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IMF / WEO PRESSER
STORY: IMF / WEO PRESSER
TRT: 2.29
SOURCE: IMF
RESTRICTIONS: NONE
LANGUAGE: ENGLISH /NATS
DATELINE: 7 OCTOBER 2014, WASHINGTON DC
1. Med shot, panel
2. Wide shot, journalists
3. Med shot, panel
4. SOUNDBITE (English) Olivier Blanchard, Chief Economist at the IMF:
“The recovery continues. But, it is weak and it is uneven.”
5. Cutaway, reporters
6. SOUNDBITE (English) Olivier Blanchard, Chief Economist at the IMF:
“We think the case for infrastructure investment is very strong because it can be done in an economy which has underemployed labor and underemployed capital, so it’s not displacing other activity. It can be done and financed at very low interest rates. And, in a number of countries, there are clear infrastructure needs, which haven’t been tended to over the last decade.”
7. Close up, reporter asking question
8. SOUNDBITE (English) Thomas Helbling, Chief of the World Economics Outlook Division at the IMF:
“Some of the sanctions or uncertainty about the extent of the sanctions which they will affect investment and the ability of foreign investors to participate in projects in Russia will lead to very tepid investment going forward.”
9. Med shot, reporters
10. SOUNDBITE (English) Olivier Blanchard, Chief Economist at the IMF:
“We think that it can make a difference. We think that one of the difficulties in Europe today is credit to small and medium sized enterprises. We think that an ABS market would be… a good, healthy ABS market would be useful. This is a market in which the spreads are still sometimes quite large, so we think that the ECB can indeed help by developing that program.”
11. Wide shot, cameras
12. SOUNDBITE: (English) Olivier Blanchard, Chief Economist at the IMF:
“Given that Spain needs to increase competitiveness, it needs to have very low inflation – maybe even deflation. We were very worried that deflation would lead to high interest rates and low internal demand. The good news about Spain is that at this stage, although growth is not very strong, it is strong. And it relies not only on export but also internal demand and that’s very good news.”
13. Med shot, panel
14. Zoom out, panelists leaving
A weak and uneven global economic recovery continues, but reflecting different evolutions across various countries and regions, says the IMF’s latest World Economic Outlook (WEO).
“The recovery continues. But, it is weak and it is uneven,” said says Olivier Blanchard, Economic Counsellor and head of the IMF’s Research Department.
The IMF forecasts global growth to average 3.3 percent in 2014―unchanged from 2013―and to rise to 3.8 percent in 2015. The weaker growth outlook for 2014 than expected in April 2014 reflects setbacks to economic activity in the advanced economies during the first half of 2014, and a less optimistic outlook for several emerging market economies, says the report.
Two underlying forces weigh on global recovery, according to Blanchard. He says the “legacies” of the precrisis boom and the subsequent recession, notably high debt burdens and unemployment, still weigh on the recovery. And, he says low potential growth ahead is a concern. Several emerging markets are also adjusting to lower potential growth.
Blanchard pointed to infrastructure investment as a potentially strong tool in fostering a more sustained recovery.
“We think the case for infrastructure investment is very strong because it can be done in an economy which has underemployed labor and underemployed capital, so it’s not displacing other activity. It can be done and financed at very low interest rates. And, in a number of countries, there are clear infrastructure needs, which haven’t been tended to over the last decade,” he said.
At the same time, Blanchard notes, economic evolution is becoming more differentiated in major countries and regions, with the pace of recovery reflecting various country-specific conditions.
In advanced economies, growth is forecast to rise to 1.8 percent in 2014 and 2.3 percent in 2015.
Much of the projected strengthening in activity reflects faster growth in the United States following a temporary setback in the first quarter of this year. Employment growth has been strong, and household balance sheets have improved amid favorable financial conditions and a recovering housing market.
In the euro area, recent growth disappointments highlight lingering fragilities. A gradual, but weak recovery is projected to take hold, supported by a sharp compression in interest spreads for stressed economies and record-low long-term interest rates in core euro area economies.
In Japan, GDP contracted more than expected in the second quarter of 2014 in the wake of an increase in the consumption tax. Looking ahead, private investment is forecast to recover and growth to remain broadly stable in 2015.
Growth in emerging market and developing economies will continue to account for the lion’s share of global growth. Still, at 4.4 percent for 2014, the growth forecast is a bit weaker than in the April 2014 WEO. This slowdown is due to lackluster domestic demand and the impact of increasing geopolitical tensions, especially on Russia and neighboring countries.
Thomas Helbling, the head of the World Economics Outlook Division at the IMF said Russia’s growth is expected to be 0.2 percent in 2014 and 0.5 percent for next year. He said the tensions have made “an already difficult investment environment worse.”
“Some of the sanctions or uncertainty about the extent of the sanctions which they will affect investment and the ability of foreign investors to participate in projects in Russia will lead to very tepid investment going forward,” said Helbling.
In China, growth is expected to decline slightly in 2014-15 to 7.4 percent, as the economy transitions to a more sustainable path. Growth is expected to remain strong elsewhere in emerging and developing Asia.
In Latin America, the growth rate is forecast to decrease by half this year, to around 1.3 percent, due to declining exports as well as domestic constraints. Growth is expected to rebound to around 2.2 percent in 2015.
In sub-Saharan Africa, stronger growth is expected because of supportive external demand conditions and strong investment demand, although prospects vary across countries.
In the Middle East and North Africa, the recovery remains fragile even as growth is expected to start picking up modestly on the back of improving domestic security conditions and improving external demand. Similar considerations underpin modest improvements in activity in Russia and other economies of the Commonwealth of Independent States.
The October WEO emphasizes the increase in downside risks—both in the short and medium term—that could dent global confidence and growth.
Heightened geopolitical risks could prove more persistent, and they could also worsen. The result could be sharply higher fuel prices, trade disruptions, and further economic distress.
Blanchard said the European Central Bank’s plan to buy asset-backed securities could help promote growth.
“We think that it can make a difference. We think that one of the difficulties in Europe today is credit to small and medium sized enterprises. We think that an ABS market would be… a good, healthy ABS market would be useful. This is a market in which the spreads are still sometimes quite large, so we think that the ECB can indeed help by developing that program,” said Blanchard.
The IMF also warned that easy financial conditions, and the resulting search for yield, could fuel financial excess. Markets may have underpriced risks by not fully internalizing the uncertainties around the global outlook. A larger-than-expected increase in U.S. long-term interest rates, geopolitical events, or major growth disappointments could trigger widespread disruption.
In advanced economies, secular stagnation (a situation of a persistent shortfall of investment relative to saving, even with near-zero interest rates) and low potential growth continue to be important medium-term risks—despite continued very low interest rates and increased risk appetite in financial markets. Protracted low inflation or outright deflation, particularly in the euro area, could pose a risk to activity and debt sustainability in some countries.
Blanchard said Spain appears to be avoiding some of the potential pitfalls as it seeks growth in a climate of overall low inflation throughout the euro area.
“Given that Spain needs to increase competitiveness, it needs to have very low inflation – maybe even deflation. We were very worried that deflation would lead to high interest rates and low internal demand. The good news about Spain is that at this stage, although growth is not very strong, it is strong. And it relies not only on export but also internal demand and that’s very good news.”
For emerging markets, potential growth could be even lower than projected, if supply-side constraints prove more protracted.
In the face of weaker-than-expected global growth for the first half of 2014 and increased downside risks, growth may again fail to pick up or may fall short of expectations. This underscores that, in most economies across the globe, raising actual and potential output must remain a priority, the IMF says.
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