The consensus view of the world economy has become more optimistic, for good reason. The high-income economies seem at last to be taking off; this is particularly true for the US and UK. But significant challenges lie ahead, notably for the eurozone. For emerging countries, stronger growth in high-income countries brings benefits, but also costs. If euphoria is among the dangers to stability, 2014 should not see too much of it.
The International Monetary Fund set the mood at the annual meeting of the World Economic Forum in Davos. In its update of the October 2013 World Economic Outlook , it slightly upgraded global growth this year to 3.7 per cent (up by just 0.1 percentage points). But it upgraded UK growth by 0.6 points; Japanese and Spanish by 0.4 points; and German and US by 0.2 points.
Nevertheless, forecast growth in high-income countries remains quite low: 2.8 per cent in the US; 2.4 per cent in the UK; 1.7 per cent in Japan; and 1 per cent in the eurozone. If this is right, these economies will not reduce shortfalls in output relative to pre-crisis trends: in the eurozone, that shortfall is some 13 per cent; in the US 15 per cent; and in the UK 18 per cent. The high-income economies are achieving modest recoveries from devastating slumps, despite extraordinarily accommodating monetary policy. That remains the depressing truth.