In a paper “Global Prospects and Policy Challenges” published ahead of the G20 Summit to be held on 15-16 November, the International Monetary Fund said that growth indicators have weakened in Eurozone and Japan after the release of the October World Economic Outlook (WEO).

The report said, “Data released after the October 2014 WEO suggest that growth performance is in line with projections in the United States and China, but there are downside risks to the outlook for the euro area” and that growth has been revised downwards, notably in euroarea and Japan.

The IMF said that over the medium term, the key risks are low potential growth in both advanced and emerging economies and a long period of lower demand in major developed economies that could turn into stagnation.

In the euro area, while the moderating fiscal consolidation and the further monetary easing should support activity, growth is projected
to strengthen more gradually and unevenly as the crisis-legacy brakes ease only slowly. Recent data point to weak growth in the euro area. Weak external and domestic demand and low industrial production are raising concerns over stalling growth in the euro area.

In Japan, given that the recovery in private consumption has been slower than expected and the underlying momentum for private investment is weak, projections have been lowered compared to the April WEO. However, BOJ expanded its QQE which has helped in lifting inflation and inflation expectations. Recent indicators show that the recovery is weak but still ongoing.

One of the key events in October was the sharp decline in oil prices and this will help in boosting global growth, IMF said. Oil prices
have fallen by almost 20 percent since early September. The report said, “Weak oil prices will have a different impact across regions, easing the pressure on external position of net oil importers with current account deficits, while posing an additional downside risk for producers in emerging economies where which growth is already decelerating”. However, heightened geopolitical risks in the Middle East could lead to disruption in oil markets, it added.

Lastly, the report said that to strengthen growth potential, “A higher priority needs to be put on policies aimed at raising today’s actual and tomorrow’s potential growth—by restoring confidence, boosting investment, reforming labor and product markets, and raising productivity and competitiveness.”

 All rights reserved Economics Monitor 2014