IMF / WORLD ECONOMIC OUTLOOK PREVIEW

08-Oct-2013 00:02:18
Global growth is still in low gear and the drivers of growth are shifting, says the International Monetary Fund (IMF)’s latest World Economic Outlook (WEO) report. The IMF forecasts global growth to average 2.9 percent in 2013—below the 3.2 percent recorded in 2012—and to rise to 3.6 percent in 2014. IMF
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STORY: IMF / WORLD ECONOMIC OUTLOOK PREVIEW
TRT: 2.18
SOURCE: IMF
RESTRICTIONS: NONE
LANGUAGER: ENGLISH / NATS

DATELINE: 8 October, 2013, Washington, DC
SHOTLIST
RECENT - HYDERABAD, INDIA

1. Various shots, traffic

WASHINGTON, DC 8 OCTOBER, 2013

2. SOUNDBITE (English) Olivier Blanchard, Chief Economist, IMF:
“So I think it’s a case of good news and bad news. The good news is in advanced economies, so in the U.S., private demand is strong, so unless there are fiscal accidents, then the recovery should continue. Japan is still doing well. And Europe, the good news is Europe seems to have started growth again. In emerging market economies, that’s where the bad news is. And in many countries’ growth has been lower than we expected and has declined quite a bit over the past two years.”

WASHINGTON, DC – RECENT

3. Various shots, US Federal Reserve
4. Various shots, US Capitol

WASHINGTON, DC 8 OCTOBER, 2013

5. SOUNDBITE (English) Olivier Blanchard, Chief Economist, IMF:
“It’s only going to happen if the U.S. recovery becomes stronger and then the Fed feels that it has to increase interest rates. So from the point of view of the rest of the world, say emerging markets, there are two effects, right: U.S. growth stronger, that’s good, but high interest rates, which are likely to lead to some capital outflows, less good.
For most countries the net effect will be positive; for some, maybe not. So I think that’s what we’re looking at, looking forward for the next few years.”

RECENT - BERLIN, GERMANY

6. Med shot, European and German flag
7. Med shot, Statue of Euro

WASHINGTON, DC 8 OCTOBER, 2013

8. SOUNDBITE (English) Olivier Blanchard, Chief Economist, IMF:
“In the core of Europe, I think growth has started, but two things have to happen. One for the short one, which is clarification of the bank’s balance sheet. Now, that’s in process, but it really has to happen. The other is for the medium run, structural reforms so that growth is higher.”

RECENT - MADRID, SPAIN

9. Med shot, Women shopping

WASHINGTON, DC 8 OCTOBER, 2013
10. SOUNDBITE: (English) Olivier Blanchard, Chief Economist, IMF:
“For the periphery, a bit less optimistic. I’m not sure the corner has been turned, but it may be. There’s some good news. On the export front many of these countries are really increasing exports quite a bit. That’s good news. But internal demand is still weak and so it’s a fight between the two. And at this stage, very low growth is still the forecast.”

RECENT - BERLIN, GERMANY

11. Pullout to Euro symbol
STORYLINE
Global growth is still in low gear and the drivers of growth are shifting, says the International Monetary Fund (IMF)’s latest World Economic Outlook (WEO) report. The IMF forecasts global growth to average 2.9 percent in 2013—below the 3.2 percent recorded in 2012—and to rise to 3.6 percent in 2014.

Much of the pickup in growth is expected to be driven by advanced economies. Growth in major emerging markets, although still strong, is expected to be weaker than the IMF forecast in its July 2013 WEO Update. This is partly due to a natural cooling in growth following the stimulus-driven surge in activity after the Great Recession. Structural bottlenecks in infrastructure, labor markets, and investment have also contributed to slowdown in many emerging markets.

“So I think it’s a case of good news and bad news. The good news is in advanced economies, so in the U.S., private demand is strong, so unless there are fiscal accidents, then the recovery should continue. Japan is still doing well. And Europe, the good news is Europe seems to have started growth again. In emerging market economies, that’s where the bad news is. And in many countries’ growth has been lower than we expected and has declined quite a bit over the past two years,” Chief Economist Olivier Blanchard said.

These growth transitions, in combination with the realization of an approaching turning point in U.S monetary policy, have led to new challenges and risks. In particular, long-term interest rates in the United States and many other economies have increased more than expected. Although the Federal Reserve recently decided to not taper its pace of asset purchases yet, and capital outflows from emerging markets subsided somewhat, bond yields remain well above levels of early May. And, there is a distinct risk that financial conditions tighten further more their current, still supportive levels.

Blanchard said that specific conditions need to be in place before the Fed begins tapering.

“It’s only going to happen if the U.S. recovery becomes stronger and then the Fed feels that it has to increase interest rates. So from the point of view of the rest of the world, say emerging markets, there are two effects, right: U.S. growth stronger, that’s good, but high interest rates, which are likely to lead to some capital outflows, less good.

For most countries the net effect will be positive; for some, maybe not. So I think that’s what we’re looking at, looking forward for the next few years,” Blanchard said.

In the United States, the projections are based on the key assumption that the ongoing shutdown in the federal government will be short-lived and the debt-ceiling will be raised on time. Growth is expected to rise from 1½ percent this year to 2½ percent in 2014 driven by continued strength in private demand, which is supported by a recovering housing market and rising household wealth.

In the euro area, policy actions have reduced major risks and stabilized financial conditions, although growth in the periphery is still constrained by credit bottlenecks. The region is expected to gradually pull out of recession, with growth reaching 1 percent in 2014.

“In the core of Europe, I think growth has started, but two things have to happen. One for the short one, which is clarification of the bank’s balance sheet. Now, that’s in process, but it really has to happen. The other is for the medium run, structural reforms so that growth is higher,” Blanchard said.

Moreover, old risks remain. They include unfinished financial sector reforms in the euro area, impaired monetary policy transmission and corporate debt overhang in some euro area economies.

“For the periphery, a bit less optimistic. I’m not sure the corner has been turned, but it may be. There’s some good news. On the export front many of these countries are really increasing exports quite a bit. That’s good news. But internal demand is still weak and so it’s a fight between the two. And at this stage, very low growth is still the forecast,” Blanchard said.

Pulling the global economy out of a protracted period of subdued economic performance will require, first and foremost, advanced economies to address old challenges, and also emerging market and developing economies to steer through their growth transitions with credible policies.

For advanced economies, the WEO reinforces many of the messages provided in earlier reports. The euro area needs to repair its financial systems and adopt a credible banking union supported by a common backstop. The United States should resolve its political standoff relating to fiscal policy, and promptly raise the debt ceiling. In addition, the Federal Reserve should carefully manage the process of monetary policy normalization, taking into consideration prospects for growth, inflation, and financial conditions. Both Japan and the United States need to accomplish medium-term fiscal adjustment And Japan and the euro area should adopt structural reforms to boost potential output.

The appropriate policy mix and the pace of adjustment will differ across emerging market economies. But many economies share common policy priorities. Policymakers should allow their exchange rates to respond to changes in the environment and act as shock absorbers, while avoiding disorderly market conditions. In economies where monetary policy frameworks are less credible, efforts may need to focus more on providing a strong nominal anchor. Financial regulation and prudential actions should be taken to guard against financial instability. Fiscal adjustment should continue to rebuild buffers, unless downside risks materialize and funding conditions allow fiscal easing.

A new round of structural reforms is a must for many emerging market economies, including investment in infrastructure, to reignite potential growth. China needs to rebalance growth away from investment toward consumption to make way for more balanced and sustainable domestic and global growth.
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