Titlepage
World Economic and Financial Surveys
World Economic Outlook
October 2017
Seeking Sustainable Growth
Short-Term Recovery, Long-Term Challenges
Copyright
©2017 International Monetary Fund
Cover and Design: Luisa Menjivar and Jorge Salazar
Composition: AGS, An RR Donnelley Company
Cataloging-in-Publication Data
Joint Bank-Fund Library
Names: International Monetary Fund.
Title: World economic outlook (International Monetary Fund)
Other titles: WEO | Occasional paper (International Monetary Fund) | World economic and financial surveys.
Description: Washington, DC: International Monetary Fund, 1980- | Semiannual | Some issues also have thematic titles. | Began with issue for May 1980. | 1981-1984: Occasional paper / International Monetary Fund, 0251-6365 | 1986-: World economic and financial surveys, 0256-6877.
Identifiers: ISSN 0256-6877 (print) | ISSN 1564-5215 (online)
Subjects: LCSH: Economic development—Periodicals. | International economic relations—Periodicals. | Debts, External—Periodicals. | Balance of payments—Periodicals. | International finance—Periodicals. | Economic forecasting—Periodicals.
Classification: LCC HC10.W79
HC10.80
ISBN 978-1-48431-249-0 (paper)
978-1-48432-114-0 (Web PDF)
978-1-48432-112-6 (ePub)
978-1-48432-111-9 (Mobi)
The World Economic Outlook (WEO) is a survey by the IMF staff published twice a year, in the spring and fall. The WEO is prepared by the IMF staff and has benefited from comments and suggestions by Executive Directors following their discussion of the report on September 21, 2017. The views expressed in this publication are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Directors or their national authorities.
Recommended citation: International Monetary Fund. 2017. Seeking Sustainable Growth: Short-Term Recovery, Long-Term Challenges. Washington, DC, October.
Publication orders may be placed online, by fax, or through the mail:
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E-mail: publications@imf.org
Contents
Assumptions and Conventions
Further Information and Data
Preface
Foreword
Executive Summary
Chapter 1. Global Prospects and Policies
Recent Developments and Prospects
The Forecast
Risks
Policy Priorities
Scenario Box 1. Impact of Recommended Policies in the Group of Twenty Economies
Box 1.1. Labor Force Participation Rates in Advanced Economies
Box 1.2. Will the Revival in Capital Flows to Emerging Markets Be Sustained?
Box 1.3. Emerging Market and Developing Economy Growth: Heterogeneity and Income Convergence over the Forecast Horizon
Box 1.4. Macroeconomic Changes in Emerging Market Commodity Exporters
Box 1.5. Remittances and Consumption Smoothing
Special Feature: Commodity Market Developments and Forecasts
References
Chapter 2. Recent Wage Dynamics in Advanced Economies: Drivers and Implications
Introduction
Wage Determination—A Primer
Advanced Economy Labor Markets: Surface Healing Masks Deeper Changes
Drivers of Recent Wage Dynamics
Summary and Policy Implications
Box 2.1. Labor Market Dynamics by Skill Level
Box 2.2. Worker Contracts and Nominal Wage Rigidities in Europe: Firm-Level Evidence
Box 2.3. Wage and Employment Adjustment after the Global Financial Crisis: Firm-Level Evidence
Annex 2.1. Country Coverage and Data
Annex 2.2. Empirical Methodologies
Annex 2.3. Empirical Results
References
Chapter 3: The Effects of Weather Shocks on Economic Activity: How Can Low-Income Countries Cope?
