In the last couple of weeks, the IMF have released their latest World Economic Outlook, entitled ‘Sustaining the Recovery‘. The last two Outlooks have been researched and published at times of huge economic uncertainty, April this year and October last year. As things calm down a bit, and the dust starts to settle, it’s a useful exercise to take stock of the change in global economic expectations that has occurred over the last two years.
Here, I hope to look at two central questions on which the IMF research could shed light: firstly, whether global economic prospects have improved since April, and secondly, which economies have shown the earliest signs of rebounding.
So, have economic prospects improved in the last six months? As the title to this WEO “Sustaining the Recovery” suggests, the answer is yes, with a but. Overall, the IMF is a little more pessimistic about the numbers for 2009 than they were six months ago. As the chart below shows, the typical country is now expected to grow by just 0.2% this year, compared to the previous forecast of 0.5%. But the net news is good news, as they are more optimistic about the average growth the world economy will experience over the coming three or so years. The typical growth rate over the coming years is now estimated to be closer to 3.5% than 3%, and that is a three-year effect, outweighing the downgrading of growth prospects this year.
So economic conditions in the global economy have started to improve over the last few months. With all this talk of stimulus programs, and taxpayers certain to want to see a return to their investment, which economies have rebounded most since conditions started improving earlier this year?
For about one third of the world’s countries, the last six months haven’t changed things that much and 2009 growth is expected to be within a half a percent of the estimate produced at the start of the year (and for most countries that’s close enough to zero anyway). For a dozen or so countries, conditions have deteriorated substantially (typically a greater contraction than previously expected).
About 25 countries, though, are going to enjoy economic growth of at least 1 percentage point more than forecasts earlier this year suggested. A couple of these are special cases, such as Afghanistan and Lebanon. The others enjoy an interesting geographic distribution. For example, apart from Haiti and Ecuador, there are no American economies on this list.
There are a couple of European economies on the list of early recoveries. Portugal, Switzerland and Denmark, for example, have all seen their economic prospects improve since earlier this year, as has Poland. The upward revision of Iceland’s economic prospects by over 2 percentage points may surprise but then again, the country hasn’t collapsed the way some pundits expected. (Nonetheless, the headline figure for 2009 is still an 8.5% contraction, similar to Ireland.)
The majority of economies recovering fastest, though, seem to have benefited from China’s strong economic performance this year. Obviously, the list starts with China itself (now forecast to grow 2% more than earlier this year) but also includes Taiwan (3.3% higher than earlier this year), Korea (+3%), and other neighbours such as Indonesia, Vietnam and Australia. Hong Kong, Japan and India just fall short of registering 1 percentage point higher than six months ago, but belong to this group also.
The map below shows the global distribution of revisions to growth forecasts across the two 2009 World Economic Outlooks. Over on Manyeyes, there is the full visualization, which contains estimates of the revision to economic growth this year as well as a comparison of early 2008 and late 2009 estimates of growth in 2009. You can see the preponderance of slightly darker brown in South-East Asia/Oceania.
The most interesting number on the list has to be Singapore, though. While its economy is expected to shrink by 3.3% this year, this is significantly better than the 10% contraction predicted for the island city-state. This upward revision of its GDP growth by almost 7 percentage points is easily the largest in the world, apart from Afghanistan. It shows the importance of both trade dependence (bringing about huge swings in growth forecasts) and luck/geography (proximity to China and other large Asian markets).
This may be instructive about the regional blog nature of the world economy. If the upward revision had been in the USA, rather than in China, or perhaps in France-Germany, the clustering of upward revisions would presumably have looked very different.