The International Monetary Fund has been in the headlines recently with the release of its updated world economic outlook, coming on the heels of heightened equity market volatility over recent weeks and geopolitical flare-ups that seem to be simmering on a number of fronts.
The IMF report outlines the lingering effects from the 2008 financial crisis that are still being dealt with. Going into the year the IMF projected global growth for 2014 would reach 3.7%. That estimate had already been revised down to 3.4% in July, and this month’s report bumped the projection down even further to 3.3%. Growth estimates for 2015 have been similarly downgraded from 4.0% to 3.8%.
Speaking last week, IMF director Christine Lagarde went so far as to coin a new phrase to describe current economic conditions: the “new mediocre”. While we are undoubtedly in a global recovery, it is slow and uneven, with conditions varying significantly by country. Recent data from around the world confirms this more muted outlook. The three largest economies in the Eurozone, Germany, France and Italy, are showing slowing industrial output and manufacturing activity, and emerging market economies that for many years proved to be the overachievers of the recovery have been wobbling as they face the ripple effects of tapering by the U.S. Federal Reserve.
A notable bright spot in the recent IMF report, however, was the updated outlook for the United States. While many of the world’s advanced economies saw downward revisions to their growth projections, the U.S. output estimate for 2014 was actually raised by 0.5%. The U.S. unemployment picture is improving and the housing market is healthier, leading to stronger household balance sheets, and the economy appears poised to lead the global recovery for some time.