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Earlier today, the International Monetary Fund released its semi-annual World Economic Outlook, subtitled “Hopes, Realities, Risks.”
From a 30,000 foot view, the IMF thinks that the world economy is beginning to recovery from a slow 2012 although risks to the economy are still being considered high “in the medium term.” The report cited two major challenges: the debt of advanced countries and the potential excesses in emerging and developing economies.
I hate to be the bearer of bad news, but on a regional basis the IMF is expecting long-term stagnation for Europe in general. In fact, “the near-term outlook for the euro area has been revised downward by a 1/2% from the October 2012 report, from a 1/4% expansion to a 1/4% contraction. The IMF is looking for a 3/4% growth in the UK, down 1/4% from the the last report, in light of “weak external demand and ongoing fiscal consolidations.” The report claims that “domestic rebalancing from the public to the private sector is being held back by deleveraging, tight credit conditions, and economic uncertainty, while declining productivity growth and high unit labor costs are holding back much needed external rebalancing.”
By contrast, the outlook for North America calls for modest growth now that there is ample evidence of a recovering housing market and the avoidance of the “fiscal cliff.” Nonetheless the IMF questions the durability of the current solutions to the fiscal risks facing the United States, including “the need to raise the debt ceiling and the deep, automatic budget cuts under sequester.” The IMF spared no words, saying that “Developing a comprehensive medium term deficit-reduction framework remains the top policy priority in the United States.”
The report expects the Latin American and Caribbean countries to continue their collective recovery. However, the main risks ahead are considered dominating. Those risks primarily include the potential reversal of easy external financing and favorable commodity prices.
Growth in the Middle East and Northern Africa is largely divided by oil-producing countries and oil-importing countries. For exporting countries, growth in 2012 was described as robust at 5-3/4%, but is expected to retract on “relatively weak global oil demand.” The IMF expects inflation to remain moderate in the oil-producing countries. For the importers, the report realistically cites “continued political uncertainty and social unrest” as threats to continued modest growth.
The outlook for Russian and the Commonwealth of Independent States is one of continue growth in the 3-1/2% range, but Turkmenistan is projected to have a growth rate of up to 8% because of its growing oil exports and public investment.
Sub-Saharan Africa is expected to continue to grow at about 5-1/2%, primarily driven by private consumption and investment, followed by a rate of about 6% in 2014.
While it is expected that China will continue to grow at a rate of 8%, a slight increase, Japan’s economy is also expected to respond according to plan as a result of the recent quantitative and qualitative easing actions of the new administration. The IMF report specifically “welcomed” the moves made by the Bank of Japan.
A concern from the report that will probably go largely unreported is that of the news media’s used of the word “uncertainty” in reference to the economy. That, concern and the IMF’s commentary on it are something that we are going to want to study, because the issue goes far beyond reporting to defining reporting terms. Correct terminology is not a bad thing, but imposing terminology on the international media may be another thing.
The report concluded with the IMF citing two concerns.
- That moderate inflation could induce both public and governmental complacency. Or, as the report says, that “would be a big mistake.“
- That political pressure and limited central bank independence heightens the risk for runaway inflation.
Let me leave you with this sage bit of wisdom from John Kenneth Galbraith: “Economics is extremely useful . . . as a form of employment for economists.” And so it goes.
