IMF: Rich nations drive growth after triggering recession

Posted by Annie Lowrey on April 8, 2014 

— 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, in an interview with The Wall Street Journal published 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 percent this year and 3.9 percent next year, up from 3 percent in 2013. That is down slightly from its forecast in January, when it predicted the world economy would grow about 3.7 percent this year.

“For the past five years, the emerging market and developing economies have been shouldering the burden of recovery, accounting for 75 percent 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, the IMF reduced some countries’ growth forecasts to account for lingering sluggishness, internal financial problems or new geopolitical strife, as in Ukraine.

Eurozone growth expected

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 U.S. 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 U.S. 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 percent 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 percent this year and 1.5 percent next year, after having contracted for the past two years.

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