The world economy faced with a change in scenario. Developments, outlook and risks

In 2013 the world economy grew by 3%, practically the same rate as in the previous year. The advanced economies grew by 1.3%, while the GDP of the emerging market economies rose by 4.7%, down 0.1 pp and 0.2 pp respectively from 2012. The similarity of these figures masks, however, notable changes in the global economic scenario. Firstly, as regards their contribution to world dynamism and to the perception of vulnerabilities, the advanced and emerging market economies have switched roles (see Chart 1). The former, led by the United States, have seen recoveries which have firmed at different speeds and intensities, after similarly uneven progress in the adjustments imposed by the crisis and in the correction of past imbalances. Also, the uncertainty derived from the external risks which had been weighing upon these economies, particularly the euro area, has tended to dissipate, giving rise to lower financial volatility. By contrast, the emerging market economies, which held up fairly well during the crisis and recovered with notable vigour, attracting strong capital flows, have seen a slowdown in activity as their economic outlook and investors’ perceptions worsened. In this setting, many vulnerabilities have emerged, some built up during the boom and masked in the recovery. The second change is in the monetary policy stance of the major economies which, particularly in the case of the US Federal Reserve System (the Fed), anticipates the beginning of the exit from the protracted, ultra-expansionary and unconventional monetary cycle which followed the crisis. In some countries (particularly the United States and the United Kingdom), this new phase is associated with the prospects of recovery and the process of economic and financial normalisation, and has arisen in a setting of low inflation, despite the monetary stimuli of the last few years. In any event, the stage of stimulus withdrawal will take place in a monetary policy framework featuring revamped communication strategies (forward guidance) designed to steer more effectively the expectations as to future interest rates. This change in approach has had a major impact on financial markets. Specifically, the announcement of the possible easing of asset purchases by the Fed (tapering) triggered a period of financial volatility and prompted a re-assessment of market risks which particularly affected certain segments, such as emerging markets. This response to decreasingly lax global financial conditions was largely unexpected, but may inspire greater caution among investors and agents and better discrimination between countries and segments based on the quality of their fundamentals. Finally, note should be taken of the development of a financial environment characterised by two features: a fall-off in banking activity accompanied by the corresponding expansion of financing through the capital markets, and a reduction in international financing flows. The remainder of the article reviews recent economic developments, analyses in more detail the basic features of the change in scenario at global scale and describes the outlook for the current year, when growth is expected to accelerate in the developed economies and to steady in the emerging market economies, with greater downside risks in the latter.