IMF: The global economy keeps growing except Eurozone

Economic Counsellor and Director of the Research Department of IMF, Olivier Blanchard answers questions from the press after their joint press conference on the World Economic Outlook April 16, 2013 at the IMF Headquarters in Washington, DC. (IMF Staff photograph/Stephen Jaffe).

Economic Counsellor and Director of the Research Department of IMF, Olivier Blanchard answers questions from the press after their joint press conference on the World Economic Outlook April 16, 2013 at the IMF Headquarters in Washington, DC. (IMF Staff photograph/Stephen Jaffe).

IMF’s research department published yesterday its latest report on World Economic Outlook (WEO), with good news for the global economy and bad news for Eurozone. Actually, Olivier Blanchard, IMF’s chief economist and director of its Research Department, was quoted as saying that because of Eurozone’s problems, “We have moved from a two-speed recovery to a three-speed recovery. Emerging market and developing economies are still going strong, but in advanced economies, there appears to be a growing bifurcation between the United States on the one hand and the euro area on the other.”

According to the WEO real global GDP will grow by 3.3% on an annual average basis in 2013, about the same as in 2012, while the IMF expects growth to rise to 4% in 2014. Developing and emerging economies will continue leading global growth this year and in 2014. The same source estimates that “in the US larger-than-expected fiscal adjustment is projected to keep real GDP growth to about 2% in 2013. In the euro area, real GDP is projected to contract by about ¼ percent this year before growing again in 2014”.

Overall IMF’s projections for the world economy can be judged as being in the positive side, with the exemption of Eurozone. Even the Japanese economy will start growing again given its new fiscal and monetary stimulus. As a result the GDP of the country of the rising sun is expected to increase by 1.5% in 2013, not at all a bad prospect after the many years of stagnation.

Do it like the BoJ

At this point is very interesting to note that the new relaxed monetary policies of the Bank of Japan, the central bank of the country, didn’t attract criticism by the other global players nor by the IMF, for causing a large devaluation of the yen. After the change at the helm of the BoJ, its new governor Haruhiko Kuroda, decided to decisively support the government’s plans to realise an ambitious spending programme, aimed at revitalising the economy through a number of infrastructure projects. The BoJ now keeps buying government bonds replenishing the executive’s coffers, thus performing a twofold task with its quantitative easing.

For one thing it provides the government with the financial means to realise an ambitious infrastructure programme. At the same time however this “free printing of yen”, has another major direct result generously devaluing the Japanese money. In this way exports are being technically subsidised becoming cheaper while imports are more expensive. The final result is that the cheaper yen helps the country’s economy start growing again. Of course this policy is very detrimental to the country’s main competitors in global markets, with China and South Korea first to take the heat.

The interesting thing is though that the West, the US and the EU, didn’t complain at all with this abrupt and technical devaluation of the yen vis-à-vis the dollar and the euro. An explanation could be that for one thing the American central bank, the Fed, does the same in the US. As for Eurozone the devalued Japanese money doesn’t seem much of a threat. As a result the traditional bonds between Japan and the West prevailed in this affair, letting China and South Korea pay the price.

IMF

The ‘European Sting’ follows this affair right from the beginning. The obvious lesson Eurozone can take from this new Japanese policy package is that the euro area could do the same. The two economic entities are very similar. Both Europe and Japan suffer or are threatened to endure a long period of negative economic development. Both currencies are comfortably sitting on foreign trade surpluses on goods and services transactions. Consequently they don’t run the risk of an uncontrollable devaluation. Last but not least both those two economic entities are confronted with losses of GDP.

Germany disagrees

The only difference is that in Eurozone there is no central government to drag the European Central Bank into a largely relaxed monetary policy. Unfortunately the most powerful Eurozone political executive is sitting in Berlin, with all the malaise this brings to the rest of euro area countries. Germany doesn’t care much about the woes of the others as long as its own economy is not threatened by recession. As result Berlin blocks every proposal for a revitalisation of Eurozone’s economy powered by the money printers, as the US and now Japan do.

Not only that but the Germans try to impose on everybody else their own austere and dry ideology about the economy. This means a neutral monetary policy despite a continuously falling inflation, presently at 1.7%, well below the ECB’s target of 2%. Still Germany insists that countries in deep recession for years like Greece, Ireland and Portugal or in stagnation like Spain, Italy and France must apply austere fiscal policies. At the same time the Eurozone financial market is so fragmented, that all those countries in trouble, except France, are completely cut off from ECB’s cheap money policy. As a result a large number of countries are invariably condemned to a bleak economic future (see George Pepper’s, “Everybody against Japan over yen’s devaluation” and Maria Milouv’s, “South Eurozone needs some…inflation and liquidity”).

Returning to IMF’s WEO, its authors estimate that “Global economic conditions have improved during the past six months. Advanced economy policymakers successfully defused two of the biggest short-term risks to global activity—the threat of a euro area breakup and a sharp fiscal contraction in the United States. Financial markets have rallied in response, and financial stability has improved”. Still the contrast remains between the growing US economy and a retreating Eurozone.

