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Country-specific structural reforms can boost growth: IMF
08
Oct '14
Although the pace of the global recovery has disappointed in recent years, country-specific structural reforms can strengthen potential growth or make growth more sustainable, says the International Monetary Fund (IMF) in its latest World Economic Outlook (WEO).
 
The weaker-than-expected global growth in first half of 2014 along with increased downside risks, the projected pickup in growth may again fail to materialize or fall short of expectations, argue economists in the report.
 
The latest WEO forecasts global growth to average 3.3 percent in 2014--unchanged from 2013--and to rise to 3.8 percent in 2015. The weaker than expected growth outlook for 2014 reflects setbacks to economic activity in the advanced economies during the first half of 2014, and a less optimistic outlook for several emerging market economies, says the report.
 
According to Olivier Blanchard, Economic Counsellor and head of the IMF’s Research Department, there are two underlying forces that weigh on global recovery. “In advanced economies, the legacies of the pre-crisis boom and the subsequent recession, notably high debt burdens and unemployment, still cast a shadow on the recovery, and low potential growth ahead is a concern.” Several emerging markets are also adjusting to lower potential growth, he says.
 
Across the globe, investment has been weaker than expected for some time. As a result, “global growth is still mediocre,” says Blanchard. At the same time, he notes, economic evolution is becoming more differentiated in major countries and regions, with the pace of recovery reflecting various country-specific conditions.
 
In advanced economies, growth is forecast to rise to 1.8 percent in 2014 and 2.3 percent in 2015. WEO projects faster growth in the US following a temporary setback in the first quarter of this year. In the euro area, a gradual, but weak recovery is projected to take hold, supported by a sharp compression in interest spreads for stressed economies and record-low long-term interest rates in core euro area economies. In Japan, GDP contracted more than expected in the second quarter of 2014, and looking ahead, private investment is forecast to recover and growth to remain broadly stable in 2015.
 
Emerging market and developing economies are expected to grow at 4.4 percent in 2014, a bit weaker than the forecast in the April 2014 WEO. This slowdown is due to lackluster domestic demand and the impact of increasing geopolitical tensions, especially on Russia and neighboring countries.
 
In China, growth is expected to decline slightly in 2014-15 to 7.4 percent, as the economy transitions to a more sustainable path. Growth is expected to remain strong elsewhere in emerging and developing Asia. In Latin America, the growth rate is forecast to decrease by half this year, to around 1.3 percent, due to declining exports as well as domestic constraints. Growth is expected to rebound to around 2.2 percent in 2015.

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