WORLD ECONOMIC OUTLOOKOctober 2016
Global Prospects and Policies Research Department, International Monetary Fund
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Global activity remains sluggish, broad-based policy response needed
• Global growth: moderate and uneven
– Advanced Economies (AE): sluggish performance amid weak investment
– Emerging Market and Developing Economies (EMDE): activity in stressed economies bottoming out, heterogeneous performance among others
• Potential for setbacks is high
• Policy priorities: differ across individual economies, but action relying on all levers needed to head off further growth disappointments
1
Complex forces, realignments shaping the outlook
Advanced economies
• Varying degrees of post-crisis repair• Subdued demand
overlaid on… • Demographic headwinds• Weak productivity growth
contributing to• Low interest rates• Low inflation, weak trade
Emerging market and developing economies
• Rebalancing in China• Adjustment to lower commodity prices
• Demographic trends
• Slowing convergence• Weak trade
2
WorldAdvanced
Economies U.S. U.K. Japan Euro Area Germany Canada
Other Advanced
Asia
2015 3.2 2.1 2.6 2.2 0.5 2.0 1.5 1.1 2.1
2016 3.1 1.6 1.6 1.8 0.5 1.7 1.7 1.2 2.2
Revision from Jul.
20160.0 -0.2 -0.6 0.1 0.2 0.1 0.1 -0.2 0.0
2017 3.4 1.8 2.2 1.1 0.6 1.5 1.4 1.9 2.5
Revision from Jul.
20160.0 0.0 -0.3 -0.2 0.5 0.1 0.2 -0.2 -0.1
Growth projections: Advanced economies(percent change from a year earlier)
Sources: IMF, World Economic Outlook July 2016 Update; and IMF, World Economic Outlook October 2016. 3
World
Emerging Market and Developing Economies China India Brazil Russia
Commodity Exporting
Economies
Low IncomeDeveloping Countries
2015 3.2 4.0 6.9 7.6 -3.8 -3.7 0.8 4.6
2016 3.1 4.2 6.6 7.6 -3.3 -0.8 0.9 3.7
Revision fromJul. 2016 0.0 0.1 0.0 0.2 0.0 0.4 -0.6 -0.1
2017 3.4 4.6 6.2 7.6 0.5 1.1 2.5 4.9
Revision fromJul. 2016 0.0 0.0 0.0 0.2 0.0 0.1 -0.3 -0.2
Growth projections: Emerging markets and LIDCs(percent change from a year earlier)
Sources: IMF, World Economic Outlook July 2016 Update; and IMF, World Economic Outlook October 2016. 4
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10
2000 04 08 12 16 21
October '08 October '11 October '16
-4
-3
-2
-1
0
1
2
3
4
5
2000 04 08 12 16 21
October '08 October '11 October '16
AEs: Real GDP Growth(percent; various WEO forecast vintages)
Sources: IMF Staff estimates.
Growth projections beyond 2017
5
EMDEs: Real GDP Growth(percent; various WEO forecast vintages)
What explains the pick up in global growth between 2016 and 2021?
• Shifting weights contribute one-third of the 0.70 percentage point increase
• Projected growth recoveries in six stressed EMs contribute slightly more (0.36 percentage point)
• Small increases in growth for other EMDEs and AEs explain the rest
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Increase in World Growth(Percentage points)
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
Other EMDEs
Selected EMDEs
AEs
Change in country weights
Source: IMF staff calculations.Note: Selected EMDEs: Argentina, Brazil, Nigeria, Russia, South Africa, Venezuela.
Baseline assumptions for the medium term
• A gradual return to growth in stressed economies, and in commodity exporters, albeit to modest rates
• A gradual slowdown and rebalancing of China’s economy, with medium-term growth rates that (at about 6 percent) remain well above the average for other EMDEs
• Resilient growth in other EMDEs (e.g. India)
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Downside risks continue to dominate the outlook
• Protectionism. Inward-looking policy approaches could harm trade and integration, leading firms to defer investment and hiring decisions.
• Stagnation in AEs. An extended period of weak demand could lead to persistently lower output and inflation in advanced economies. An unmooring of inflation expectations could raise real interest rates and weaken demand further.
• China’s transition. China’s rebalancing path could prove bumpier than expected. With continued reliance on credit and slow restructuring, the risk of an eventual disruptive adjustment is growing.
• Financial threats to EMs. Underlying vulnerabilities in some large EMs (high corporate debt, declining profitability, and weak balance sheets) together with the need to build policy buffers still leave EMDEs exposed to sudden shifts in investor confidence.
• Non-economic shocks. A range of factors could hurt sentiment, from the drought in East and Southern Africa; civil wars and domestic strife in the Middle East and Africa; the refugee situation in neighboring countries and in Europe; terrorism; and the spread of the Zika virus.
• Upside potential. Comprehensive policy action to repair balance sheets, enact structural reforms, and support near-term demand would foster a stronger path for global growth. 8
ADVANCED ECONOMY TRENDSUNEVEN PROGRESS WITH RECOVERY
9
Output still below potential
10
Output Gap(Percent of Potential Output)
Source: IMF staff estimates.
-12
-10
-8
-6
-4
-2
0
2
Maximum output gap (2008-16) 2016
Labor market scars still visible
11
Unemployment Rate(Percent of the Labor Force)
Sources: Organisation for Economic Co-operation and Development labor statistics; and IMF staff estimates.
0
5
10
15
20
25
30
Peak unemployment rate (2008-16)20072016
AE workforce to shrink over the next 5 years
12
Population Growth(Percent)
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
"Old" AEs "New" AEs EMsexcluding
China
China LIDCs
1995-2004 2005-2015 2016-2021
Sources: United Nations Population and Development database; and IMF staff estimates.Working-age population defined as the population with age between 15 and 64.
