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SUMMARY OF WORLD ECONOMIC GROWTH SITUATION 10 October 2013

             The IMF now projects global growth at 2.9 per cent in 2013 which should rise to 3.6 per cent in 2014.

             This growth will be driven more by advanced economies whilst emerging markets will have weaker growth than expected.

Global growth remains in low gear with shifting drivers according to the IMF’s latest World

Economic Outlook (WEO) report. The growth forecast is an average 2.9 per cent in 2013 which is

below the 3.2 per cent recorded in 2012 with an expected rise to 3.6 per cent in 2014.

Growth pickup is expected to come from advanced economies while growth in emerging

Market’s will be strong it is expected to be weaker than the IMF forecast in its July 2013, WEO

update. Reasons have been in part due to a natural cooling in growth following the stimulus driven

surge in activity after the GREAT RECESSION. There have also been contributions from structural

bottle necks in infrastructure, labour markets and investment which has slowed growth in emerging

markets.

Olivier Blanchard, the IMF chief economist has indicated this transaction is leading to tensions with

emerging market economies facing the challenge of slowing growth and at the same time changing

global financial conditions.

When these growth transactions are combined with an approaching turning point in U.S. monetary

policy, they are leading to new challenges and risks.

USA

Projections are based on the key assumption that the ongoing shutdown in the Federal government

will be short-lived and the debt ceiling will be raised on time. Expected growth is a rise from 1.5 per

cent this year to 2.5 per cent in 2014 driven by continued strength in private demand supported by a

recovery in the housing market and rising household wealth.

THE EURO AREA

There has been a reduction in major risks due to policy actions and stabilizing conditions although

the periphery continues to be constrained by credit bottle necks. Expectations are the region will

slowly pull out of recession with growth reaching 1 per cent in 2014.

JAPAN

With the implementation of, Abenomics, fiscal stimulus and monetary easing under the authority’s

new policy package has enabled an impressive rebound in activity. However the expected

unwinding of fiscal stimulus reconstruction spending in conjunction with tax hikes will lower growth

from 2 per cent this year to 1.25 per cent in 2014.

CHINA

Growth projections are expected to decelerate slightly from 7.5 per cent this year down to 7.25 per

cent in 2014. Policy makers in China have refrained from stimulation activity and are focussed on

concerns for financial stability and the need to support a more balanced and sustainable growth

path.

SUMMARY

Growth overall is expected to remain strong in both emerging market and developing economies at

around 4.5 per cent in 2013 -14 supported by solid domestic demand, recovering exports,

supportive fiscal , monetary and financial conditions. Middle East, North African, Afghanistan and

the Pakistan region economies will continue to struggle however in many low income countries

such as those in sub-Saharan Africa commodity prices will boost growth.

Source : Selected data from the IMF October 10, 2013 report

John Brooks

Trade Economist

The Auspacific Institute

22 October 2013

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