Skip to main content

Fast, medium or slow: Which economic speed is your country?

By Ramy Inocencio, for CNN
updated 4:00 AM EDT, Wed April 17, 2013
STORY HIGHLIGHTS
  • IMF says world economies are separating into three different speeds
  • China, India growing fastest, U.S. and Japan have moderate growth, Europe slowest
  • In April, IMF cut global growth forecast from 3.5% to 3.3% for 2013
  • IMF chief economist still hopeful, says best tool for Europe is monetary policy

Hong Kong (CNN) -- We live in a three-speed economic world, according to the International Monetary Fund. Nations that enjoy the fastest growth include China, India and other emerging countries. Moving at a moderate pace are the United States, finally seeing the light at the end of the 2008 financial crisis tunnel, and Japan, riding a resurgence thanks to Prime Minister Shinzo Abe's vow for a 2% inflation target. But economic growth across most of Europe is still growing at a crawl.

Earlier this month, IMF managing director Christine Lagarde, said this current three-speed world is setting up financial imbalances that could pave the way for future crises. And just this week, against this backdrop of divergent growth rates, the IMF cut world economic growth for 2013 from 3.5% to 3.3%.

But Olivier Blanchard, IMF chief economist, told CNN's Richard Quest that there is reason to be hopeful.

"The reason to be optimistic is to look at what has happened in the U.S. For a while, the question was 'Where is growth going to come from?'. And what you see is nearly 100 flowers blooming," Blanchard said.

Will Turkey join the European Union?
Albanian PM still keen on joining EU
EU to bailout Cyprus?

"People are becoming more optimistic. The fact that there was no housing construction means that we don't have enough houses, so housing is doing well. Monetary policy is aggressive. People believe it. Banks are improving."

A recent report by Case-Shiller says U.S. home prices are slowly returning to normal, with a prediction that average home prices will rise an average of 3.3% through September 2017. U.S unemployment fell to 7.6% in March, its lowest since December 2008, although much of the fall that month was attributed to attrition in the number of people looking for jobs.

The question, adds Blanchard, is how Europe can stage a U.S.-style recovery despite a crisis in confidence across much of the Continent. Record unemployment in the eurozone -- at 12% in February -- means about 19 million people are jobless. Nearly one in four of those unemployed are under 25.

"If you look in Europe -- in particular core Europe -- what you see is people don't have any hope and so what they do is they don't spend, and firms don't invest and banks don't lend," said Blanchard. "And it just feeds on itself. Now if they had confidence, they would spend more, firms would invest more, banks would do more and we could have growth. It can happen but the point is how do we make it happen?"

Blanchard says the only tool that remains is monetary policy -- a cut to interest rates. Yet, despite warnings from IMF chief Christine Lagarde and prominent American economist Nouriel Roubini, the European Central Bank has left rates unchanged since July 2012, with the benchmark rate standing pat at 0.75%.

"We have to use all the tools we have," said Blanchard. "The tool which remains is monetary policy. Has it gone too far? I don't think it's too far. There are some risks associated...but my sense is the benefits far exceed the risks or the cost."

ADVERTISEMENT
Part of complete coverage on
updated 4:04 AM EDT, Thu October 9, 2014
Liberia, Sierra Leone and Guinea -- the three countries facing the biggest health crisis -- are also facing huge bills to try and contain the virus.
updated 9:16 AM EDT, Mon September 22, 2014
Twitter has lost its position in the top 20 coolest brands for the first time in three years.
updated 11:54 AM EDT, Thu September 25, 2014
As the crisis in Iraq escalates, CNN looks at how Iraq could crack down on ISIS' oil riches under the guidance of its new oil minister, Adel Abdul Mahdi.
updated 4:42 AM EDT, Fri August 29, 2014
Recep Tayyip Erdogan is Turkey's new president . So can he revitalize its economic fortunes?
updated 1:24 PM EDT, Fri September 19, 2014
Experts share their tips on cities they see as emerging financial hubs...they're not where you think.
updated 11:11 AM EDT, Thu October 9, 2014
Growing numbers of us are willing to serve as bank, teacher or travel agent to people we have never met, and entrust them to serve us in turn.
updated 8:44 AM EDT, Thu August 28, 2014
The European Union is stepping in to save its dairy from going sour.
updated 8:36 AM EDT, Mon August 18, 2014
Europe's deteriorating relationship with Russia has hit the region's growth, even before new food sanctions begin to bite.
updated 12:34 PM EDT, Wed July 16, 2014
With cyberattacks on the rise and here to stay, it's a modern-day challenge for people and businesses to get smarter about preventing them.
updated 9:24 AM EDT, Thu August 14, 2014
Airstrikes, rebels seizing control of oil fields, plus a severe refugee crisis are a recipe for market panic. So why are Iraq oil prices stable?
updated 7:24 AM EDT, Fri September 19, 2014
Peer-to-peer finance lets businesses bypass bank loans. Creative companies with quirky ideas find new lending models advantageous.
updated 11:24 AM EDT, Sun July 20, 2014
Evidence points to pro-Russian separatists as perpetrators of the attack and Vladimir Putin is facing questions, David Clark writes.
updated 5:52 AM EDT, Wed September 3, 2014
CNN's Jim Boulden looks on the future of online shopping.
updated 10:40 AM EDT, Tue August 5, 2014
The biggest Ebola outbreak in history is taking its toll in Western Africa, hitting some of West Africa's most vulnerable economies.
ADVERTISEMENT