The World Economy In 2014: Is The Recovery Really Strengthening?

By: Olivier Blanchard

The IMF’s January 2014 World Economic Outlook Update has three main messages:

First, the recovery is strengthening. We forecast world growth to increase from 3 percent in 2013 to 3.7 percent in 2014. We forecast growth in advanced economies to increase from 1.3 percent in 2013 to 2.2 percent in 2014. And we forecast growth in emerging market and developing economies to increase from 4.7 percent in 2013 to 5.1 percent in 2014.

Second, this recovery was largely anticipated. We have revised our forecast for world growth in 2014 by just 0.1 percent relative to our October forecast. The basic reason behind the stronger recovery is that the brakes to the recovery are progressively being loosened. The drag from fiscal consolidation is diminishing. The financial system is slowly healing. Uncertainty is decreasing.

Third, it is still a weak and uneven recovery. Among advanced economies, it is stronger in the US than in Europe, stronger in the euro core than in Southern Europe. In most advanced economies, unemployment remains much too high. And downside risks remain.