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IMF / GLOBAL OUTLOOK
STORY: IMF / GLOBAL OUTLOOK
TRT: 2.28
SOURCE: IMF
RESTRICTIONS: NONE
LANGUAGE: ENGLISH / NATS
DATELINE: 8 JULY, 2013 WASHINGTON, DC
FILE – RECENT, SAO PAULO, BRAZIL
1. Wide shot, Pedestrians crossing street
2. Wide shot, Bus on street
8 JULY, 2013, WASHINGTON, DC
3. SOUNDBITE (English) Olivier Blanchard, Chief Economist, IMF:
“We’re going to revise the forecast relative to last April by a bit. The main effect really comes from the slowdown in emerging market economies, but we also are revising down the euro area forecast. And actually, to some extent, that more or less reflects the first quarter of the U.S. economy.”
FILE – RECENT, BEIJING, CHINA
4. Wide shot, Pedestrians walking down street
8 JULY, 2013, WASHINGTON, DC
5. SOUNDBITE (English) Olivier Blanchard, Chief Economist, IMF:
“If, for example, growth in BRICs was to go down by 2 percent relative to what we predict, then the effect on the U.S., for example, would be half a percent. So it matters.”
FILE – RECENT, BRUSSELS, BELGIUM
6. Pan right, European Council
8 JULY, 2013, WASHINGTON, DC
7. SOUNDBITE (English) Olivier Blanchard, Chief Economist, IMF:
“You have to distinguish between the core countries and the periphery countries. In the core country there is some progress, some structural reforms. Fiscal consolidation is very strong, in France, for example. It will be less in the future, so this is going to help. Banks are not in great shape, but in decent shape. So I think that we’re going to move from negative growth this year to positive growth next year. In the periphery countries the adjustment is very tough. So we’re seeing some adjustments in competitiveness, which is what they need to do, so exports are doing relatively well. But internal demand is very weak. The interest rates are still very high. So at this stage, the turnaround is still not now and we don’t know exactly when it will be.”
8 JULY, 2013, WASHINGTON, DC
8. Zoom in, Ben Bernanke, Chairman, Federal Reserve Board
9. SOUNDBITE (English) Olivier Blanchard, Chief Economist, IMF:
“If we see an increase in interest rates it means that growth is stronger in the U.S., and that’s good for all the countries in the world. It increases their exports. It helps other countries. Now, this being said, the adjustment interest rates is going to have some effects. It’s going to make U.S. bonds more attractive, right? So you’re going to get some of the flows which went to the emerging market countries are going to come back to the U.S. This may mean depreciation in a number of countries. It may mean capital outflows. As we’ve learned from the last few weeks, this may not be a completely smooth process. Along the way you may have quite a bit of volatility, but on that the bottom line remains the same, which is it’s good news for the world.”
RECENT, WASHINGTON, DC
10. Wide shot, exterior IMF exterior
The global economy is growing more slowly than expected, with risks to growth increasing especially in emerging markets, says the IMF in an Update to its World Economic Outlook (WEO). Global growth is now projected at 3.1 for 2013 and 3.8 percent for 2014, a downward revision of ¼ percentage point compared with the forecast in the April 2013 WEO.
“We’re going to revise the forecast relative to last April by a bit. The main effect really comes from the slowdown in emerging market economies, but we also are revising down the euro area forecast. And actually, to some extent, that more or less reflects the first quarter of the U.S. economy,” Chief Economist Olivier Blanchard said.
Global growth increased only slightly in the first quarter of 2013, instead of accelerating further as expected at the time of the April 2013 WEO. The underperformance was due to continuing growth disappointments in major emerging market economies, a deeper recession in the euro area, and a slower U.S. expansion than expected. Blanchard said that an even bigger slowdown in Brazil, Russia, India and China would have a measurable impact.
“If, for example, growth in BRICs was to go down by 2 percent relative to what we predict, then the effect on the U.S., for example, would be half a percent. So it matters,” Blanchard said.
However, looking ahead, the IMF expects the brakes behind the recent underperformance to ease, but only gradually. Growth in the United States is forecast to rise from 1¾ percent in 2013 to 2¾ percent in 2014, as fiscal consolidation slows and private demand remains solid. In Japan, growth in 2013 is now expected to be 2 percent, up 0.5 percent from the last WEO, reflecting the boost to confidence and private demand from recent accommodative policies. The euro area is forecast to remain in recession in 2013 before growing again in 2014. Activity in the region continues to suffer from the combined effects of low demand, depressed confidence, financial market fragmentation, weak balance sheets, and fiscal consolidation.
