News about the global economy could hardly be more negative for finance leaders assembling in Washington DC this weekend for the spring meetings of the International Monetary Fund (IMF) and World Bank.
There is renewed talk of a Greek exit (Grexit) from the euro, economic growth in some economies is projected to be sub-par this year and next, and policymakers are fretting about financial stability as the Federal Reserve contemplates monetary tightening as early as the third quarter.
This pessimistic scenario might lead some to conclude that all bets are off for the global economy in 2015. Nothing could be further from the truth.
Nuance is an often misused word in political discourse in Washington, masking what are really sharp differences in tone and context. But nuance is precisely what some economic commentators appear to be missing lately.
Stay positive amidst uneven recovery
IMF Managing Director Christine Lagarde remarked at the Atlantic Council last week that the global economy is benefiting from lower oil prices and the strong performance of the US, though the global recovery is moderate and uneven.
The IMF has forecast global growth of 3.5 per cent for 2015 and 3.8 per cent in 2016. The aggregate number, the IMF cautioned, masks diverse outcomes for some of the world’s largest economies.
“Making sense of the complex patchwork that is the global economy is all about getting the nuance right”
US and India emerge as bright spots while forecasts for other economies are more negative. China will see a further slowdown in growth, according to the IMF, but the slower pace is not necessarily bad news (even at this pace, China is adding an economy the size of Australia every three years).
And while some analysts saw weak prospects for the eurozone at the start of the year, the European recovery is now picking up, buoyed by lower oil prices and a weaker euro. Meanwhile, growth in Africa and other low-income countries will remain high, the IMF believes.
Global recovery is in a good place
Making sense of the complex patchwork that is the global economy is all about getting the nuance right. Yes, the risks are tilted to the downside and events such as a Grexit would indeed jeopardise the global economy.
At the same time, lower oil prices has delivered a bonanza to countries such as India, creating the fiscal space for the country to invest in long-term projects such as infrastructure.
The message from Washington this week is that there is no shortage of bad news about the global economy. In fretting about this bad news, however, one should balance these concerns with some optimism about countries and regions that are doing well – and the fact that the banking sector is much better positioned compared to the dark days of the global financial crisis eight years ago.