The International Monetary Fund is still looking for global economic
growth to pick up in 2014 but at the same time cautions that there are
still “significant downside risks,” particularly the potential for
more turmoil in emerging markets and deflation in the euro area.
“A new bout of financial volatility has affected emerging-market economies as markets reassess their fundamentals,” the IMF said. “While the pressures were relatively broad-based, emerging economies with relatively high inflation and high current-account deficits saw the largest asset price declines initially.
“Capital outflows, higher interest rates, and sharp currency depreciation in emerging economies remain a key concern and a persistent tightening of financial conditions could undercut investment and growth in some countries given corporate vulnerabilities. A new risk stems from very low inflation in the euro area, where long-term inflation expectations might drift down, raising deflation risks in the event of a serious adverse shock to activity.”
The IMF called for “cooperation” to promote financial stability, in particular urging advanced economies to avoid “premature withdrawal” of accommodative monetary policy. The IMF also urged for “credible” macroeconomic policies in emerging-market economies, including tighter monetary policy to combat inflation where necessary, as well as certain structural changes, including fiscal policy credibility.
“A new bout of financial volatility has affected emerging-market economies as markets reassess their fundamentals,” the IMF said. “While the pressures were relatively broad-based, emerging economies with relatively high inflation and high current-account deficits saw the largest asset price declines initially.
“Capital outflows, higher interest rates, and sharp currency depreciation in emerging economies remain a key concern and a persistent tightening of financial conditions could undercut investment and growth in some countries given corporate vulnerabilities. A new risk stems from very low inflation in the euro area, where long-term inflation expectations might drift down, raising deflation risks in the event of a serious adverse shock to activity.”
The IMF called for “cooperation” to promote financial stability, in particular urging advanced economies to avoid “premature withdrawal” of accommodative monetary policy. The IMF also urged for “credible” macroeconomic policies in emerging-market economies, including tighter monetary policy to combat inflation where necessary, as well as certain structural changes, including fiscal policy credibility.
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