Finding your pace in the three-speed world economy

The slow recovery in the US and the euro-zone crisis dampened economic growth worldwide last year and prompted the International Monetary Fund to lower its global economic growth projections for 2013. Europe’s economy is expected to contract yet again this year, but the US and particularly economies in Asia, sub-Saharan Africa and Latin America are beginning to see higher growth, the IMF projected in its spring 2013 world economic outlook.

The IMF estimated that the global economy will expand by 3.3% this year, revised down from a 3.6% estimate six months ago. The revised expansion is expected to be driven largely by an accelerated growth in emerging market and developing economies. Supported by resilient domestic consumption and functioning labour markets, this expansion in global output is projected to steadily rise to 4% and 5.7% in emerging market and developing economies in 2014.

Christine LagardeIMF Managing Director Christine Lagarde (at left) has said the three-speed recovery isn’t good enough for an increasingly interconnected global economy and urged policymakers worldwide to take customised action that would allow the global economy a “full-speed recovery”.

The euro zone must press ahead with its banking union, Lagarde said. In the US, leaders need to fix the pace of fiscal adjustment. And fast-growing emerging markets need to strengthen financial regulation and invest in infrastructure.

With inflation largely under control thanks to lower food and energy prices, “emerging market economies are doing well,” the IMF outlook stated. “The main macroeconomic challenge in emerging market and developing economies is to recalibrate policy settings to avoid overstimulation and rebuild macroeconomic policy buffers.”

Risks that could derail the accelerated growth and affect world output include rapid credit growth, such as in China’s shadow banking system, an unexpected slowdown in key emerging markets or investment cutbacks, especially in Brazil, Russia, India, China and South Africa, a group also known as the BRICS.

Asia. Projections suggest the region is starting to recover after economic growth dipped to 6.6% in 2012 from 8.1% in 2011. Asia’s GDP growth is projected to reach 7.1% in 2013 and 7.3% in 2014.

Robust domestic consumption and investment and increased external demand, especially as the US economy improves, are projected to boost economic growth in China to 8% this year and 8.2% in 2014.   A remaining risk that is attracting more attention is China’s shadow banking system. Unregulated lenders are responsible for about half of the nation’s borrowing.

The purchase power of a growing class of consumers, a better monsoon season and a switch to pro-growth policies, including proposed reforms to clarify tax laws and stabilise the tax regime, are expected to raise GDP growth in India to 5.7% in 2013 and 6.2% in 2014. Economic growth dropped to 4% in 2012 from 7.7% the previous year.

Structural challenges, such as supply and labour bottlenecks, and an elevated inflation will keep India’s GDP growth from accelerating faster.

The group of ASEAN-5 countries (Indonesia, Thailand, Malaysia, the Philippines and Vietnam) is projected to see economic growth of 5.9% in 2013 and 5.5% in 2014. Indonesia leads the group, followed by the Philippines.

Latin America and the Caribbean. Strong domestic demand – supported by easy financing conditions and high commodity prices – is projected to help raise GDP growth in the region to 3.4% in 2013 and 3.9% in 2014. In the past two years, economic growth dropped to 3% from 4.6% in 2011.

Brazil’s economy, especially, is expected to do better. Economic growth in Brazil slowed to less than 1% last year, but new policies targeted at boosting private investment should start taking effect this year.

Mexico and most other Central American economies are projected to expand in line with potential, or about 3.5% to 4.5%.

Africa. Exports and domestic consumption and investment contributed to 4.8% economic growth in sub-Saharan Africa last year, down slightly from 5.3% in 2011 due partly to civil conflict in Mali and Guinea-Bissau and the interruption of oil exports from South Sudan. Growth projections for the region are 5.6% in 2013 and 6.1% in 2014.

Investments in infrastructure and production are expected to help boost economic growth in Nigeria to 7.2% this year and 7% in 2014, up from 6.3% in 2012.

Increased oil production is helping the Angolan economy expand a projected 6.2% in 2013 and 7.3% in 2014. Cote d’Ivoire’s economy is rebounding following election-related disruptions two years ago and expected to grow 8% per year in 2013 and 2014.

South Africa, which saw labour stoppages last year, is projected to generate economic growth of 2.8% in 2013 and 3.3% in 2014. That’s up from 2.5% in 2012.

Central and eastern Europe and Russia. The euro-zone crisis spilled over into emerging economies in central and eastern European such as Romania, Bulgaria, Serbia, Hungary and Turkey. But economic growth in emerging Europe is projected to reach 2.2% in 2013 and 2.8% in 2014, up from 1.6% in 2012.  Growth in Turkey is expected to accelerate, to 3.4% in 2013 and 3.7% in 2014.

Oil and gas exports are projected to help Russia’s economy generate about 3.5% of growth annually in 2013 and 2014, about the same as in 2012. Energy exports are also expected to boost economic growth above 5% per year in Turkmenistan, Uzbekistan, Azerbaijan and Kazakhstan.

Middle East and North Africa. Political instability has affected several countries in the region, particularly oil importers such as Egypt, Sudan, Jordan, Syria and Lebanon. But several of the oil exporting countries are seeing robust economic growth despite a scaling back of oil production. Qatar is projected to generate GDP growth of 5.2% in 2013 and 5% in 2014. Saudi Arabia’s economy is projected to expand 4.4% in 2013 and 4.2% in 2014.

The entire region is projected to see economic growth of 3.1% in 2013 and 3.7% in 2014, down from 4.8% in 2012.

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Sabine Vollmer ( is a CGMA Magazine senior editor.