Global Economic Prospects - June 2013: Less volatile, but slower growth

The global economy is transitioning into what is likely to be a smoother and less volatile period. However, the recovery is uneven. For high-income countries, fiscal consolidation, high unemployment and still weak consumer and business confidence will continue to dampen growth this year, while growth in the developing world will be solid but weaker than during the pre-crisis boom period.

Although the challenges faced by high-income countries to restore financial-sector health, reform institutions and get fiscal policy back onto a sustainable path persist, the likelihood that these challenges will provoke a major crisis has declined markedly.

Global GDP is expected to expand about 2.2 percent this year and strengthen to 3.0 percent and 3.3 percent in 2014 and 2015. For high-income countries, growth this year will be a modest 1.2 percent, firming to 2.0 percent in 2014 and 2.3 percent by 2015.

Developing-country GDP is now projected to be around 5.1 percent in 2013, strengthening to 5.6 percent and 5.7 percent in 2014 and 2015, respectively. Growth in several middle income countries has been held back by supply bottlenecks and is unlikely to reach pre-crisis rates unless supply-side reforms are pursued vigorously. In China also, growth has slowed as authorities seek to rebalance the economy. Looking at broader region-wide trends, East Asia is expected to grow by 7.3 percent this year; developing Europe and Central Asia by 2.8 percent; Latin America by 3.3 percent; Middle East & North Africa (MENA) by 2.5 percent; South Asia by 5.2 percent and Sub-Saharan Africa by 4.9 percent.


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Low Interest Rate Policy and the Use of Reserve Requirements in Emerging Markets

This paper attempts to shed light on the link between monetary policy in large economies with international currencies (the United States and the euro area) and the use of reserve requirements in emerging markets.

Using reserve requirement data for 28 emerging markets from 1998 to 2012 this paper provides evidence that emerging markets tend to raise reserve requirements and repress financial markets to curb speculative capital inflows when interest rates in the major economies decline.

The finding suggests that the current low interest rate policies of the major economies may have collateral effects on emerging markets by triggering financially repressive policies....

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