Introduction
Temperature and Precipitation: Historical Patterns and Projections
The Macroeconomic Impact of Weather Shocks
Coping with Weather Shocks and Climate Change
Long-Term Effects of Temperature Increase—A Model-Based Approach
Summary and Policy Implications
Box 3.1. The Growth Impact of Tropical Cyclones
Box 3.2. The Role of Policies in Coping with Weather Shocks: A Model-Based Analysis
Box 3.3. Strategies for Coping with Weather Shocks and Climate Change: Selected Case Studies
Box 3.4. Coping with Weather Shocks: The Role of Financial Markets
Box 3.5. Historical Climate, Economic Development, and World Income Distribution
Box 3.6. Mitigating Climate Change
Annex 3.1. Data Sources and Country Groupings
Annex 3.2. Weather Shocks and Natural Disasters
Annex 3.3. Empirical Analysis of the Macroeconomic Effects of Weather Shocks and the Role of Policies
Annex 3.4. The Impact of Weather Changes and Natural Disasters on International Migration
Annex 3.5. Model-Based Analysis
Annex 3.6. Reduced Form Approach to Estimating Potential Long-Term Effects of Climate Change
References
Chapter 4. Cross-Border Impacts of Fiscal Policy: Still Relevant?
Introduction
Spillovers from Fiscal Policy—A Conceptual Framework
Spillovers on Economic Activity: Empirical Evidence
The Transmission of Fiscal Shocks—Model-Based Analysis
Fiscal Reforms
Conclusions
Box 4.1. The Spillover Impact of US Government Spending Shocks on External Positions
Annex 4.1. Data
Annex 4.2. Empirical Strategy
Annex 4.3. Robustness Tests
References
Statistical Appendix
Assumptions
What’s New
Data and Conventions
Country Notes
Classification of Countries
General Features and Composition of Groups in the World Economic Outlook Classification
Table A. Classification by World Economic Outlook Groups and Their Shares in Aggregate GDP, Exports of Goods and Services, and Population, 2017
Table B. Advanced Economies by Subgroup
Table C. European Union
Table D. Emerging Market and Developing Economies by Region and Main Source of Export Earnings
Table E. Emerging Market and Developing Economies by Region, Net External Position, and Status as Heavily Indebted Poor Countries and Low-Income Developing Countries
Table F. Economies with Exceptional Reporting Periods
Table G. Key Data Documentation
Box A1. Economic Policy Assumptions Underlying the Projections for Selected Economies
List of Tables
Output (Tables A1–A4)
Inflation (Tables A5–A7)
Financial Policies (Table A8)
Foreign Trade (Table A9)
Current Account Transactions (Tables A10–A12)
Balance of Payments and External Financing (Table A13)
Flow of Funds (Table A14)
Medium-Term Baseline Scenario (Table A15)
World Economic Outlook, Selected Topics
IMF Executive Board Discussion of the Outlook, October 2017
Tables
Table 1.1. Overview of the World Economic Outlook Projections
Scenario Table 1. Assumed Policy Actions Relative to the WEO Baseline
Table 1.3.1. Correlates of Growth Projections, EMDEs, 2017–22
Annex Table 1.1.1. European Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
Annex Table 1.1.2. Asian and Pacific Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
Annex Table 1.1.3. Western Hemisphere Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
Annex Table 1.1.4. Commonwealth of Independent States Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
Annex Table 1.1.5. Middle East, North African Economies, Afghanistan, and Pakistan: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
Annex Table 1.1.6. Sub-Saharan African Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
Annex Table 1.1.7. Summary of World Real per Capita Output
Table 2.3.1. Precrisis Financial Vulnerabilities and Postcrisis Labor Adjustments
Annex Table 2.1.1. Country Coverage
Annex Table 2.1.2. Data Sources
