The IMF released its World Economic Outlook (WEO) overnight with the working title “Recovery Strengthens, Remains Uneven”.
In just a couple of paragraphs the IMF summed up the global economy very nicely in its Executive Summary highlighting that:
Global activity has broadly strengthened and is expected to improve further in 2014–15, with much of the impetus coming from advanced economies. Inflation in these economies, however, has undershot projections, reflecting still-large output gaps and recent commodity price declines. Activity in many emerging market economies has disappointed in a less favorable external financial environment, although they continue to contribute more than two-thirds of global growth. Their output growth is expected to be lifted by stronger exports to advanced economies.
The key point in the above is that inflation is low, parts of Europe are experiencing deflation and there are large output gaps – spare economic capacity – which means growth is going to remain subdued for some time.
But IMF chief economist Olivier Blanchard put a more positive spin on things noting:
“The recovery which was starting to take hold in October is becoming not only stronger, but also broader. Although we are far short of a full recovery, the normalization of monetary policy—both conventional and unconventional—is now on the agenda.”
But the IMF warns against pre-emptive tightening to choke off the recovery, which the IMF expects to hit 3.6% globally in 2014 and 3.9% in 2015.
In regard to Australia, the IMF said that “growth is expected to remain broadly stable at 2.6 percent in 2014 as the slowdown in mining-related investment continues” – a bit lower than the last estimate for growth in Australia for 2014 of 2.8%. In 2015 the IMF expects 2.7% down from 3% at last read.
Unemployment is expected to increase to 6.2% in this cycle.