The Global Economy in Turbulent Times

CHAPTER 43 US Growth Deficit: Too Loose, Too Long¹

International Monetary Fund’s (IMF) latest July update downgraded its forecasts for the global economy, which will now expand by 3.4 percent in 2014, down from 3.7 percent made in April 2014.² Advanced economies (AEs) continue to struggle to return to normalcy five years after the financial crisis. It also reflects the difficulties emerging and developing economies (EDEs) are facing to raise productivity to sustain growth. Most significant was the 1.1 percentage points cut in US growth where a bad winter and inventory overhang led to a now-revised 2.1 percent contraction in the first quarter of 2014, which was made good by a robust 4 percent growth in the second quarter of 2014. Growth for 2014 is now projected at 1.7 percent, rising to an optimistic 3 percent in 2015. Both AEs and EDEs have been weaker for longer, despite prolonged periods of very low interest rates and fiscal breaks to aid recovery. What’s been intriguing of late is the destabilizing cross-country conflicts, big power standoffs, and some manner of sanctions imposed in Iraq and Syria, and Ukraine and Russia, as MH 17 was shot down. They pose potential threats to energy supplies as well as globalized business links and supply chains. Yet, energy markets have barely really blinked. Crude oil prices should have been more volatile. But Brent crude hovered in the region of US$106 per barrel until this week—where it was at the beginning of this year, indeed, where ...