The U.S. is resuming its role as an engine of global growth, this time one that putt-putts along rather than purring.
As the International Monetary Fund declares the strengthening U.S. economy is providing a “major impulse” to the world, economists are questioning just how powerful it will prove to be. The U.S. contribution to global expansion from 2014 to 2019 will likely average about two-thirds that of the quarter-century before the recession started in 2007, according to data compiled by Bloomberg based on IMF projections.
“The U.S. is still the most important engine of global growth although perhaps not as much as it once was,” said Mark Zandi, chief economist of Moody’s Analytics in West Chester, Pa.
Zandi is among the optimists in arguing that acceleration in U.S. growth has spillover effects on other economies by spurring trade and investment. Skeptics at Morgan Stanley and HSBC Holdings PLC say America’s diminished demand for exports and energy, as well as the potential for higher interest rates, mean it won’t be as helpful as it once was.
What’s driving global economic growth, and what’s holding it back, were in the spotlight Friday in Washington where finance ministers and central bankers from the Group of 20 major industrial and emerging economies are convening. At the center of their discussions: Emerging markets such as China aren’t propelling the world economy as much as they did in 2009, when they helped save it from a recession.
The IMF this week forecast China’s economy will grow 7.5 percent this year, the weakest since 1990. China’s slowdown will help to limit expansion in all developing nations to 4.9 percent. Some, including Turkey and Brazil, have suffered bond-market sell-offs as investors target excesses such as large current account deficits.
“Emerging markets are still hoping the historical relationships will work and the U.S. will pull them out of trouble,” said Ebrahim Rahbari, a global economist at Citigroup in London. “We tend to highlight how much less likely that is than in the past.”
The IMF estimates imply the U.S. will contribute about a 0.52 percentage point to global growth averaging 3.9 percent annually from 2014 to 2019, according to the data compiled by Bloomberg. While that’s more than the 0.35-point average U.S. contribution for 2008 to 2019, which included periods of contraction during the recession, it still undershoots the averages of about 0.80 point seen in the 1980s and 1990s.
Nevertheless, for Zandi, a one percentage-point pickup in U.S. growth is still enough to boost expansion in the rest of the world by about 0.6 point. In the IMF’s projections such acceleration is at hand, with the U.S. economy set to grow 2.8 percent this year after 1.9 percent in 2013, thanks to record-low interest rates, strong private demand and an end to the fiscal drag that slowed growth in 2013.
Athanasios Vamvakidis, head of Group of 10 foreign exchange strategy at Bank of America in London, sees the pickup in U.S. growth providing a smaller benefit to the rest of the world of about 0.25 point. Still, he said that amount is significant, and some countries will experience bigger gains than that.
Emerging markets may already be seeing a pickup as exports to developed economies rose more than 6 percent toward the end of last year, after little change earlier in the year, according to JPMorgan Chase & Co.
Not every economist sees a resurgent U.S. as a reason for the world to breathe a sigh of relief. One reason: The U.S. is importing less, as reflected in a shrinking of the current account deficit to $81.1 billion in the fourth quarter, the smallest since 1999 and about a third of the $214.5 billion shortfall witnessed in the third quarter of 2006.
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