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What was once a "two speed recovery" is now looking like a "three speed recovery" to IMF researchers. It had been the case that advanced economies were recovering at a slower rate than emerging and developing economies. Now, there is a split among advanced economies. Overall, the IMF is projecting 3.25% growth in global gdp for 2013 and 4% growth in 2014. That is up from 2.75% growth over the second half of last year. Here are some regional specific projections from the World Economic Outlook : In advanced economies, the recovery will continue to proceed at different speeds. The main revision relates to the U.S. budget sequester, which lowers the U.S. growth forecast for 2013. Following a disappointing end to 2012, easier financial conditions, accommodative monetary policies, recovering confidence, and special factors will support a reacceleration of activity, notwithstanding still-tight fiscal policy in the United States and the euro area. The reacceleration, which assumes that policymakers avoid new setbacks and deliver on their commitments, will become apparent in the second half of 2013, when real GDP growth is forecast to again surpass 2 percent. • Thanks to increasingly robust private demand, real GDP growth in the United States is forecast to reach about 2 percent in 2013, despite a major fiscal tightening, and accelerate to 3 percent in 2014. Weak growth in the United States in the fourth quarter of 2012 reflected the unwinding of a spurt of inventory investment and defense spending during the third quarter (Figure 1.8, panel 1). Preliminary indicators suggest that private demand remained resilient this year, but across-the-board public spending cuts are expected to take a toll on the recovery going forward. • Activity in the euro area will pick up very gradually, helped by appreciably less fiscal drag and some easing of lending conditions. However, output will remain subdued––contracting by about ¼ percent in 2013––because of continued fiscal adjustment, financial fragmentation, and ongoing balance sheet adjustments in the periphery economies (Figure 1.8, panel 2). The projection assumes that policy uncertainty does not escalate and further progress is made toward advancing national adjustment and building a strong economic and monetary union. • Activity in Japan is expected to accelerate sharply during the first quarter of 2013, as the economy receives a lift from the recent fiscal stimulus, a weaker yen, and stronger external demand. Growth will reach 1½ percent in 2013, according to WEO projections, and will soften only slightly in 2014 as private demand continues to garner speed, helped by aggressive new monetary easing offset by the winding down of the stimulus and the consumption tax increase. In emerging market and developing economies, the expansion of output is expected to become broad based and to accelerate steadily, from 5 percent in the first half of 2012 to close to 6 percent by 2014. The drivers are easy macroeconomic conditions and recovering demand from the advanced economies. Download the full report here .

Bill Gates calls himself an optimist. And he expects to see significant progress in developing economies and in "the lives of the world's poorest people," in the next 15 years. The tools for healthier, better lives are there. Now Gates feels there is a need to be more forward-thinking in connecting the right tools and resources to the economies where they are needed. At Project Syndicate , Gates writes: Skeptics point out that we have a hard time delivering new tools to the people who need them. This is where innovation in the measurement of governmental and philanthropic performance is making a big difference. That process – setting clear goals, picking the right approach, and then measuring results to get feedback and refine the approach continually –helps us to deliver tools and services to everybody who will benefit. Innovation to reduce the delivery bottleneck is critical. Following the path of the steam engine long ago, progress is not “doomed to be rare and erratic.” We can, in fact, make it commonplace. Though I am an optimist, I am not blind to the problems that we face, or to the challenges that we must overcome to accelerate progress in the next 15 years. The two that worry me the most are the possibility that we will be unable to raise the funds needed to pay for health and development projects, and that we will fail to align around clear goals to help the poorest. The good news is that many developing countries have growing economies that allow them to devote more resources to helping their poorest people. India, for example, is becoming less dependent on aid, and eventually will not need it. Some countries, like the United Kingdom, Norway, Sweden, South Korea, and Australia, are increasing their foreign-aid budgets; others, even traditionally generous donors like Japan and the Netherlands, have reduced theirs. The direction of many countries, including the United States, France, Germany, and Canada, is unclear. Read The Measurement of Hope here .