“You have to distinguish between the core countries and the periphery countries. In the core country there is some progress, some structural reforms. Fiscal consolidation is very strong, in France, for example. It will be less in the future, so this is going to help. Banks are not in great shape, but in decent shape. So I think that we’re going to move from negative growth this year to positive growth next year. In the periphery countries the adjustment is very tough. So we’re seeing some adjustments in competitiveness, which is what they need to do, so exports are doing relatively well. But internal demand is very weak. The interest rates are still very high. So at this stage, the turnaround is still not now and we don’t know exactly when it will be,” Blanchard said.
Growth in emerging market and developing economies is expected to moderate to 5 percent in 2013 and about 5½ percent in 2014, some ¼ percentage point lower than projected in the April 2013 WEO. The weaker prospects reflect, to varying degrees, infrastructure bottlenecks and other capacity constraints, lower export growth, lower commodity prices, financial stability concerns, and, in some cases, weaker monetary policy support. In China, growth will average 7¾ percent in 2013–14, ¼ and ½ percentage point lower in 2013 and 2014, respectively, than in the April 2013 forecast.
Financial market volatility increased globally in May and June after a period of calm since last summer. Emerging market economies have generally been hit hardest. Recent increases in advanced economy interest rates and asset price volatility combined with weakness in emerging market domestic activity led to some capital outflows, equity price declines, rising local yields, and currency depreciation in the latter. The WEO forecast assumes that the rise in volatility and yields will partly reverse, as it largely reflects a one-time reassessment of risks by investors based on the weaker growth outlook for these economies and temporary uncertainty about the U.S. exit from monetary policy stimulus. But if the underlying vulnerabilities persist and financial market volatility remains high, this could increase capital outflows and lower growth in emerging market economies.
“If we see an increase in interest rates it means that growth is stronger in the U.S., and that’s good for all the countries in the world. It increases their exports. It helps other countries. Now, this being said, the adjustment interest rates is going to have some effects. It’s going to make U.S. bonds more attractive, right? So you’re going to get some of the flows which went to the emerging market countries are going to come back to the U.S. This may mean depreciation in a number of countries. It may mean capital outflows. As we’ve learned from the last few weeks, this may not be a completely smooth process. Along the way you may have quite a bit of volatility, but on that the bottom line remains the same, which is it’s good news for the world,” Blanchard said.
More generally, downside risks, old and new, still dominate the outlook. The WEO Update highlights increased risks of a longer growth slowdown in emerging market economies. These risks reflect the possibility of capital flow reversals and the possibility of more protracted effects of domestic capacity constraints, slowing credit growth, and weak external conditions.
Weaker growth prospects in emerging markets and new risks worldwide are challenging global growth, employment, and rebalancing. The report underscores the need for policymakers everywhere to increase efforts to address these challenges and restore robust growth.
Major advanced should continue to pursue a policy mix that supports near-term growth, anchored by measures to put their public debt levels on a sustainable path over the medium term. Clear communication on the eventual exit from accommodative monetary policies will help reduce volatility in global financial markets. In the euro area, a bank asset review should identify problem assets and quantify capital needs, supported by direct recapitalization by the European Stability Mechanism where appropriate. Building on recent agreements, policymakers should also make progress toward a fuller banking union, including through a strong Single Resolution Mechanism.
Although current conditions and vulnerabilities vary across emerging market and developing economies, weaker growth and risks of capital outflows have raised new policy challenges. There is a risk that the growth slowdowns in some of these economies could reflect lower-than-expected potential output. So these economies may have less budgetary room than previously estimated. In general, monetary policy easing should thus be the first line of defense against downside risks. But real policy rates are low already, and capital outflows and the effects of further exchange rate depreciation on inflation may constrain further rate cuts. And many economies also face some financial stability risks given threats to asset quality from weaker growth and earlier rapid credit expansion. Given these challenges, it may be necessary to upgrade regulatory and supervisory frameworks.
Finally, there is a need for structural reforms across all major economies, to lift global growth and support global rebalancing. Asin the past, this means steps to raise domestic demand in economies with large current account surpluses (such as China and Germany) and measures that improve competitiveness in economies with large current account deficits.
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