Global growth has strengthened as expected in recent months, largely driven by advanced economies, where easier financial market conditions and gradually improving consumer and business confidence have supported growth. While emerging economies have benefited from the stronger external demand, domestic demand has remained weaker than expected in many of them, reflecting in part tighter financial conditions. Many emerging markets have come under renewed market pressure recently. While the trigger is difficult to identify, events are occurring against the backdrop of weakening emerging economy sentiment, including on China, increased risk aversion, and continued UMP tapering. While global growth is projected to continue increasing, the recovery is uneven and fragile and significant downside risks remain.
The outlook remains broadly as projected in the January WEO, assuming that the impact of the recent financial volatility is short lived. In advanced economies, less fiscal consolidation and relaxed financial conditions will support growth this year, while near-term prospects for emerging economies are broadly unchanged. Thus, global growth is projected to increase to about 3.7% percent in 2014 (from 3 percent in 2013) and 4 percent in 2015, similar to the January 2014 WEO Update.
The euro area is turning the corner from recession to a weak recovery that remains uneven and fragile. Growth resumed in the second quarter of 2013, and recent indicators suggest that activity will continue to expand at a very modest pace.
The recovery is still fragile, and significant downside risks (old and new) remain. In emerging economies, increased financial market and capital flow volatility remains a key concern as the Federal Reserve continues unwinding unconventional monetary policy measures and market conditions start to normalize. Concerns about the withdrawal from UMP in the United States have already provoked sharp price movements in emerging markets. Market normalization will lead to portfolio reallocation and capital outflows in emerging economies, with risks for lower investment and potentially financial disruptions, notably in those with domestic weaknesses.
Brian Wang is a Futurist Thought Leader and a popular Science blogger with 1 million readers per month. His blog Nextbigfuture.com is ranked #1 Science News Blog. It covers many disruptive technology and trends including Space, Robotics, Artificial Intelligence, Medicine, Anti-aging Biotechnology, and Nanotechnology.
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