At Project Syndicate , Dani Rodrik writes that the "intellectual victory" of economic liberalism over mercantilism has "blinded us" to recent successes of mercantilist practices. While these successes are often not labeled as mercantilism by practitioners--because of the negative associations with the term--they have become more appealing to developing economies. And we should be prepared to see more tension between these economies and developed economies over trade policy. Although China phased out many of its explicit export subsidies as a condition of membership in the World Trade Organization (which it joined in 2001), mercantilism’s support system remains largely in place. In particular, the government has managed the exchange rate to maintain manufacturers’ profitability, resulting in a sizable trade surplus (which has come down recently, but largely as a result of an economic slowdown). Moreover, export-oriented firms continue to benefit from a range of tax incentives. From the liberal perspective, these export subsidies impoverish Chinese consumers while benefiting consumers in the rest of the world. A recent study by the economists Fabrice Defever and Alejandro Riaño of the University of Nottingham puts the “losses” to China at around 3% of Chinese income, and gains to the rest of the world at around 1% of global income. From the mercantilist perspective, however, these are simply the costs of building a modern economy and setting the stage for long-term prosperity. As the example of export subsidies shows, the two models can co-exist happily in the world economy. Liberals should be happy to have their consumption subsidized by mercantilists. Indeed, that, in a nutshell, is the story of the last six decades: a succession of Asian countries managed to grow by leaps and bounds by applying different variants of mercantilism. Governments in rich countries for the most part looked the other way while Japan, South Korea, Taiwan, and China protected their home markets, appropriated “intellectual property,” subsidized their producers, and managed their currencies. We have now reached the end of this happy coexistence. The liberal model has become severely tarnished, owing to the rise in inequality and the plight of the middle class in the West, together with the financial crisis that deregulation spawned. Medium-term growth prospects for the American and European economies range from moderate to bleak. Unemployment will remain a major headache and preoccupation for policymakers. So mercantilist pressures will likely intensify in the advanced countries. Read The New Mercantilist Challenge here .

At McKinsey Quarterly , Yuval Atsmon , Michael Kloss , and Sven Smit lay out the case for multinational companies to "start thinking more like emerging-market companies." There is significant growth potential, they point out, in the emerging middle classes in the BRIC nations and elsewhere. At the moment, that is allowing companies based in emerging markets like Brazil and China to grow at twice the rate of competitors based in developed economies. And they are better equipped to serve rising consumer classes in emerging economies beyond their own, as Atsmon, Kloss, and Smit write: Emerging-market companies generally serve the needs of fast-growing emerging middle classes around the world with lower-cost products. Developed-economy companies tend to rely more on brand recognition while targeting higher-margin segments, which are relatively smaller and thus less likely to move the needle on the companies’ overall growth rates. We found that across a number of product segments—such as soft drinks, telecoms services, and mobile phones—emerging-market companies’ price points were 10 to 60 percent below those of developed-market counterparts. Even in business segments such as construction equipment, emerging-market players offered more products at lower prices. Consistent with that growth model has been the focus of many emerging-market players on R&D investments aimed at lower-cost products that fit developing-market conditions (and sometimes fuel “reverse innovation,” which can make a dent in developed markets). That’s still the case, and in aggregate, emerging-market companies still file significantly fewer patents than their developed-market counterparts. But they are starting to catch up (Exhibit 3), and a few innovation leaders are emerging, such as Chinese manufacturer Huawei, which was among the world’s top five companies in terms of international patents filed from 2008 to 2010. Huawei had 51,000 R&D employees in 2010, representing a stunning 46 percent of its total headcount, and placed them in 20 research institutes in countries such as Germany, India, Russia, Sweden, and the United States. Efforts such as these could boost the intensity of global competition. Before you make the mistake we initially did, and assume that the faster growth rate of companies headquartered in emerging in economies was due to those companies being smaller and having more room to grow, read Parsing the growth advantage of emerging-market companies here .

In the latest issue of Technology Review , David Talbot takes a look at an emerging market in Kenya. A group of homegrown entrepreneurs are matching the utility of cellphones with the need for better delivery of health care. It is a reminder that technology used effectively can be an important bridge to better services--but it is the people with the ideas and ability to understand the marketplace that matter. And the technology need not be the latest and greatest. It isn't smartphones and iPads providing the network tools for Nairobi's tech startups, but more basic cell phones. Talbot profiles many members of Kenya's innovative startups, including those who are part of an incubator called iHub, which has pulled in support from the community and from major multinationals Nokia and Google: The incubator opened in 2010 and now counts more than 6,000 members, with an average of 1,000 new applications a year. Most members are merely part of iHub's online community, but more than 250 of them use the space. Some 40 companies have launched from iHub, and 10 have received seed funding from venture capitalists. The most successful so far is Kopo Kopo, which helps merchants manage payments from M-Pesa and similar services. One key to iHub's growth is that Kenya's IT infrastructure has improved significantly. The first Internet fiber connection landed at the Kenyan coast in 2009 (previous service had come through satellite dishes in the Rift Valley), and the country's first truly mass-market Android smart phone went on sale in 2010, for $80. Safaricom now counts 600,000 smart phones of all kinds on its network and expects them to make up 80 percent of the market by 2014. Inevitably, this petri dish produced a mobile health startup. Shimba Technologies, led by a couple of University of Nairobi graduates named Steve Mutinda Kyalo and Keziah Mumo, created a platform called MedAfrica with the simple goal of providing basic health information to Kenyans in the face of the national doctor shortage. So far, MedAfrica offers lists of doctors and dentists taken from government registries, plus menus for finding basic first-aid and diagnostic information. "What we want is for the common man to have the right information in his hand," says Kyalo, the company's CEO. "We can't replace the doctors, can't replace the hospitals, but we can improve access to relevant information. MedAfrica illustrates the power of local entrepreneurship. Though it has few connections with the medical community or the health ministry, its health-care app has been downloaded on 43,000 phones, and the company is still only halfway through $100,000 in seed funding. The service can be delivered through an app or through a mobile Web interface (nearly all Kenyans who access the Internet do so through mobile devices). Soon it will be available through SMS—an essential feature, because 85 percent of Kenyan mobile-phone owners don't yet have Web access. Kyalo hopes to aggregate other medical apps on the platform and ultimately sell sponsored messages from pharmaceutical companies, health-care providers, and others. Read Kenya's Startup Boom here . (hat tip: Melissa Acuna)