Overall in 2013–14, the divergences between the advanced economies are projected to narrow, says IMF. This means the US, Japan and hopefully Eurozone will converge on a mild growth path. If policymakers deliver on their commitments this WEO report anticipates continued easing of the brakes on real economic activity, and a strengthening of growth in the advanced economies as from the second half of 2013. IMF economists also predict that growth in emerging market and developing economies will remain robust, strengthening from about 5% in 2012 to 5.25% in 2013 and 5.75% in 2014. Activity in most of these economies has already picked up after a slowdown in 2012, thanks to resilient consumer demand, supportive macroeconomic policies, and a revival of exports.

All in all the world economy seems to have definitively recovered from the last financial and credit crisis. At least the developing economies appear able to drag the rest of the globe into a new growth period. Eurozone will remain however a big question-mark all along this year. If it doesn’t recover during the second half, its prospects for 2014 should be undercut.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the sting Milestone

Featured Stings

How to build a more resilient and inclusive global system

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

Stopping antimicrobial resistance would cost just USD 2 per person a year

Inflation and interest rates indicate urgent need for action

Manufacturing is finally entering a new era

Millions of Bangladeshi children at risk from climate crisis, warns UNICEF

Could robot leaders do better than our current politicians?

8th Euronest Assembly: the future of relations with Eastern partners

The metamorphosis of the categorical imperative in medical students

FROM THE FIELD: Hardy seeds bear fruit to protect Colombia’s environment

Peace will be ‘paramount’ issue for incoming Afghan Government: UN mission chief

G20 GDP growth nudges up to 1.0% in the second quarter of 2018

New Disability Inclusion Strategy is ‘transformative change we need’, says Guterres

New chapters in EU-China trade disputes

Postal workers in France are helping elderly people fight loneliness

Terrorist content online: companies to be given just one hour to remove it

Electronic cigarettes – The alternative we’ve been looking for?

Merkel had it her way with the refugees & immigrants but can Greece and Turkey deliver?

Access to health in the developping world

ILO: Progress on gender equality at work remains inadequate

The economic cost of anti-vaccination movements in Italy

Canada grants asylum for Saudi teen who fled family: UNHCR

Getting vaccinated should just be considered a human right?

EP Brexit Steering Group calls on the UK to overcome the deadlock

What India’s route to universal health coverage can teach the world

“Working together to make a change at the COP 21 in Paris”, an article by Ambassador Yang of the Chinese Mission to EU

UN Mission in Afghanistan gravely concerned about ill-treatment of prisoners by Taliban, following first-hand testimony

The New Year 2016 will not be benevolent to Europe

UN envoy commends successful conclusion of Guinea-Bissau presidential election

Hydrogen power is here to stay. How do we convince the public that it’s safe?

Eurozone retail sales fall shows recession

How robotics can help humanitarians bridge the digital divide

4 ways to make your wardrobe more sustainable

Not faith, ‘but those who manipulate the faithful’ driving wedge between religions, UN-backed forum in Baku told

Press conference by EC Vice-Presidents Valdis Dombrovskis (left) and Jyrki Katainen, on the Commission's proposals in the framework of the financial union (Source: EC Audiovisual Services / Copyright: EU, 2018 / Photo by Georges Boulougouris)

EU Finance ministers agree on new banking capital rules and move closer to Banking Union

A Sting Exclusive: “Europe must be more ambitious in COP21 and lead on climate finance and sustainable development”, Green UK MEP Jean Lambert points out from Brussels

Sudan: ‘Violence must stop’, says UNICEF chief, ‘gravely concerned’ over 19 child deaths since military backlash

Deal on protecting workers from exposure to harmful substances

The energy industry is changing. Are governments switched on?

Youth Parliament to finalise millennials´ priorities for future of the EU

Syria’s Idlib ‘on the brink’ of a nightmare, humanitarian chiefs warn, launching global solidarity campaign

Guterres says justice must be done following deadly Burkina Faso convoy attack

The European Sting @ the European Business Summit 2014 – Where European Business and Politics shape the future

Gender parity can boost economic growth. Here’s how

YO!FEST ENGAGES 8,000 YOUNG EUROPEANS IN FUTURE OF EU

FROM THE FIELD: Watering the parched farmland of São Tomé and Príncipe

Asia and Pacific on course to miss all Sustainable Development Goals, says UN region chief

What the US and the world can expect from the 8 November election?

JADE at European Business Summit 2015

Rising inequality affecting more than two-thirds of the globe, but it’s not inevitable: new UN report

UN forum to bring ‘big space data’ benefits to disaster response in Africa

Electronic or conventional cigarettes – which is safer?

The global liberal order is in trouble – can it be salvaged, or will it be replaced?

Civilian death toll continues to mount in Syria, UN relief chief tells Security Council

Brexit update: Will the EU grant extention to Britain preventing economic chaos?

4 big trends for the sharing economy in 2019

UN Security Council welcomes results of Mali’s presidential elections

Single-use plastics: New EU rules to reduce marine litter

5 things to know about the exploding world of pro gaming

How to make primary healthcare a favourable career choice for medical students: Strategies and reflections

Why trust and technology go hand-in-hand

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s