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The rich countries whose property bubbles and collapsing banks plunged the world into recession in 2009 are now helping to lead the still-halting recovery out of it.
That is the view from the International Monetary Fund's latest forecast, released as economic and financial leaders from around the world are gathering here in Washington for the annual spring meetings of the fund and the World Bank.
"The recovery is strengthening; it's becoming broader in advanced economies," said Olivier Blanchard, the fund's chief economist, at a generally upbeat press conference Tuesday. "Fundamentally, I think the economy is in good shape."
As growth has moderated in the big emerging economies, it has strengthened in rich countries, the fund said, especially in the United States. It now sees the world economy as growing about 3.6 per cent this year and 3.9 per cent next year, up from 3 per cent in 2013. That is down slightly from its forecast in January, when it predicted the world economy would grow about 3.7 per cent this year.
"For the past five years the emerging market and developing economies have been shouldering the burden of recovery, accounting for 75 per cent of the increase in global growth since 2009," said Christine Lagarde, the International Monetary Fund's managing director, speaking in Washington last week. "The recovery is finally becoming a bit more balanced, in an overall economic landscape that has changed significantly."
The forecast is one of the sunniest that the fund has offered since the global recession. But it warned that growth, in many cases, remained fragile and that many economies remained significantly depressed. "Downside risks continue to dominate the global growth outlook, notwithstanding some upside risks in the United States, the United Kingdom and Germany," it said.
Indeed, even as it stressed that things were looking up in general, it reduced some countries' growth forecasts to account for lingering sluggishness, internal financial problems or new geopolitical strife, as in Ukraine.
"You can think of escalation scenarios which would clearly create a risk for the world economy," Blanchard said in reference to Ukraine. But even without further escalation, the crisis would prompt investors to pull money out of Russia, he said. For that reason, the fund slashed its estimate of Russian growth in 2014 to 1.3 per cent, from nearly 2 per cent.
Rich countries are increasingly helping to power the global recovery, with fiscal austerity and budget cuts slowing, banks becoming stronger and investors taking on more risk, the fund said. The uptick has been particularly strong in the United States because of factors including the Federal Reserve's extra efforts to stimulate investment, improving household finances and the nascent real estate recovery.
The American economy is providing a "major impulse to global growth." After a slow start last year, it picked up some momentum in the second half of 2013 and the monetary fund now expects the American economy to expand about 3 percent both this year and next, up from 1.9 percent in 2013.
The Euro area has finally stopped contracting, the fund said, and relief from government-imposed fiscal austerity might help that growth take seed. The drag from steep government cutbacks has dropped to 0.25 per cent of economic output this year, from 1 percent last year. Economists at the International Monetary Fund anticipate that the euro area will grow about 1.2 per cent this year and 1.5 per cent next year, after having contracted for the last two years.
"While there is growth, there is still tension," Blanchard said. "Exports are doing quite well, but internal demand is weak - it's a fight between these two forces."
A senior Treasury official, who spoke on the condition of anonymity because of the diplomatic issues involved, said that the United States remained concerned that chronic low inflation and weak demand in Europe were holding back the recovery. The Treasury has repeatedly recommended that strong economies in Europe - in particular, those with big current-account surpluses like Germany - bolster demand to help the regional economy as a whole.
"There are signs that the global economy is regaining momentum, and this is welcome news," the Treasury official said. "But there are downside risks, including new geopolitical risks, and global economic activity remains weak and uneven."
The recovery in rich countries poses new risks to emerging economies, too, the fund warned, as conditions return closer to normal and the Fed moves to scale down its stimulus efforts. "Stronger growth in advanced economies implies increased demand for their exports," Mr. Blanchard said in the report. "The normalisation of monetary policy, however, implies tighter financial conditions and a tougher financial environment. Investors will be less forgiving, and macroeconomic weaknesses will become more costly."
For the major emerging economies - including China, Latin American nations like Brazil, Middle Eastern countries and South Africa - growth should be solid, if unremarkable, the fund said, peppering its report with terms like "modest" and "moderate."
"They are basically doing O.K.," Mr. Blanchard said. "Growth is not as high as before the crisis. But it wasn't going to last forever. But they are facing a different world economic environment." He said that individual countries would have to act assertively to reassure investors of their financial stability.
The fund left many of its economic projections unchanged from its January forecast, though it cut its forecasts for near-term growth in sub-Saharan Africa, Russia and the lower-income countries in Europe. It also tamped down its projections for growth in Latin America, the Caribbean and the Middle East.
©2014 The New York Times News Service
