Transitions and Tensions

The IMF WEO (wayo) is out or to give it the full title, 'The World Economic Outlook'.

All over the planet, governments, politicians, think tanks, journalists, in fact the entire universe of assorted policy makers, pundits and economic diviners will be poring over its contents; searching, weighing, sifting, looking for signs of recovery or of increased risk.

The IMF conclude:

"Global growth is in low gear, and the drivers of activity are changing. These dynamics raise new policy challenges. Advanced economies are growing again but must continue financial sector repair, pursue fiscal consolidation, and spur job growth. Emerging market economies face the dual challenges of slowing growth and tighter global financial conditions."

Chancellor Osborne will be delighted that the IMF have been obliged to retract their criticism of the austerity vs stimulus policy pursued in Britain. The financial sector in the UK has had more repair work than any other country, the deficit is coming down and significant numbers of new jobs have been created. The IMF had previously warned UK policy might choke off recovery but growth has strengthened with IMF predictions now revised to 1.4% for 2013, and 1.9% for 2014, much more in line with UK official forecasts.

Olivier Blanchard of the IMF didn't eat any humble pie at the news conference release of the latest report but increasingly IMF forecasting is requiring considerable revision at each WEO and will be undermined if it continues to be so far adrift from national figures and real outcomes.

Fiscal policy will continue to be a hotly contested area but for the moment Chancellor Osborne has trounced both the IMF and the opposition parties by delivering above developed economy trend growth whilst cutting public spending and addressing the deficit issue.

Meanwhile over the pond the US and Barack Obama in particular will be heartened at the WEO forecast of 2.6% GDP growth in 2014. Further comfort will have been drawn from the market reaction to the appointment of Janet Yellen as head of the Federal Reserve. Yellen is seen as an interest rate and QE dove, so prospects of rate rises and QE tapering have moderated, which has pleased the markets.

Were it not for the increasing impression of a country that is becoming ungovernable the US would really be motoring now. The budget/Obamacare dispute puts world economic growth and stability at risk.

If it is not resolved the world will pay a heavy price slumping back into recession.

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