Annex Table 2.2.1. Aggregate Forces and Sectoral Exposures
Annex Table 2.3.1. Estimates of Wage Phillips Curves
Annex Table 2.3.2. Estimates of Wage Phillips Curves with Alternative Measures
Annex Table 2.3.3. Estimation of Wage Phillips Curve Augmented with Involuntary Part-Time Employment Share by Country Group
Annex Table 2.3.4. Estimation of Wage Phillips Curve Augmented with Involuntary Part-Time Employment Share: Full Sample and Countries with Unemployment Rates Lower than 2000–07 Average
Annex Table 2.3.5. Estimation of Wage Phillips Curve Augmented with Involuntary Part-Time Employment Share: Countries with Unemployment Rates Moderately Higher and Appreciably Higher than 2000–07 Average
Annex Table 2.3.6. Estimation of Wage Phillips Curve Augmented with Temporary Contract Employment Share: Full Sample and Countries with Unemployment Rates Lower than 2000–07 Average
Annex Table 2.3.7. Estimation of Wage Phillips Curve Augmented with Temporary Contract Employment Share: Countries with Unemployment Rates Moderately Higher and Appreciably Higher than 2000–07 Average
Annex Table 2.3.8. Estimation of Wage Phillips Curve Augmented with Structural Variables
Annex Table 2.3.9. Estimation of Wage Phillips Curve Augmented with Structural Variables: Excluding 2008 and 2009
Annex Table 2.3.10. Drivers of Involuntary Part-Time Employment Share, Aggregate Analysis
Annex Table 2.3.11. Drivers of Sectoral Nominal Wage Growth
Annex Table 2.3.12. Drivers of Sectoral Part-Time Employment Shares
Annex Table 2.3.13. Drivers of Nominal Wage Growth, Employment Growth, and Part-Time Employment
Table 3.1.1. Characteristics of the Average Tropical Cyclone by Country Group
Table 3.1.2. Effect of Weather and Wind Shocks on Economic Activity
Table 3.5.1. Effect of Historical Climate on Current Real Output
Annex Table 3.1.1. Data Sources
Annex Table 3.1.2. Country and Territory Groups
Annex Table 3.2.1. Effect of Weather Shocks on Natural Disasters, 1990–2014
Annex Table 3.3.1. Effect of Weather Shocks on Output
Annex Table 3.3.2. Effect of Weather Shocks on Sectoral Output
Annex Table 3.3.3. Effect of Weather Shocks on Productivity, Capital, and Labor
Annex Table 3.3.4. Role of Policy Buffers
Annex Table 3.3.5. Role of Structural Policies and Institutions
Annex Table 3.3.6. Role of Development: Evidence from Subnational Data
Annex Table 3.4.1. Effect of Weather Shocks and Natural Disasters on Emigration, 1980–2015
Annex Table 3.5.1. Parameterization of the Debt, Investment, and Growth Model
Annex Table 4.1.1. Data Sources for Quarterly Fiscal Data by Source Country
Annex Table 4.1.2. Data Sources for Recipient Countries
Annex Table 4.1.3. Recipient Countries in Sample
Online Tables
Table B1. Advanced Economies: Unemployment, Employment, and Real GDP per Capita
Table B2. Emerging Market and Developing Economies: Real GDP
Table B3. Advanced Economies: Hourly Earnings, Productivity, and Unit Labor Costs in Manufacturing
Table B4. Emerging Market and Developing Economies: Consumer Prices
Table B5. Summary of Fiscal and Financial Indicators
Table B6. Advanced Economies: General and Central Government Net Lending/Borrowing and General Government Net Lending/Borrowing Excluding Social Security Schemes
Table B7. Advanced Economies: General Government Structural Balances
Table B8. Emerging Market and Developing Economies: General Government Net Lending/Borrowing and Overall Fiscal Balance
Table B9. Emerging Market and Developing Economies: General Government Net Lending/Borrowing
Table B10. Selected Advanced Economies: Exchange Rates
Table B11. Emerging Market and Developing Economies: Broad Money Aggregates
Table B12. Advanced Economies: Export Volumes, Import Volumes, and Terms of Trade in Goods and Services
