Despite increasing oil prices, the global
economy remains on track for rock-solid growth this year.
Moreover, the prospects for next year are also positive, albeit
somewhat less buoyant as in 2004 since the stimulating policies that have boosted growth
in early this year are drawing to an end and the higher oil price will erode
purchasing power. All major economic regions
are recovering, with the upturn being most pronounced in emerging Asia,
particularly China. Among the
industrial countries, Japan is now projected to grow a notch slower than the
United States, following on a slight downgrade to the Japanese outlook this
month. While the two economies
lead growth, higher energy prices are
casting a shadow over their short-term outlook. In addition, both economies remain hampered with fundamental
imbalances. The U. S. economy
is burdened with sizeable current account and public sector deficits, which
could trigger a sudden adjustment in the foreign exchange markets.
In Japan, misalignments in the financial sector persist
and the country remains mired in deflation.
Therefore, growth is seen to drop by half next year.
The prospects for the major European economies, on the other hand,
remain sombre. The Euro Area
will recover from last yearís slump but economic growth will remain
moderate and only increase gradually next year.
Finally, Latin America is seen increasingly optimistic, as buoyant
global demand and higher commodity prices are rekindling economic activity.
for global growth stagnates at high level
The outlook for global economic growth this year is stabilising a
notch below its peak of 4.3% reached in July.
Over the past three months, the estimate for global GDP growth
remained unchanged at 4.2% with only minor changes occurring amid the
major economic regions.
While the outlook for the U.S. and Japan dropped slightly, the
projections for non-Japan Asia and the Euro Area gained a notch.
Latin America, in contrast to all other regions, experienced a
strong upward revision of 0.4 percentage points since August.
raises global outlook for 2004 but lowers 2005 projection
robust growth scenario anticipated by the Consensus Forecast for the
global economy is also reflected in the September edition of the World
Economic Outlook (WEO) of the International Monetary Fund (IMF).
Since the last WEO in April 2004, the IMF has raised its forecast
for global growth by 0.3 percentage points to 5.0% for this year.
The upward revision followed on stronger-than-expected economic
growth in the first quarter of the year, bolstered by continued
accommodative macroeconomic policies, rising corporate profitability,
wealth effects from rising equity markets and housing prices, rising
employment, and - particularly relevant for Asian countries - the very
strong growth in China. However,
the Fund expects global growth to moderate from the second quarter of
2004, as the stimulating policies are drawing to an end and the higher oil
price erodes purchasing power.
As a result, the IMF sees global growth dropping to 4.3% in 2005,
slightly lower than the Fundís April projection, but still significantly
above the historical trend.
estimate for United States in line with market
These figures refer to global output growth, when calculating
individual countriesí weight based on purchasing power parity (PPP), as
opposed to the current US$ weights underlying the LatinFocus Consensus
The PPP methodology gives countries such as China and India a much
higher weight in the global aggregate.
Since both countries continue to expand at a much quicker pace than
industrialised economies, applying the PPP weights leads to higher global
growth rates than with an exchange rate weighted global average.
The IMFís exchange rate weighted outlook for this year also
anticipates global growth at 4.1%, just 0.1 percentage point below the
For next year, the IMF anticipates global growth to slow to 3.4%
based on market exchange rates, which is also just a notch below the
economy remains robust but higher oil prices and waning policy stimulus
will prompt slowdown in 2005
IMF has cut its growth forecast for the United States this year by 0.3
percentage points over April to 4.3%.
The IMF lowered the forecast for 2004 because the above-potential
growth in the first quarter was followed by a soft patch in the second in
the wake of a slump in personal consumption (see August edition of the
LatinFocus Consensus Forecast for details).
However, the Fund expects output growth to pick up in the second
half of 2004, supported by continuing strength in profits and household
labour income, as well as the restoration of incentives for automobile
Thus, the IMF forecast is bang in line with the Consensus Forecast,
which remained unchanged over last month.
For next year, the Fund is once more on par with the panellist
average, expecting economic growth of 3.5%.
The IMFís forecast is based on a slowdown in household demand in
the wake of higher energy prices, the waning effects of mortgage
refinancing, tax cuts and a gradual rebound in the saving rate.
In addition, the IMF expects lower government spending, as the
fiscal position improves.
On the other hand, economic activity will be buttressed by
continued strength in business investment and a modest improvement in
external demand, as trade volumes respond to the depreciation of the US$.
in current account and fiscal balance raise concerns
the generally positive outlook, the Fund sees a number of uncertainties
facing the recovery.
In particular, the recent rise in oil prices and declines in some
forward-looking indicators could result in a less propitious development
These downside risks are compensated for by solid business
confidence, healthy investment spending and rapidly rising labour
The most important threats to the U.S. economy, however, are the
exceeding deficits in the current account and the fiscal balance.
The Fund projects the current account deficit to narrow to 5.0% of
GDP in 2005 but to remain above 4% of GDP through the rest of the decade,
assuming no further real depreciation of the US$ and a moderate fiscal
The Fund acknowledges that the expansionary fiscal policy in recent
years has supported the recovery but cautions that the more expansionary
fiscal policy has also brought about the fastest deterioration in the U.S.
budget position in the past fifty years.
The Bush administration has pledged to lower the deficit by half
over five years, which does not appear sufficiently ambitious in the
more optimistic about recovery in Euro Area
the Euro Area, the IMF is significantly more optimistic than in April.
The Fund projects economic growth to increase to 2.2%, following last
yearís anemic 0.5% expansion, which is up 0.4
percentage points from the Fundís April forecast. Thus, the IMF is
considerably more upbeat than the Consensus Forecast, which sees economic
growth at 1.9%. However, officials acknowledge that the upturn will
remain moderate and so far has been heavily dependent on external demand.
Moreover, while industrial production and business confidence are
gradually improving, consumer confidence and retail sales continue to lag.
With the momentum stemming from global impetus ebbing in next year,
the recovery will have to be increasingly supported by domestic demand.
Consequently, the IMF does not expect economic growth to accelerate in
2005 and sees the rate of expansion remaining at 2.2%. Once more,
the Consensus is a notch more pessimistic, expecting the Euro Area economy
to expand by 2.1% in 2005.