Spain and Ireland bright lights in mixed IMF picture for world economy

Exports and increased consumption have helped Spain make gradual economic gains in the last 12 months, says the latest International Monetary Fund (IMF) commentary reported in the British Chambers of Commerce (BCC) October Global Economic Review.

“This has led the Spanish government to upgrade its GDP forecasts for 2015 from 1.8% to 2% which highlights its transformation from a crisis-ridden European economy to one of the fastest growing eurozone economies.”

Exports and business investment have also helped the Irish economy to grow by 1.5% in 2014 Q2.

However the IMF says that fortunes are not so bright for the Eurozone as a whole, where there is  4 in 10 chance of a third recession since the financial crisis. The IMF says eurozone growth will be 0.8 per cent in 2014, rising to 1.3% next year and adds: “There is a risk that the economy could stall with demand weakening further and that low inflation could turn to deflation.

“The eurozone problems have so far been limited to the periphery with the core remaining in relative good health. However, in recent months, we have seen a shift. Some peripheral economies are registering moderate growth while the core is slowing down.”

Meanwhile Japan’s growth forecast is downgraded from 0.8% next year from 1.1% predicted in July. The predictions note that Japan’s bid to boost its economy had been taking hold before the April 1 tax rise.

The review says: “Raising sales tax to 8% from 5%, the first rise in 17 years, was aimed at generating more government revenue to shrink a national debt which stands at twice the size of the economy. Customers made a last-minute dash in a national buying spree before prices rose, followed by an immediate drop in spending which stalled second-quarter growth.”

The biggest growth cut forecast is reserved for Brazil with its economy expected to grow only 0.3% in 2014, down from 1.3% in July. The BCC review adds: ”The IMF now sees Brazil growing 1.4% next year, compared with 2% in July. Brazil’s economy contracted by 0.6% in the April-June period, making the second consecutive quarter of negative GDP growth and meeting the technical definition of recession.”

Meanwhile the IMF says Russia will not see any growth in the next two years, as sanctions and geopolitical tensions have led investors to pull out capital and hold back investment. Investors withdrew £46.6bn from Russia during the first six months of this year alone.

The BCC Review says: “A return to higher growth in Russia will depend on solid private investment growth and a lift in consumer sentiment.”

Overall, the IMF lowers its global growth forecast for 2014 to 3.3%  - 0.4% than in April. The BCC adds: ”The downward revision is largely due to weaker-than-expected global activity in the first half of 2014.

“The latest forecast highlights that an uneven global recovery continues and risks have increased. This includes worsening geopolitical tensions, stagnation and low political growth in advanced economies and a decline in potential growth in emerging markets.”

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