Consumers carry shopping bags outside a shop at a central commercial street of Athens January 16, 2014. Retailers across Europe have been struggling as shoppers' disposable income has been squeezed by subdued wage growth and the government austerity measures.YORGOS KARAHALIS/Reuters
The International Monetary Fund says the global economy has turned a corner, propelled by faster-than-expected growth in the United States and Europe.
Global economic output will increase by 3.7 per cent this year, the IMF said Tuesday in a revised outlook. The estimate is a slight revision from the 3.6 per cent increase the fund predicted in the fall. Its forecast for 2015 is unchanged at 3.9 per cent.
While the increase is slight, it represents a break from 2013, which was marked by disappointments. If the revised forecast holds, the global economy will grow the most this year since 2011, when the world's gross domestic product expanded almost 4 per cent.
After rebounding sharply from the 2009 recession, the global economy sputtered. Many of the problems were rooted in the world's wealthiest economies. The U.S. recovery was especially disappointing, weighed down by households' desire to pay off debt rather than shop, government austerity and weak business confidence. Europe, meanwhile, was gripped by a sovereign-debt crisis that challenged the viability of the euro. With their biggest trading partners in turmoil, emerging markets began to struggle as it become clear their growing middle classes still were too small to support the rapid growth to which many of those countries had become accustomed.
That picture is starting to change, as richer countries start to gain momentum after years of stagnation. The U.S. is back as the undisputed growth leader in the Group of 7 advanced economies: the world's largest economy will expand 2.8 per cent in 2014, the IMF said, an increase from the previous forecast of 2.6 per cent. The euro zone finally will reverse a two-year-old recession in 2014, and Britain will grow at the fastest pace since 2007, the fund said.
"There will be more growth rotation from emerging market economies to advanced economies in 2014-15," Olivier Blanchard, the IMF's chief economist, said in a statement.
Canada's economy will expand 2.2 per cent in 2014 and 2.4 per cent in 2015, the IMF said. (The previous estimate was for growth of 2.1 per cent this year and 2.5 per cent next year.)
The more positive outlook hasn't entirely restored the IMF's confidence in the global economy, however. The fund noted that inflation is running persistently below central banks' targets across many advanced economies, elevating the threat of deflation. Weaker inflation also makes the fixed costs of existing debt harder to pay, damping consumption. The IMF called on central banks in richer economies to leave their aggressive stimulus policies in place for an extended period, even as growth picks up.
China, the world's second-biggest economy, will grow 7.5 per cent in 2014, compared with a previous estimate of 7.2 per cent, the IMF said. That still is less than previous years, reflecting the Chinese government's efforts to restrain the country's expansion to avoid inflation and asset-price bubbles. The IMF said the investment boom that sparked faster-than expected growth at the end of 2013, won't be sustained and that domestic demand is increasing fast enough to make up the difference. China will grow 7.3 per cent in 2015, the IMF said.
The biggest positive changes in the IMF's outlook were in Britain, where growth was revised higher by 0.6 of a percentage point, and in Japan and Spain, where the forecasts for 2014 were adjust 0.4 percentage points higher.
There was one big negative adjustment. The IMF said Russia's economy will expand 2 per cent in 2014 and 2.5 per cent in 2015, underwhelming for an emerging market. Both predictions are 1 percentage point lower than the IMF had forecast in the fall.