IMF / GLOBAL ECONOMIC OUTLOOK PRESSER

International Monetary Fund Chief Economist, Olivier Blanchard briefs reporters on the state of the global economy. IMF

 

• Categories: News & Features / News Stories / Unifeed
• Video Length: 00:02:20
• Production Date: 9 July 2013
• Asset Language: Original
• Corporate Name: INTERNATIONAL MONETARY FUND - IMF
• Subject Topical: ECONOMIC DEVELOPMENT; FINANCING; ECONOMICS; ECONOMIC CONDITIONS; ECONOMY; ECONOMIC DEVELOPMENT
• Geographic Subject: UNITED STATES
• MAMS Id: U130709b

Description

STORY IMF / GLOBAL ECONOMIC OUTLOOK PRESSER
TRT: 2.20
SOURCE: IMF
RESTRICTIONS; NONE
LANGUAGE: ENGLISH / NATS

DATELINE: 9 JULY 2013, WASHINGTON, DC, UNITED STATES

Shotlist

1. Wide shot, press conference
2. SOUNDBITE (English) Olivier Blanchard, Chief Economist, IMF:
“In emerging markets economies, the focus should be on boosting potential growth and dealing with capital outflows which may well follow from the exit in the U.S. from quantitative easing.”
3. Cutaway, presser
4. SOUNDBITE (English) Olivier Blanchard, Chief Economist, IMF:
“The question is whether all the capital which went to emerging market countries will return to the U.S. and my sense is no. I think much of the capital which went to emerging market countries went there because their growth prospects, their profit prospects are actually better than those of advanced economies, so I think a lot of capital will remain there.”
5. Cutaway, presser
6. SOUNDBITE (English) Thomas Helbling, Chief, World Economic Studies Division, IMF:
“Part of the problem in Brazil are speed bumps. After a decade of very rapid growth, growth has reached capacity constraints in the infrastructure area, also in labor markets, so in terms of macroeconomic policy stimulus, you have to be careful. We think Brazil is close to potential.”
7. Cutaway, presser
8. SOUNDBITE (English) Olivier Blanchard, Chief Economist, IMF:
“For a while it has been clear to both Chinese policymakers and to outsiders that growth was unbalanced. There was too much investment and too little consumption. It’s very clear that the plan, the explicit plan, is to move from investment to consumption. It is not easy to do. The question is whether it can be done in a smooth way. I think the risk is that the slowdown in investment comes first and there is just not the increase in consumption which is fast enough to compensate.”
9. Cutaway, presser
10. SOUNDBITE (English) Olivier Blanchard, Chief Economist, IMF:
“At least in France and to some extent in Germany, there is a general lack of confidence in the future, which if it doesn’t turn around, may end up being partly self-fulfilling, which is worrisome.”
11. Wide shot, presser

Storyline

The global economy is growing more slowly than expected, with risks to that 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 each year compared with the forecasts in the April 2013 WEO.
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.

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.

“In emerging markets economies, the focus should be on boosting potential growth and dealing with capital outflows which may well follow from the exit in the U.S. from quantitative easing,” Olivier Blanchard, IMF chief economist, 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.

“The question is whether all the capital which went to emerging market countries will return to the U.S. and my sense is no. I think much of the capital which went to emerging market countries went there because their growth prospects, their profit prospects are actually better than those of advanced economies, so I think a lot of capital will remain there,” Blanchard said.
The IMF says emerging markets countries are slowing for specific reasons. Brazil is coping with bottlenecks in its infrastructure.

“Part of the problem in Brazil are speed bumps. After a decade of very rapid growth, growth has reached capacity constraints in the infrastructure area, also in labor markets, so in terms of macroeconomic policy stimulus, you have to be careful. We think Brazil is close to potential,” said Thomas Helbling, Chief of the World Economic Studies Division.

The IMF called for structural reforms across all major economies to lift global growth and support global rebalancing. As in 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.

“For a while it has been clear to both Chinese policymakers and to outsiders that growth was unbalanced. There was too much investment and too little consumption. It’s very clear that the plan, the explicit plan, is to move from investment to consumption. It is not easy to do. The question is whether it can be done in a smooth way. I think the risk is that the slowdown in investment comes first and there is just not the increase in consumption which is fast enough to compensate,” Blanchard said.

Turning to Europe, the IMF also said the euro area will remain in recession until 2014.

“At least in France and to some extent in Germany, there is a general lack of confidence in the future, which if it doesn’t turn around, may end up being partly self-fulfilling, which is worrisome,” Blanchard said.