GLOBAL ECONOMIC MONITOR

July 2013

Federal Reserve Chairman, Ben Bernanke has said that the Fed’s easy-money policy is still necessary, because of overall low participation rate in the job market, four years after the country emerged from a deep recession, and the high rate of long-term unemployment are barriers to the economy pushing toward full employment. On the other goal — price stability — inflation at the current 1% level is low, and well below the Fed’s 2% target rate, and low enough to generate some worry about deflation.

China, India, Brazil, Mexico and other developing countries are growing more slowly than previously thought. This, combined with Europe’s enduring recession and middling growth in the United States, points to the fact that the global economy will grow at 3.1% this year, about the same as last year and down from the IMF’s April forecast of 3.3%.

Developing economies are struggling for a variety of reasons. Some, like Brazil and Russia, hurt by less demand for their exports in the United States, Europe and elsewhere. China is trying to reduce its reliance on exports and investments while increasing the importance of domestic consumer spending. Some countries are also under pressure as foreign investors have started moving money out of emerging markets to invest it in the United States, where interest rates have risen in recent days.

The current global trends are expected to remain and extend through 2014. The US economic cycle has become self-sustaining and policymakers should begin to taper the asset purchase program in the third quarter. In Europe, economic recession is expected to end at about midyear, with very little growth expected in the second half. Disappointing growth has been posted by several countries in Eastern Europe because of the European recession, as well as tighter lending conditions by the European banks.

Growth trends in Latin American countries have been mixed, as several have been hurt by the slowdown in global trade and lower commodity prices. However, it is expected that there would be some improvements during the second half owing to relaxed monetary conditions.

It is imperative to make the global economy more resilient. Policies need to support adjustment of global imbalances and take account of cross-border spillovers. Job creation and inclusive growth are foundational priorities. The policymakers should complete financial reforms to limit financial fragmentation and build a system that safely supports the real economy.

GEM for the month of July 2013 is attached.

We welcome your suggestions and comments for the same.