The global economy continues to expand at a moderate pace with a persistent divergence between weak performance in mature economies and solid performance in emerging economies. Growth in most mature economies is held back by headwinds coming from fiscal consolidation, high unemployment and household balance sheet adjustments. Also, bank de-leveraging remains a key constraint, especially as banks respond to tougher regulatory guidelines. The European sovereign debt crisis continues to pose downside risks. Emerging markets, by contrast, are in a much more favorable position and continue to lend support to global growth, notably in Emerging Asia. This is contributing to increased capital flows into these economies. However, the emerging world remains vulnerable to shocks emanating from mature economies, for example from the Euro Area. Such shocks are often transmitted through the international banking system and affect lending conditions in emerging markets.
Given the large output gaps, inflation pressures will remain subdued in mature economies and they have recently subsided somewhat in many emerging economies. Policy rates in mature economies are firmly held close to the zero lower bound, while emerging economies have considerable leeway to accommodate a deceleration in economic activity if necessary.
Global Macroeconomics Publications
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Euro Briefing: Looking for Traction
June 17, 2013Prior to the recent shift in market sentiment, abundant liquidity and renewed efforts by the ECB to support growth (including a rate cut on May 2) had helped peripheral Euro Area sovereign yields drop to their lowest level since Q1 2011. Market appetite for Greek financial assets improved, contagion from Cyprus is under control, and Portugal held a 10-year bond auction—the first since its 2011 bailout. However, the selloff in risk assets and focus on Fed “tapering” since May 22 have shifted the focus to the potentially volatile corrections attendant on further increases in U.S. bond yields.
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Financial Wealth Effects in G3 Economies
June 10, 2013U.S. households hold close to half of their financial assets in equities compared to around one-fifth in the Euro Area and less than one-tenth in Japan. Though the Japanese equity market has outperformed U.S. and European markets since last year, household net financial wealth has increased more markedly in the U.S. relative to Japan and the Euro Area. We estimate the boost to consumption and the corresponding contribution to GDP from financial wealth effects in 2013 to be 0.9% and 0.6% in the U.S., 0.6% and 0.4% in Japan and 0.3% and 0.2% in the Euro Area.
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May/June 2013 Global Economic Chartbook Update
May 31, 2013The May/June edition of the Global Economic Chartbook updates our global forecasts, providing charts on the global business cycle, global inflation, world trade and external imbalances, and emerging economies, economic policy, and financial conditions. Special features include the Euro Area crisis, U.S. fiscal events, and Japanese monetary policy. This Chartbook is also available in PowerPoint format—to access the underlying spreadsheets please double-click on each chart. You are encouraged to use the charts and data in your own work.
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2013 May U.S. Economic Forecast
May 23, 2013After several months of accelerated fiscal consolidation, the U.S. economy seems to be staying the course of moderate economic expansion. This is good news, especially given the concerns of a renewed “spring swoon.” Financial markets have welcomed this good news, with the S&P 500 rising about 17% year-to-date. To be sure, there are also signs of weakening in the U.S. economy, which are concentrated in the business sector. Overall, we expect growth to reaccelerate in the second half of the year after a weaker Q2.
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2013 May Japan Economic Forecast
May 23, 2013Fiscal and monetary stimuli will support domestic demand in the near-term but all eyes are on structural reforms to be announced in June. Capex recovery hinges on the export outlook, which in turn depends on sustained improvements in global manufacturing activity. While portfolio rebalancing by domestic investors is in nascent stages, inflation expectations are picking up and wealth effects are driving consumption. Firms are not increasing output prices in proportion to the rise in input costs, thereby limiting second-round price effects.
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2013 May Euro Area Economic Forecast
May 23, 2013The Euro Area is expected to lag behind other major economies this year. Despite the substantial improvements in financial markets since last summer, bank lending conditions to the real economy remain tight in the periphery. Further policy measures are needed to incentivize banks to lend, possibly with an element of securitization of bank loans to SMEs and guarantees provided to banks by the EIB. Meanwhile, the slow recovery in GDP growth will be led by exports, helped by improved competitiveness in the peripheral countries. Also, the fiscal drag on domestic demand will ease gradually.
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May 2013 Global Economic Monitor
May 22, 2013The recent data flow has been marked by two notable contrasts. First, GDP growth has disappointed in emerging markets, but not in mature economies. Second, the global outlook has deteriorated as measured by business sentiment surveys, but has brightened according to financial markets. What do we make of these conflicting signals? On balance, we believe the moderate global economic expansion remains on track even as the outlook for emerging markets has deteriorated somewhat. Emerging market policy easing and more supportive financial conditions in mature economies provide welcome support.
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