IIF Concerned that Global Growth Engines are Sputtering

September 15, 2014
Washington, D.C., September 15, 2014 -

The Institute of International Finance released its latest assessment of the global economy, raising concerns that growth momentum has been faltering.

The IIF noted that global growth picked up only marginally in the second quarter as stronger U.S. and Chinese growth were largely offset by disappointments elsewhere. Slower momentum in mature economies outside the U.S., notably the Euro Area, is weighing on global trade and exacerbating home-made problems in many emerging markets.

The IIF continues to expect growth will strengthen in the second half of 2014 and into 2015, pointing to more policy support (chiefly through the ECB), favorable financial market conditions and lower oil prices. However, the IIF lowered forecasts for the Euro Area and Japan, as well as several counties in Emerging Europe and Latin America.

"It seems that the global economy has become over-dependent on one engine, the United States," said Charles Collyns, chief economist for the IIF. "Financial markets have been sustained by expectations of policy support but failure to deliver could prompt a volatile correction that could derail the expansion."

The IIF identified the top six risks for the global economy:

  • U.S.:A sharp market correction could be triggered by shifts in the anticipated path of the Fed's exit in response to rising signs of labor market tightness.
  • Emerging Markets:Intensification of country specific problems in a period of rising risk aversion and high market volatility would intensify contagion across emerging markets.
  • Euro Area:Slow recovery could allow inflation to become entrenched, raising real interest rates and complicating debt dynamics. Failure by the ECB to deliver on expectations for aggressive monetary easing could exacerbate such concerns.
  • China:Housing downturn coupled with efforts to slow excessive credit and wasteful investment and to increase market discipline could lead to financial disruptions and substantial growth slowdown despite targeted policy stimulus.
  • Ukraine:Continuing risk of Russian involvement spreading across Ukraine, leading to major civil unrest and interruptions of regional natural gas supply.
  • Energy Prices:Oil price spikes due to political events and social unrest.
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The Institute of International Finance is the global association of the financial industry, with close to 500 members from 70 countries. Its mission is to support the financial industry in the prudent management of risks; to develop sound industry practices; and to advocate for regulatory, financial and economic policies that are in the broad interests of its members and foster global financial stability and sustainable economic growth. Within its membership IIF counts commercial and investment banks, asset managers, insurance companies, sovereign wealth funds, hedge funds, central banks and development banks. For more information visit www.iif.com.

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Dylan Riddle

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