October 2014


The IMF have revised world growth down to 3.3% which is  0.4% points lower than the April projection of 3.8%.

Short term risks: downside risks have increased since the Spring (northern) and include in the short term a worsening of geopolitical tensions, a reversal of recent risk spread and volatility compression in financial markets. 

Medium term risks: these include stagnation and low potential growth in the advanced economies accompanied by a decline in potential growth in emerging markets

Due to these risk growth is a priority.

Advanced economies: Monetary policy and fiscal adjustments will be important here attuned in pace and composition so as to support the recovery and future long term growth. There is potential for infrastructure investment to provide support in demand in the short term and assist in the boosting of potential output in the medium term in a number of economies.

Emerging markets:  There is a major variation in scope for macroeconomic polies to assist with growth if needed across both countries and regions, however space is limited in countries with external vulnerabilities.

In both advanced and developing countries there is a wide need to urgently implement structural reforms so as to strengthen growth potential or make growth more sustainable.

The unevenness of the recovery is the salient feature of present growth, in the advanced economies the legacies of the pre-crisis boom and subsequent crisis (high private and public debt) are holding back the recovery.  In emerging markets there is the need to adjust to lower economic growth than that achieved in the pre-crisis boom and the post crisis recovery. THE SALIENT FEATURE HERE IS THE PACE OF THE RECOVERY IS BECOMING MORE COUNTRY SPECIFIC.  For Australian exporters this is a country risk matter and they will need to ensure strong risk mitigation tools are in place to ensure payments are protected.

Other elements affecting the growth outlook include:

1              The over optimism of financial markets, equity prices are high, spreads compressed and there is low volatility

2.            Markets are under-pricing risk and not internalizing the uncertainties surrounding the macroeconomic outlook and their implications for the pace of withdrawal of monetary stimulus in some of the major economies.

3.            There has been rise in geopolitical tensions although at this stage macroeconomic effects have been confined to the regions involved

4.            The impact of an ageing population on the labour force and real growth in total factor productivity are surfacing and will need to be addressed

The cumulative impact of these factors are showing up in low potential growth in advanced economies

and are possible be affecting the recovery process to-day accompanied by a decline in potential

growth in emerging markets.  Structural reform are need to to boost growth in both markets.


The USA: following a surprising dismal first quarter activity picked up in the second quarter and suggestions are the weakness was only temporary.

The Euro Area: The second quarter saw growth come to a halt due in the main to weak exports and investment with continued slow growth continuing.

Japan: Domestic demand has declined following an increase in consumption tax and was larger than expected.

Russia and the Commonwealth of Independent States: Weakness’s here reflect the impact of geopolitical tensions on foreign investment, domestic production and confidence.

Latin America: Growth has been lacklustre with Brazil experiencing a contraction in GDP and negative surprises in a number of countries.

China: Following a weaker than expected first quarter, policy measures have supported stronger growth in the second quarter.

In summary growth is forecast to rebound for both advanced and emerging markets in the remainder of 2014/2015 but at rates below the IMF April projections

Source: IMF data


John Brooks

Trade Economist


8 October 2014






You are here: Home Notice Board THE AUSPACIFIC INSTITUTE COUNTRY RISK BUREAU World Economic Outlook October 2014