In the first quarter of 2015, the global economy grew by 2.2 percent, 0.8 percent short of expectations, according to the International Monetary Fund. This was mainly due to a contraction in U.S. production. There were one-off factors that contributed to this weakness, such as the harsh winter weather and a curtailment in capital expenditure in the oil sector. Elsewhere, growth in output as well as demand in developing economies weakened.
Weakness in North America did not affect the underlying drivers that are helping boost consumption and investment in the United States. Wage growth, labor market conditions, easy financial conditions, lower fuel prices and a strengthening housing market remain, luckily, intact.
In Europe, the economic recovery in the Euro area seems broadly on track, with a robust recovery in domestic demand and inflation beginning to increase. Growth projections have been revised upward for many economies in the Euro area. Unfolding developments need to be monitored closely as their influence on the broader EU economic framework may be likely to imply a stronger influence than originally anticipated. Growth in developing economies is now expected to slow from 4.6 percent in 2014 to 4.2 percent in 2015, according to the IMF. The slowdown is the result of lower commodity prices and tighter external financial conditions—particularly in Latin America and oil-exporting countries-- structural bottlenecks, a rebalancing in China and economic distress related to geopolitical factors, especially in the Commonwealth of Independent States and some countries in the Middle East and North Africa.
In advanced economies, growth is seen increasing from 1.8 percent in 2014 to 2.1 percent in 2015 and 2.4 percent in 2016. This gradual pickup is faster than was previously forecasted, partly thanks to accommodative monetary policies designed to get inflation back on target by supporting economic activity. Increased investment in public infrastructure remains a powerful policy tool to stimulate the economy. The need to implement structural reforms remains urgent in advanced economies, both to tackle crisis legacies and raise production.
In developing economies, macroeconomic policies to support demand are generally more limited. In many of these economies demand support should come from fiscal policy rebalancing to boost long-run growth, using measures such as tax reform and spending re-prioritization.
Among oil-importing countries, lower fuel prices have reduced pricing pressures and external vulnerabilities, easing the burden on monetary policy. Structural reforms to raise productivity and remove production bottlenecks are urgently needed in many economies.
Overall, these developments have not changed the outlook for the global economy. In advanced economies, it is seen growing more slowly in 2015 because of the weak first quarter. Globally, the IMF expects the economy to grow by 3.3 percent in 2015, marginally lower than in 2014, with a gradual pickup in advanced economies and a slowdown in developing economies. In 2016, growth is currently seen strengthening to 3.8 percent as a consequence of a rebound in activity for several distressed economies.