After several successive quarters of lowering GDP estimates of global growth, the IMF too seems to be seeing a global recovery, albeit a weak one. After lowering 2013 growth estimates from 4.1% in April 2012 to 3.6% in October and to 3.5% in its latest World Economic Outlook, the IMF is looking at a 4.1% growth in 2014. This is a long way from the 5.1% growth of 2010 (or the pre-crisis 5.4% in 2007), but is a promising start to the recovery, largely driven by the US—from just 1.8% in 2011, US GDP averaged 3.1% in the first three quarters of 2012. The Euro area, by contrast, is expected to remain in recession in 2013 though the IMF projects a 1% growth in 2014, keeping in mind perhaps the obvious signs of recovery—Spanish 10-year yields have fallen from 7.4% at the time when ECB chief Mario Draghi announced his bond buying programme last July to 4.9% now, and Italian ones are down from 6.4% to 4.1%. Labour costs in Spain and Greece have been falling to narrow the gap with Germany; as a result, Spain has been able to run a current account surplus for the past three months. If all goes to plan, then, global trade growth is also likely to improve, the IMF projects a 5.5% growth in 2014, up from 3.8% in 2012 but nothing compared to 12.6% in 2010.
While the chances of the Republicans still playing hard-ball can’t be completely ruled out in the US, the turnaround has really been driven by the sharp revival in the housing market—so, after four years of austerity, just 16% of household budgets in the US are devoted to debt service as compared to 19% in 2009, freeing up a lot of money to spend. It helped that sensible policies like those which encouraged fracking have, according to a calculation by Reuters Breakingviews, resulted in energy savings of around $926 per household—to put this in perspective, the tax impact of the fiscal cliff not being resolved would have been higher taxes by $3,446 per household. The overall revival, needless