"Most forecasters – including the International Monetary Fund and the World Bank – are now predicting that global growth will pick up in 2014, and that it will be more balanced among the world’s major economic regions.
Such forecasts reflect three developments. Europe will exit recession, with the peripheral economies benefiting from the strongest relative improvement in growth prospects. Meanwhile, 3% annual GDP growth is no longer out of reach for the United States. And emerging economies will be anchored by China’s slower but still-robust 7% annual growth".
"In Europe, growth this year will largely reflect the impact of financial stabilization, not deep structural reforms.With a sharp drop in interest rates differentials and with the threat of a meltdown averted, both domestic and foreign investors continue to return to peripheral economies, thereby alleviating severe credit rationing. But a more fundamental shift to basic structural reforms bringing a more sound healing of imbalances, would be absolutely necessary,to improve conditions in the long run".
"The predicted acceleration in US growth this year is more notable, because it reflects the positive impact of a multi-year process of economic and financial healing.
Yet America’s actual economic growth in 2014 will remain well below potential. Moreover, the US economy’s performance remains overly dependent on the Federal Reserve’s experimental monetary policies.
The US economy is certainly capable of reaching the “escape velocity” that the country needs if unemployment is to fall in a more definitive and lasting manner. But this requires Congress to support President Barack Obama’s administration in three areas: improving the composition and level of aggregate demand; enhancing the economy’s supply responsiveness; and removing residual debt overhangs that continue to inhibit economic activity.
Only decisive progress on these fronts will unlock the trillions of corporate dollars that, rather than being invested in new plants and equipment, remain stranded on companies’ balance sheets or are handed over to shareholders via higher dividends and share buybacks".
"The issues in the emerging world are more complex and diverse. Some countries are making consistent efforts to revamp exhausted growth models. In China, for example, this involves less reliance on exports and public investment, and more on the private components of domestic aggregate demand".
"The emerging world as a whole is unlikely in 2014 to resume its role as a major engine of the global economy, and that the quality of what growth there is will be far from optimal.
Indeed, the more detailed one’s analysis of today’s global growth dynamics is, the more likely one is to conclude that this year’s brighter prospects are just that – brighter prospects for 2014. There is still much that can (and should) be done if this year’s predicted upturn is to provide a springboard for a meaningful medium-term growth spurt that improves prospects for current and future generations".
Source: Project-Syndicate Org. from Achieving Escape Velocity
By Mohamed A. El-Arian
