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Oct 8 2014, 10.30am GMT


IMF project cuts for global growth over the next two reporting periods. 2014: -0.1 down to 3.0 percent. 2015: -0.2 down to 3.8 percent. The forecast for a weak global recovery is merely more of the same as the world suffers from a stalling Eurozone, sanctions on Russia, falling oil prices, Japanese hurricanes, a dominating dollar, etc., etc…all leaving investors with a bearish approach in general – Olivier Blanchard from IMF describes the result as ‘global growth is mediocre’.

This does not mean to say that specific regions have not done well, and Blanchard also refers to differentiated economic evolution. For advanced countries the growth forecast is more optimistic at 1.8 percent in 2014 and 3.3 percent in 2015. The U.S is the leader with projections taking output in the states up by 0.5 percent in 2014 but 0 percent in 2015.

Blanchard assesses the differential as follows: "Looking around the world, economies are subject to two main forces. One from the past: Countries have to deal with the legacies of the financial crisis, ranging from debt overhangs to high unemployment. One from the future, or more accurately, the anticipated future: Potential growth rates are being revised down, and these worse prospects are in turn affecting confidence, demand, and growth today."

Europe has stalled with low growth, debts, record-low long-term interest rates and the falling common currency. There seems to be little relief in the IMF figures of -0.3 in 2014 and -0.2 in 2015.

Japan’s earlier increase in consumption tax affected growth but private investment is projected to repress the contraction to a minimum. Figures for Japan are projected to slump by -0.7 percent in 2014, climbing slightly to a loss of -0.2 in 2015.

For Emerging markets the IMF figures show low potential, forecast at 1.5 percent lower than in 2011. However, this is a market average and each area shows a different picture. China shows a solid growth, controlling the credit boom and housing market to trail from 2013 levels of 7.7 percent down to 7.4 percent and 7.1 percent in 2013 and 2014 respectively. India is also recovering with a 2015 growth figure of 6.4 percent. But Russia is feeling the effects of its crisis, the Ukrainian situation and subsequent sanctions with 2015 projections down -0.5 percent. Brazil is also feeling the effects of uncertainty with a -0.6 percent figure giving it second from last place on the table in terms of contraction.

The area set to feel the worst slump is the Middle East, North Africa, Afghanistan and Pakistan – the projections bring the whole area down -0.9 percent, but in relation to the relatively healthy rate of 3.9 percent overall growth, the area can tentatively look forward to a development period.

As Blanchard says, "Geopolitical risks have become more relevant. So far, there is little evidence…..that turmoil in the Middle East affected either the level or the volatility of energy prices very much. But, clearly, the risk that they do so in the future is there, and could affect the world economy in a major way."

Sustainable fiscal plans are being built in the Eurozone evidenced by low spreads on sovereign bonds. Blanchard encourages infrastructure development even if financed by debt, saying that it

"can help demand in the short run and supply in the medium run."

Blanchard goes on to challenge countries both advanced and emerging to re-establish confidence;

"to go beyond the general mantra of “structural reforms,” to identify which reforms are most needed, which reforms are politically feasible."

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