One of the great positive global economic stories of the young 21st century--perhaps the top story--is the rapidly rising middle class in developing nations across the globe, especially in South America and Asia. But Johannes Jütting ,Head of Poverty Reduction at the OECD Development Center in Paris, warns us not to overlook the challenges that a burgeoning new middle class bring to nations and the global economy. Writing at Project Syndicate , Jütting argues that the middle class's "dreams" can become "nightmares" if policymakers get complacent and overlook the structural challenges that they must face: In today’s shifting world, with GDP in roughly 80 developing economies rising at twice the rate of per capita growth in the OECD, the club of the world’s richest countries, middle-class citizens paradoxically complain and protest regardless of whether fortunes improve or decline. Moises Naim, a former Venezuelan minister of trade and industry, even warns of a possible “emerging global war of the middle-classes.” While anger over pay cuts and unemployment make sense, it is harder to understand the current protests in fast-growing countries like Thailand and Chile, where standards of living are improving. What is going on? High growth in Asian and southern countries has meant greater export earnings and rents from natural resources. Unfortunately, this blessing can turn into a curse. In China, former Communist leader Deng Xiaoping’s vision – “let some people get rich first” – has led to impressive economic growth and poverty reduction; but it has also undermined the self-proclaimed “harmonious society,” as recent protests and labor conflicts indicate. Indeed, it is telling that, in the spring of 2011, Beijing’s municipal authorities banned all outdoor luxury-goods advertisements on the grounds that they might contribute to a “politically unhealthy environment.” Rising inequality, lack of civic participation, political apathy, and a dearth of good jobs, particularly for the young, comprise the Achilles heel of emerging-market countries’ current development model. A Gallup poll on subjective well-being in Tunisia and Thailand shows that, while income levels and social conditions in both countries improved between 2006 and 2010, life satisfaction dropped. Read The Middle Class Goes Global here .

In his book, The Growth Map: Economic Opportunity in the BRICs and Beyond , Jim O'Neill argues that the term emerging markets no longer applies to the BRIC nations (and a few others, including Mexico and Korea). While he has long been bullish on the economies of Brazil, India, and China, O'Neil--chairman of Goldman Sachs Asset Management--has come to realize that, in many ways, these economies have earned a little more respect as strong, stable markets. He spoke recently with Charlie Rose about the strength of the BRIC economies, and how we all need to stop regarding "growth markets" as "developing." Here is an excerpt: Watch the full interview here .

IMF researchers S. M. Ali Abbas , Nazim Belhocine , Asmaa El-Ganainy , and Mark Horton are trying to make the task of studying debt cycles and debt sustainability easier. They have begun building a database of historical public debt. At VoxEU , they have posted a series of interesting graphs from the data they have compiled so far. Including this one, that they say provides an "historical perspective of debt developments in advanced, emerging, and low-income economies. Debt levels in advanced economies (now the G20) averaged 55% of GDP over 1880–2009, with a number of peaks and troughs that correspond with key historical events along the way.": Here is what the authors say about the value of this data moving forward: The composition of the 11 debt reductions observed during 1880–1914, the first era of financial globalisation, is quite similar to that witnessed in the post-1970 financially liberalised period. In both cases, the debt ratio reductions were mainly caused by large primary surpluses. In fact, the post-1970s debt reductions are accounted for almost entirely by primary surplus improvements. However, insofar as such improvements are boosted by the cycle and easier to implement in the context of strong growth, these results may somewhat understate the true role of growth in debt declines; strong growth was a consistent feature of most debt decline episodes.2 That conventional fiscal adjustment and growth have led the way in periods of global financial integration is intuitive as well as consistent with previous studies (such as IMF 2010). Looking ahead, highly indebted advanced economies are confronted by a challenging landscape. The pursuit of unconventional options – such as reverting to financial repression policies akin to those taken during the post-WWII years, reducing the burden of domestic debt through higher inflation, or restructuring – may be a temptingshortcut but it comes with high costs. A gradual but steady adjustment is the right way to go. History shows an orderly adjustment is much easier in the context of sustained medium-term growth. This suggests that there is a premium on both implementing structural measures that improve competitiveness and the business environment, and designing fiscal adjustment in a manner that minimises the drag on growth. Read Lessons from a century of large public debt reductions and build-ups here .