The International Monetary Fund (IMF) said yesterday that Emerging Asia is expected to remain a “global powerhouse” and register the world’s highest growth rate in 2014-2015, even as it cautioned that growth of global activity, while appearing to be improving, could be weaker than expected.
Christine Lagarde, managing director of the IMF, made the assessment recently as she announced that the organization would release its updated forecasts in about two weeks’ time.
Growth in many emerging market and developing economies has hit a soft patch earlier this year, in part due to weaker exports, she said, but added that these countries would continue to provide the bulk of global growth, although at a slower pace than before.
“Emerging Asia in particular is expected to remain a global powerhouse, pushing ahead with the world’s highest growth rate in 2014-2015. China will be a key driver of this performance, growing at a slower but more sustainable pace of about 7½ percent in 2014,” Lagarde continued.
On global economic activity, it was “unexpectedly weak earlier in the year, in part due to temporary factors, but is expected to gain momentum in the second half of the year, and to accelerate further in 2015,” she said.
For advanced economies, they continue to strengthen, although their recovery remains tepid and uneven. After a disappointing first quarter for the United States, Lagarde said the U.S. is now seeing “a meaningful rebound in activity,” and growth is expected to accelerate over the coming few quarters.
“Of course, this hinges on a careful withdrawal of monetary support by the Fed, and agreement on a durable medium-term fiscal plan,” she continued.
The euro area is also slowly emerging from recession, although the recovery is not strong enough to reduce unemployment and debt. She said following through and completing ongoing reforms, especially on banking union, remains critical for a durable recovery.
In Japan, underlying momentum is strengthening, but greater structural and fiscal reforms are still needed for growth to be sustained.
Global economies also need to watch out for three major risks looming on the horizon, said Lagarde.
In the advanced economies, and particularly in the euro area, there is the emerging risk of “low-flation,” which “can harm the incipient recovery.”
In emerging market economies, favorable market sentiment seems to be restored. “Yet there is the risk of renewed market volatility associated with monetary normalization in the U.S.,” said Lagarde. “Good communication among central banks is essential, along with continued strong focus on policy fundamentals in emerging markets.
“Third, we need to keep an eye on issues that have been with us since the crisis—scars that have been slow to heal: high debt levels in many countries; the need to complete the financial reform agenda; and, most worryingly, stubbornly high unemployment in many countries, especially among young people.”
Together with these economic risks, geopolitical risks are also rising in various places around the world, from Ukraine to the South China Sea or the Middle East.
“So, on balance, global activity is strengthening—but could be weaker than we had expected, as potential growth is lower and investment remains depressed,” stated Lagarde.
Photo: ND Strupler
