The Global Economy in Turbulent Times

CHAPTER 21 Spring 2014 Stock Take: Complex Risks Ahead¹

World economic activity picked up in the second half of 2013 and continued to expand into the first quarter of 2014; it can be expected to improve further in 2014–2015. This assessment is contained in the International Monetary Fund’s (IMF) April 2014 World Economic Outlook update, which rolled back marginally from its January 2014 forecast when it was a bit more optimistic before the Ukraine crisis.² This has exacerbated Russia’s sharp economic downturn (following sanctions by the United States and Europe), while the IMF worries about contagion beyond Europe. Even so, the IMF still thinks the global recovery has become not only stronger but also broader. Indeed, the “various brakes that hampered growth are being slowly loosened. Fiscal consolidation is slowing and investors are less worried about debt sustainability.” But the IMF also points to the sharp downturn in some leading emerging market economies (EMEs), including Argentina, Brazil, South Africa, and Turkey, which acted as a drag on global output growth. Their predicament was rooted in domestic policy shortcomings, tighter financial conditions, and a pullback in investment.

The Assessment

The IMF had projected global growth to strengthen to 3.6 percent in 2014 and then to nearly 4 percent in 2015 (from 3.1 percent in 2012–2013), with much of the impetus coming from advanced economies (led by the United States), where growth is expected to improve by nearly 1 ...