BY PETER EGWUATU

Growth in emerging markets and developing economies is on track to build to 5.5 per cent in 2013, International Monetary Fund, (IMF) has said.

According to IMF,  “Nevertheless, growth is not projected to rebound to the high rates recorded in 2010–11. Supportive policies have underpinned much of the recent acceleration in activity in many economies. But weakness in advanced economies will weigh on external demand, as well as on the terms of trade of commodity exporters, given the assumption of lower commodity prices in 2013 in this update.

“Moreover, the space for further policy easing has diminished, while supply bottlenecks and policy uncertainty have hampered growth in some economies (for example, Brazil, India). Activity in Sub-Saharan Africa is expected to remain robust, with a rebound from flood-related output disruptions in Nigeria contributing to acceleration in overall growth in the region in 2013.”

Against this backdrop, the projections in this World Economic Outlook (WEO)  update imply that global growth will strengthen gradually through 2013, averaging 3.5 per cent on an annual basis, a moderate uptick from 3.2 per cent in 2012, but 0.1 percentage point lower than projected in the October 2012 WEO. A further strengthening to 4.1 per cent is projected for 2014, assuming recovery takes a firm hold in the euro area economy.

The IMF further noted that  policy action is needed to secure the fragile global recovery. According to IMF;  “The policy requirements outlined in the October 2012 WEO remain relevant. Most advanced economies face two challenges. First, they need steady and sustained fiscal consolidation. Second, financial sector reform must continue to decrease risks in the financial system. Addressing these challenges will support recovery and reduce downside risks.

“The euro area continues to pose a large downside risk to the global outlook. In particular, risks of prolonged stagnation in the euro area as a whole will rise if the momentum for reform is not maintained. Adjustment efforts in the periphery countries need to be sustained and must be supported by the center, including through full deployment of European firewalls, utilisation of the flexibility offered by the Fiscal Compact, and further steps toward full banking union and greater fiscal integration.

In the United States, the priority is to avoid excessive fiscal consolidation in the short- term, promptly raise the debt ceiling, and agree on a credible medium-term fiscal consolidation plan, focused on entitlement and tax reform.

In Japan, the priority is to underpin the renewed emphasis on raising growth and inflation with more ambitious monetary policy easing, adopt a credible medium-term fiscal consolidation plan anchored by the consumption tax increases in 2014–15, and raise potential growth through structural reforms. In the absence of a strong medium-term fiscal strategy, the stimulus package carries important risks. Specifically, the stimulus-induced recovery could prove short-lived, and the debt outlook significantly worse.

In China, ensuring sustained rapid growth requires continued progress with market-oriented structural reforms and rebalancing of the economy more toward private consumption. In other emerging market and developing economies, requirements differ. The general challenge is to rebuild macroeconomic policy space.

The appropriate pace of rebuilding must balance external downside risks against risks of rising domestic imbalances. In some economies with large external surpluses and low public debt, this entails a lower, more sustainable pace of credit growth and fiscal measures to support domestic demand.

In others, fiscal deficits need to be rolled back further, while monetary tightening proceeds gradually. Macroprudential measures can help stem emerging financial excesses. In the Middle East and North Africa region, many countries will need to maintain macroeconomic stability under difficult internal and external conditions.