In October, policymakers from around the world will gather in Washington DC to take stock of global economic prospects. For the first time since 2010 the prognosis for a sustained recovery in the advanced economies is expected to be positive.
Specifically, we expect the Eurozone will continue to pick up gradually, posting average growth of just under 1% in 2014. The US is projected to expand by a respectable 2.7% next year.
But, despite an improving picture among advanced economies, the global economy is still only expect to grow by around 3% next year.
This is because emerging economies like India, Indonesia, Turkey, South Africa and Brazil have run into trouble as capital has started to flow back to the advanced economies. This complicates the picture for the policymakers meeting in Washington.
At the same time, downside risks for the advanced economies are also apparent. The Eurozone is still in the early stages of setting up its future banking infrastructure. The US is gearing up for further budget and debt ceiling negotiations. And improved growth in advanced economies is pushing up long-term market interest rates, which is having a knock-on impact on funding costs around the world.
Labour markets in advanced economies remain bruised. In this edition, we have taken a look at the human cost of the crisis. Since the second quarter of 2008, advanced economies have lost around 7 million jobs. Put into context, in the same period, the world economy created 37 million jobs. In other words, for every job lost in the West, the emerging economies have managed to create around six – about 44 million in total.
Policymakers and businesses are adjusting to these new realities. On the plus side, greater spare capacity in advanced economies has meant that the Fed and other central banks have been able to pump large volumes of liquidity into markets while simultaneously keeping inflation under reasonable control. On the flipside, workers, particularly those in the US, who remain unemployed for longer periods are prone to losing some of their skills. US businesses are therefore having to dedicate more resources to training newly hired staff, which could impact their margins, especially in the short-term.
Unemployment remains stubbornly high in advanced economies