What will fuel the world growth rate the most in 2014, questions MoneyShow's Jim Jubak, who considers the impact if the majority of growth comes from developed countries, or if it comes from developing countries.
The International Monetary Fund carefully hedged Tuesday’s good news on the global economy.
Yes, the IMF’s forecast for global growth to 3.6% in 2014, and to 3.9% in 2015, is a big improvement from the 3% growth in the global economy in 2013.
And the organization was optimistic about growth in the world’s developed economies. The US economy will grow at a 2.8% rate in 2014, the United Kingdom at 2.9%, Japan at 1.4%, and the EuroZone at 1.2%.
But, because the world’s developed economies—rather than historically faster growing developing economies—will provide the engine for global growth in 2014 and 2015, the world, as a whole, will grow more slowly than the IMF had projected in early January. At that time, the organization was projecting 3.7% growth for the global economy in 2014.
The consequences of more of global growth coming from developed economies extends beyond just a slightly lower growth rate for the world economy—at least, according to upcoming projections from the World Trade Organization previewed by the Financial Times yesterday. According to an interview with Roberto Azevedo, head of the WTO, world trade grew by just 2% in 2013 and will pick up to a growth rate of just 4.5% in 2014. Take out the effect of inflation and real growth in global trade, according to calculations by Delta Economists, will be just 1% in 2014. That would make 2014 the third year in a row in which global trade has grown more slowly than the global economy. I think that’s a reflection of the relatively low dependence of the US economy on foreign trade, and of a slowdown in developing economy to developing economy trade, caused by the drop in China’s growth rate. Together the IMF and WTO projections say that 2014 will be another tough year for commodities, such as iron ore and copper and for commodity-exporting economies such as Brazil.
Two caveats in the IMF projections also deserve attention.
First, the IMF said that the biggest risk to this increase in global growth rates was the possibility of climbing interest rates. The current relatively weak global growth would require currently low interest rates to stay low for an extended period. (The IMF seems to be channeling the Fed’s language.)
Second, the organization, which has been critical of the austerity policies of the David Cameron government in the United Kingdom, praised efforts to raise capital spending in the United Kingdom as a way to increase long-term growth. But the IMF did worry that the current recovery in the United Kingdom, which has put that country on top of the developed economy growth rate list, may be too dependent on expanded mortgage lending and on the use of easy credit to spur consumer spending.
To end this post with the happiest note in the IMF report, however, the organization projects that the risk of a global recession in 2014 has dropped to a 0.1% change from a 6% chance last October.
In other words, all we have to fear is slow growth itself.