Working Age Population Growth(Percent)
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
"Old" AEs "New" AEs EMsexcluding
China
China LIDCs
1995–2004 2005–15 2016–21
Weaker growth, stronger employment:downgraded forecasts of labor productivity…
13
Employment, Fixed Investment, GDP(Percent; average growth rate for 2014-16)
Potential Growth(Percent; average growth rates)
0
1
2
3
4
5
Oct. 2014 Oct. 2015 Oct. 2016
GDPInvestmentEmployment
Source: IMF staff calculations.
0.0
0.5
1.0
1.5
2.0
2.5
Oct. 2014 Oct. 2015 Oct. 2016
2010-15 2016-21
… and expected interest rates
14
WEO Long-Term Nominal Interest Forecasts(Percent)
Source: IMF staff calculations.
0
1
2
3
4
5
2005 2007 2009 2011 2013 2015 2017 2019 2021
Oct-16 Apr-16 Oct-15 Apr-15 Oct-14
EMERGING MARKET AND DEVELOPING ECONOMY TRENDS
15
20
40
60
80
100
120
140
160
11 12 13 14 15 16
S&P 500Euro Stoxx 50Nikkei 225MSCI emerging market
Financial market volatility1
(index; Jan. 1, 2007=100)Equity prices1
(index; Jan. 1, 2007=100)
0
50
100
150
200
250
300
350
400
11 12 13 14 15 16
VIX
G7 FX volatility
Emerging market FXvolatility
Sources: Bloomberg, L.P.; Haver Analytics; and IMF staff calculations. 1Latest available data are for September 21, 2016.
Recent months: calmer financial markets, improved sentiment toward EMs
-2
0
2
4
6
8
10
11 12 13 14 15 16
U.S.
Euro area
Japan
EMBIG sovereign
Government bond yields1
(percent)
16
Some recovery in commodity prices, especially for oil
Sources: IMF, World Economic Outlook; IMF, Primary Commodity Price System; and International Energy Agency (IEA).1 Latest available data are for September 15, 2016.2 APSP (Average Petroleum Spot Price): average of U.K. Brent, Dubai, and West Texas Intermediate, equally weighted.
Commodity price indices1
(Jan. 1, 2014 = 100)
17
20
30
40
50
60
70
80
90
100
110
120
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16
Metals Food Crude Oil (APSP)2
18
-250
-200
-150
-100
-50
0
50
100
150
Outflow pressures have abated(Net capital flows, billion USD)
China: acute anxiety earlier in the year has faded
-1,000
-500
0
500
1,000
1,500
2,000
5.9
6.0
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
Jan/
15
Mar
/15
May
/15
Jul/1
5
Sep
/15
Nov
/15
Jan/
16
Mar
/16
May
/16
Jul/1
6
Sep
/16
Onshore CNY spot (RMB/USD)Offshore CNH spot (RMB/USD)CNH-CNY basis (pips; rhs)
Spread between Onshore and Offshore exchange rates has narrowed
19
-200
-100
0
100
200
300
400
500
FDI Port eq. Port. Debt Oth. Inv. Deriv. Total inflows
Emerging Markets: Capital Inflows, 2013-16(2013Q1-2016:Q2, billions of U.S. dollars)
Capital inflows to EMDEs have picked up …
Despite the recent relative calm, the outlook for EMDEs remains generally weaker than in the past
• External financial conditions for EMDEs have eased recently, but other factors weigh on the outlook
– China’s rebalancing and slowdown: spillovers magnified by its lower reliance on import- and resource-intensive investment
– Spillovers from persistently weak AE demand
– Commodity exporters: continued adjustment to lower revenue
– Conflict: political discord, domestic strife, geopolitical tensions
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A slowdown and rebalancing in China
The share of industry in GDP is shrinking… …as is the share of investment
38
40
42
44
46
48
50
52
0
2
4
6
8
10
12
14
16
07 08 09 10 11 12 13 14 15
Share of Gross Value Added(percent of GDP)
Real GDP growth (percent; year-over-year)
Industry (including construction: RHS)
Services (RHS)
35
40
45
50
55
60
05 06 07 08 09 10 11 12 13 14 15 16 17
Consumption:Nominal Investment: Nominal
Consumption: Real Investment: Real
Share of Gross Value added by Expenditure(Percent of GDP)
21
22
0
20
40
60
80
100
120
140
160
180
0
5
10
15
20
25
30
35
2006 2008 2010 2012 2014 2016:Q2
Real Credit Growth
Credit to GDP Ratio(right axis)
China: Rising Dependence on Credit(Percent)
But vulnerabilities are rising with continued reliance on credit
Policies: reinvigorate growth, improve its distribution, and make it durable
Comprehensive and consistent three-pronged approach to growth
• Accommodative monetary policy alone is not enough• Fiscal support—calibrated based on available fiscal space—remains crucial for lifting economic activity • Structural reforms—prioritized to maximize impact and combined with macroeconomic policies—are essential
Also need to enhance financial stability• Complete and implement regulatory reform• Monitor macroprudential and systemic aspects of capital flows• Improved global financial safety net
Reinvigorate multilateral cooperative efforts• Sustainably higher and inclusive growth needs more forceful, comprehensive, and well-communicated policies• Refocus the trade discussion towards the benefit of integration• Recognize need to address cooperatively other public-good problems, including refugees, between-country
inequality, epidemics, and extreme weather
1323
Thank you
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