IMF / WEO PRESSER

09-Jul-2015 00:03:17
A gradual recovery continues, but global growth is forecast to be slightly down for 2015, reflecting an unexpected setback to economic activity in the first quarter of 2015, mostly in North America, says the IMF’s latest World Economic Outlook Update.  IMF
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STORY: IMF / WEO PRESSER
TRT: 3:17
SOURCE: IMF
RESTRICTIONS: NONE
DATELINE: 09 JULY 2015, WASHINGTON, DC
SHOTLIST
1.Wide shot, exterior IMF’s building
2.Wide shot, presenters walking to dais
3.SOUNDBITE (English) Olivier Blanchard, Chief Economist, IMF:
“Moderate growth continues, you have an improving recovery in advanced economies, and you have a forecast slowdown in emerging market and low income developing economies. As you know the forecast we have for this year are 3.3 percent for 215 for this year, and 3.8 percent next year.”
4.Cutaway, reporters
5.SOUNDBITE(English) Olivier Blanchard, Chief Economist, IMF:
“There is little question that Greece has suffered, is suffering and will probably suffer even more in the case of a Euro exit. But this being said, what’s important in the context of this conference, which is about the world economy, is what the effects are going to be, or might be, on the world economy. And there, what we know is that mechanical links between Greece and the rest of the world are limited, be it on the trade side or the finance side. That’s reassuring, but it’s not totally reassuring.”
6.Cutaway, reporters
7.SOUNDBITE (English) Olivier Blanchard, Chief Economist, IMF:
“In general I think we should always question rules. But in this case, I think the rules are very good ones, which is that the IMF is an institution which has 188 members, most of them being poorer than Greece and all of them having not had the kind of breaks that some people would like us to give to Greece. So given this, I think it’s absolutely essential to respect our rules. And the fact is that basically we have to go by the rules. And to the extent that they’re obvious, this has implications. We cannot extend just like this without a program.”
8.Cutaway, reporters
9.SOUNDBITE (English) Olivier Blanchard, Chief Economist, IMF:
“Stock markets in China play a much smaller role in terms of size than they do in, say, a country like the US. It went out very quickly; it’s coming down very quickly. It may not have matched direct effects, mechanical effects. You’re raising a bigger question, which is is this making people wonder and worry about larger issues in China. It’s too early to say. My sense is that Chinese people should be used to very wild gyrations of stock markets. This is not the first one. It may not be the last one.”
10. Various shots, exterior IMF
STORYLINE
A gradual recovery continues, but global growth is forecast to be slightly down for 2015, reflecting an unexpected setback to economic activity in the first quarter of 2015, mostly in North America, says the IMF’s latest WEO Update.

“Moderate growth continues, you have an improving recovery in advanced economies, and you have a forecast slowdown in emerging market and low income developing economies. As you know the forecast we have for this year are 3.3 percent for 215 for this year, and 3.8 percent next year,” said Olivier Blanchard, IMF Chief Economist.

Developments in Greece have, so far, not produced strong ripples. And while timely policy action should help in managing potential contagion, some risks of a reemergence of financial stress remain.
“There is little question that Greece has suffered, is suffering and will probably suffer even more in the case of a Euro exit. But this being said, what’s important in the context of this conference, which is about the world economy, is what the effects are going to be, or might be, on the world economy. And there, what we know is that mechanical links between Greece and the rest of the world are limited, be it on the trade side or the finance side. That’s reassuring, but it’s not totally reassuring,” Blanchard said.

Asked if the IMF should bend the rules for Greece so they can remain in a program with the IMF despite having missed a payment, Blanchard said that as much as he would like, the entire membership of the IMF needs to be considered.

“In general I think we should always question rules. But in this case, I think the rules are very good ones, which is that the IMF is an institution which has 188 members, most of them being poorer than Greece and all of them having not had the kind of breaks that some people would like us to give to Greece. So given this, I think it’s absolutely essential to respect our rules. And the fact is that basically we have to go by the rules. And to the extent that they’re obvious, this has implications. We cannot extend just like this without a program,” Blanchard said.

The report also singles out greater difficulties in China’s transition to a new growth model as a potential risk to global growth. The report pointed to recent stock market turbulence as an example of the potential risk.

“Stock markets in China play a much smaller role in terms of size than they do in, say, a country like the US. It went out very quickly; it’s coming down very quickly. It may not have matched direct effects, mechanical effects. You’re raising a bigger question, which is is this making people wonder and worry about larger issues in China. It’s too early to say. My sense is that Chinese people should be used to very wild gyrations of stock markets. This is not the first one. It may not be the last one,” Blanchard said.

Overall, the IMF says the increase in global growth in 2015 will be driven by stronger growth in advanced economies. Growth in these economies is forecast to increase from 1.8 percent in 2014 to 2.1 percent in 2015 (falling about 0.3 percent points short of the forecast in April), and 2.4 percent in 2016. The report notes that the unexpected weakness in North America in early 2015, which accounts for most of the growth forecast revision for 2015, will likely prove to be a temporary setback. The underlying drivers for consumption and investment in the United States—wage growth, labor market conditions, easy financial conditions, lower fuel prices, and a strengthening housing market—remain intact.

The economic recovery in the euro area is more solidly anchored, with signs of increase in both domestic demand and inflation. Growth projections were revised up for many euro area economies (e.g., Spain, Italy), but in Greece, unfolding developments are likely to take a much heavier toll on activity relative to previous expectations.

In Japan, growth in the first quarter of 2015 was stronger than expected, but much of the surprise reflected inventory accumulation. With weaker underlying momentum in real wages and consumption, the pickup in growth in 2015 is now projected to be more modest.

Growth in emerging market and developing economies is projected to slow from 4.6 percent in 2014 to 4.2 percent in 2015. The slowdown reflects the dampening impact of lower commodity prices and tighter external financial conditions—particularly in Latin America (e.g., Brazil) and oil exporters. Other factors include rebalancing in China, structural bottlenecks, and economic distress related to geopolitical factors—particularly in the Commonwealth of Independent States and some countries in the Middle East and North Africa.

In 2016, growth in emerging market and developing economies is expected to pick up to 4.8 percent, largely on account of the projected improvement in economic conditions in a number of distressed economies, including Russia and some economies in the Middle East and North Africa.

Given the distribution of risks to the near-term outlook, global growth is more likely to fall short of expectations than to surprise on the upside. The boost from lower oil prices, especially in advanced economies, however, may still offer potential gains.

Disruptive shifts in asset prices and increased financial market volatility remain important risks, also because of the associated risks of capital flow reversals in emerging market economies. Furthermore, U.S. dollar appreciation poses balance sheet and funding risks for dollar debtors, especially in some emerging market economies.

Other risks include low medium-term growth or a slow return to full employment amid very low inflation and crisis legacies in advanced economies, a sharper-than-expected slowdown in China, and spillovers to economic activity from increased geopolitical tensions in Ukraine, the Middle East, or parts of Africa.

In this setting, without the expected pickup in global growth, the IMF emphasizes that the economic policy priority must remain raising actual and potential output through a combination of demand support and structural reforms.
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