WP: Disappointing Global Recovery

 

Five Charts that Show Why the Global Economic Recovery Is So Very Disappointing

By Ylan Q. Mui, October 7 2014.

The International Monetary Fund has once again downgraded its assessment of the world economy through 2015. This year, the IMF expects global growth to clock in at 3.3 percent — 0.4 percentage points lower than the organization predicted just six months ago. In 2015, the pace of the global recovery is forecast to pick up to 3.8 percent, about 0.2 percentage points lower than previous estimates.

“I don’t think it’s that small a revision,” IMF Managing Director Christine Lagarde said in an interview with The Washington Post. “The recovery is fragile, it’s uneven and it’s not very strongly rooted.”

What gives? It’s been six years since the darkest days of the global financial crisis, but economies across the world have yet to escape its shadow. Here are five of the most important charts in the IMF’s forecast that help explain why this recovery continues to disappoint.

1. Growth in emerging markets is slowing down

 

Emerging markets helped lead the way out of the global recession, but now that engine of growth is sputtering. The slowdown in Brazil is particularly dramatic: The IMF lowered its growth forecast for the country by a percentage point this year and another 0.6 percentage points next year, the largest drop of any nation. Across Latin America, financial conditions have tightened as stock market indexes plunged at the start of the year. Exports have declined more sharply than anticipated. The Mexican economy is the standout of the region simply by holding the line on the progress it’s made so far.

2. Middling growth in advanced economies

 

With emerging market slowing down, it’s up to advanced economies to pick up the slack. The United States is the leader of the pack, but that’s only relatively speaking: As we’ve repeatedly reported, the recovery at home is still far from robust. Meanwhile, Japan is continuing to struggle to maintain sustainable growth rates following a consumption tax hike that is proving more painful than expected.

3. Inflation is too low

 

Most people like to complain that prices are too high, but the opposite can be true as well. Inflation that is too low generally means that an economy is growing too slowly — and that’s the case just about everywhere. The commonly accepted target for annual price increases is about 2 percent. Advanced economies are expected to remain below that level through next year. The lack of inflation is even more surprising when you consider that central banks around the world have pumped their economies full of money in hopes of jumpstarting recovery.

4. Deflation is a real risk

 

 

Ok, so it’s only a real risk for one place, the Euro zone. But that singular risk has spiked since the IMF’s last forecast. The European Central Bank has unleashed new stimulus measures to fight the specter of outright deflation, but complicated and politically difficult structural reforms are necessary to really change the picture.

5. Another recession is increasingly likely

 

The probability of recession has increased in nearly every region since the spring. That makes sense considering the IMF’s lowered growth forecast: A weaker global economy means countries are more vulnerable to any shocks to the system.

See Ylan Q. Mui, Five charts that show why the global economic recovery is so very disappointing, The Washington Post, October 7 2014.

(Emphasis added)