘The result [of deflation] would be higher real interest rates, an increase in private and public debt burdens, and weaker demand and output.’

The UK is predicted to have the strongest growth (2.9%) of the G7 countries in 2014 (see above chart). But the IMF cautions about being too optimistic:

Growth has rebounded more strongly than anticipated in the United Kingdom on easier credit conditions and increased confidence. However, the recovery has been unbalanced, with business investment and exports still disappointing.

Articles

IMF: World economy stronger; recovery uneven USA Today, Paul Davidson (8/4/14)
Emerging markets feel the pressure The Telegraph, Szu Ping Chan (8/4/14)
IMF cuts downturn danger to near zero Financial Times, Chris Giles (8/4/14)
IMF warns eurozone and ECB on deflation threat RTE News (8/4/14)
Recovery strong but risk shifts to emerging markets: IMF CNBC, Kiran Moodley (8/4/14)
IMF: World economy is stronger but faces threats Bloomberg Businessweek, Christopher S. Rugaber (8/4/14)
IMF: UK economic growth to reach 2.9% in 2014 BBC News (8/4/14)
IMF: UK economic growth to reach 2.9% in 2014 BBC News, Hugh Pym (8/4/14)
Five signs that the global economic recovery may be an illusion The Guardian, Larry Elliott (6/4/14)

Report and data
World Economic Outlook (WEO) International Monetary Fund (8/4/14)
World Economic Outlook Database IMF (8/4/14)

Questions

  1. Why does the IMF expect the world economy to grow more strongly in 2014 and 2015 than in 2013?
  2. What are the greatest risks to economic growth for (a) advanced countries; (b) developing countries?
  3. What geo-political events could negatively affect economic growth in (a) the eurozone; (b) the global economy?
  4. In what ways is the UK’s economic growth unbalanced?
  5. How much credence should be given to economic forecasts?
  6. Should countries’ economic performance be judged primarily by their growth in GDP?

Now that Tony Blair has announced that he is to step down as Prime Minister, the media has started to consider his legacy. The two articles focus on the economic legacy. While the BBC one is quite factual in its approach, the article by Larry Elliott from the Guardian is less complementary about his legacy.

The business of Tony Blair’s decade BBC News Online (10/05/07)
Blair’s legacy: a fantasy island trying to live beyond its means at every level Guardian (14/05/07)
Blair’s economic record (video) BBC News Online (10/05/07)


Questions
1. Explain why Larry Elliott considers that we are living on a ‘fantasy island’.
2. Explain the main economic changes that have been implemented during Tony Blair’s time in office.
3. Discuss the extent to which the economic situation has improved under Tony Blair for (a) firms and (b) consumers.