Today, the International Monetary Fund, led by its chief economist, Olivier Blanchard, unveiled the latest update to its World Economic Outlook, a regularly amended forecast of growth in major world economies, and the world at large. Here’s what you should take away from its findings.
1. The United States is growing more slowly.
While the report estimates that the U.S. economy grew by 2.3 percent in 2012, it predicts that that number will fall to 2 percent for 2013. What’s more, the report cites “risks of excessive near-term fiscal consolidation in the United States,” suggesting that the fund fears that President Obama and Republicans in Congress will continue to pursue revenue increases and spending cuts, both of which pose a major threat to growth in the near-term.
2. But China and India are growing faster than in 2012.
The report predicts that Chinese growth will bounce up from 7.8 percent last year to 8.2 percent this year, and to 8.5 percent in 2014. India, likewise, is predicted to sharply increase its growth rate from 4.5 percent last year to 5.9 percent this year and 6.4 percent in 2014. China was also one of the few countries to see a completely unchanged forecast from October; most other nations got a more pessimistic outlook this time around. India’s growth forecast for this year is down 0.1 points from the previous report, but its 2014 estimate is unchanged.
That the two countries continued move toward economies that match the size of their populations is a reminder that, as the Nobel laureate economist Robert Solow once quipped, “There is no evidence that God ever intended the United States of America to have a higher per capita income than the rest of the world for eternity.”
3. Shinzō Abe isn’t doing Japan any favors.
One of the major world economic policy changes since the October version of the report is newly elected Japanese Prime Minister Shinzō Abe’s combined monetary and fiscal stimulus, pairing a government works project costing 2 percent of GDP and an unprecedented policy coordination effort between the Treasury and the Bank of Japan. But the IMF doesn’t seem too impressed by Abe’s efforts. Its projections for 2013 growth in Japan are unchanged, and its 2014 estimate is actually down 0.4 points from October.
4. After its disastrous austerity regime, the United Kingdom will finally start growing again.
Excessive austerity hasn’t halted U.S. growth in its tracks, at least yet. But then again, we didn’t start cutting back dramatically as early as 2010. The U.K. did, and it got a double-dip recession for its trouble. The damage wrought by Prime Minister David Cameron and his Chancellor George Osborne’s atrocious fiscal policy is finally coming to an end, though. After shrinking by 0.2 points in 2012, the British economy is set to grow this year, albeit by a measly 1.0 percent. Maybe incoming Bank of England chief and successful Bank of Canada vet Mark Carney will be some help.
5. Generally, everyone’s doing worse than we thought just a few months ago.
Literally every single country and region the IMF looked at is predicted to grow in 2013 at the same rate or slower than predicted in October. None have seen their projection get more optimistic. World trade is also expected to decline across the board. Three countries — the U.S., Germany and South Africa — see more optimistic projections for 2014, but most other countries see lower numbers for that year. This is particularly bleak news for the EU, which is set to grow 0.3 points more slowly than predicted in October, and is now set to shrink by 0.2 percent in 2013, with the Italian and Spanish economies shrinking by 1 and 1.5 percent, respectively.
6. But on the plus side, oil is cheaper than we thought it’d be in October.
The report does suggest that we’re set to see a decline in oil prices this year, and a bigger one than projected in October. The report sees the price of oil falling 5.1 percent, a huge change from October’s 1 percent decline projection. 2012 was a pretty stable year for oil, with prices rising only 1 percent, but 2011 saw a huge price spike of 31.6 percent.
7. Inflation is still a non-issue in major economies.
This should come as no surprise to anyone who’s been paying attention to the price data recently, but the report suggests that inflation in advanced economies will stay very low at 1.6 percent in 2012 and 1.8 percent in 2013. That’s unchanged from the previous forecast, perhaps suggesting that the monetary expansion in the U.S. and Japan will be counteracted by deflationary austerity measures across Europe.
8. The IMF isn’t too worried about currency wars.
The latest announcement of unlimited asset purchases — a move toward easier monetary easing — by the Bank of Japan, on the heels of a similar move by the Federal Reserve, has prompted a new round of hand-wringing about “currency wars” — competitive devaluations by central banks, each engaged in a futile attempt to seize competitive advantage for exporters by pushing down the value of their currency. IMF chief economist Olivier Blanchard played down that idea. “This increasing talk of currency wars is very much overblown,” Blanchard said at a news conference, arguing that capital flows remain within normal historical ranges and that countries need to set appropriate monetary policy to get their economies back to health.
9. The risk of a new crisis is lower, but so is the economic outlook
Even as the IMF ratcheted back its growth forecasts for much of the world, it acknowledged that some of the immediate risks that could have caused a new wave of crisis or recession have diminished. Financial markets have broadly risen since the fund’s October forecast, the United States has made it through its fiscal cliff negotiations without major incident, Europe’s financial backstop is holding firm, and the odds of a new wave of crisis seem to be diminishing. (Or, in IMF-speak, “Policy actions have lowered acute crisis risks in the euro area and the United States.”) But that doesn’t meant the fundamental drivers of growth are in place, just that negative tail risks have diminished, hence the weaker growth forecasts.