The headline on The Economist leader (11 Oct 2014) made matters brutally clear: “Growth is healthy in America and Britain. But most of the world economy is in trouble”.
Everyone can, of course, put forward their own preferred forecasts. But the IMF has an awesome team of dedicated economists, overseen by one of the most scrupulous, careful, and insightful of Chief Economists anywhere. Does The Economist’s view come from the IMF’s recent World Economic Outlook, released at about the same time?
The Economist says it is more pessimistic than the IMF, the latter already warning that world growth has gone all secular stagnation. Fair enough. But the IMF, in its Oct 2014 World Economic Outlook, would disagree with The Economist in a quite different way, not just in overall optimism.
(obviously the 2019 column is the IMF’s WEO already pessimistic forecast).
For the key message – very much related to part of the points made by Martin Wolf – look at the last column. This is the ratio of the magnitude of increases in total GDP – at market exchange rates, not PPP, and not as proportional growth rates – of different groups and individual economies, relative to that of the US, over 2014-2019. The group of Emerging Markets and Developing Economies will, at market exchange rates, add to growth in the global economy 2.64 times what the US will. China alone is already expected to add 1.12 times the US’s contribution. The UK? 0.22 times.
Does the emerging world not count? At market exchange rates they’re already as large as the G7.
Where exactly do so many observers get their conclusion about US and UK growth, and the health of the world economy?
The key point here (that I originally learnt from, most convincingly, Kemal Dervis, and that I’ve since re-calculated under differing assumptions) is that while over short-term cycles, the emerging markets have become ever more correlated with the advanced economies, over the slightly longer-term they are all relatively de-coupled. Compare the trends Figure 1 above with that for higher-frequency fluctuations in this (Figure 3). Perhaps it is this last empirical regularity (which, for technical reasons, would be that emphasised when we calculate year-on-year growth rates, whether in our minds’ eye or on paper) that makes so many observers despair for the emerging markets when the advanced economies slow down.