Table B13. Emerging Market and Developing Economies by Region: Total Trade in Goods
Table B14. Emerging Market and Developing Economies by Source of Export Earnings: Total Trade in Goods
Table B15. Summary of Current Account Transactions
Table B16. Emerging Market and Developing Economies: Summary of External Debt and Debt Service
Table B17. Emerging Market and Developing Economies by Region: External Debt by Maturity
Table B18. Emerging Market and Developing Economies by Analytical Criteria: External Debt by Maturity
Table B19. Emerging Market and Developing Economies: Ratio of External Debt to GDP
Table B20. Emerging Market and Developing Economies: Debt-Service Ratios
Table B21. Emerging Market and Developing Economies, Medium-Term Baseline Scenario: Selected Economic Indicators
Figures
Figure 1.1. Global Activity Indicators
Figure 1.2. Global Fixed Investment and Trade
Figure 1.3. Commodity Prices
Figure 1.4. Global Inflation
Figure 1.5. Advanced Economies: Monetary and Financial Market Conditions
Figure 1.6. Real Effective Exchange Rate Changes, November 2016–September 2017
Figure 1.7. Emerging Market Economies: Equity Markets and Credits
Figure 1.8. Emerging Market Economies: Interest Rates
Figure 1.9. Emerging Market Economies: Capital Flows
Figure 1.10. Revisions to 2017 Growth and 2016 Output Gaps
Figure 1.11. Emerging Markets: Terms-of-Trade Windfall Gains and Losses
Figure 1.12. GDP Growth, 1999–2022
Figure 1.13. Fiscal Indicators
Figure 1.14. Global Current Account Balances
Figure 1.15. Real Exchange Rates and Current Account Balances in Relation to Economic Fundamentals
Figure 1.16. Net International Investment Positions
Figure 1.17. Geopolitical Risk Index
Figure 1.18. Risks to the Global Outlook
Figure 1.19. Recession and Deflation Risks
Figure 1.20. Advanced Economy Output Gaps, 2017
Figure 1.21. Emerging Market and Developing Economy Output Gaps, 2017
Figure 1.22. Per Capita Real GDP Growth across Low-Income Developing Countries
Scenario Figure 1. Group of Twenty Macro Scenario
Figure 1.1.1. Population Shares by Age Group and Gender
Figure 1.1.2. Labor Force Participation Rates by Age Group and Gender
Figure 1.1.3. Decomposition of Change in Labor Force Participation Rate, 2007–16
Figure 1.1.4. Changes in Labor Force Participation, Select Advanced Economies, 2007–16
Figure 1.1.5. Changes in Labor Force Participation Rates for the 25–54 Age Group by Gender, Select Advanced Economies
Figure 1.1.6. Convergence in Female Labor Force Participation Rates
Figure 1.2.1. Capital Flows to Emerging Market and Developing Economies
Figure 1.2.2. China: Reserves and Capital Flows
Figure 1.2.3. Latest Capital Flows Trends and Prospects
Figure 1.3.1. Per Capital Real GDP Growth across Country Groups
Figure 1.3.2. Per Capita Real GDP Growth, Emerging Market and Developing Economies, by Region
Figure 1.3.3. EMDEs’ per Capita Real GDP Growth Differentials vis-à-vis Advanced Economies: 1995–2016 versus 2017–22
Figure 1.3.4. Distribution of EMDE per Capita Real GDP Growth Differentials with Respect to Advanced Economies
Figure 1.3.5. Distribution of EMDE per Capita Real GDP Growth Differentials with Respect to Advanced Economies, by Type of Export Earnings and Region
Figure 1.3.6. Distribution of EMDE Population by per Capita Real GDP Growth Rate
Figure 1.3.7. Projected per Capita Real Growth Rates and 2011 Real Levels, AEs and EMDEs
Figure 1.4.1. Commodity Prices
Figure 1.4.2. Exchange Rate Regimes of Commodity-Exporting Emerging Market and Developing Economies
Figure 1.4.3. Commodity Terms of Trade
Figure 1.4.4. Evolution of Exchange Rates
Figure 1.4.5. Net Export Adjustment, 2013–16
Figure 1.4.6. Fiscal Indicators
Figure 1.4.7. Change in per Capita GDP Growth and Inflation in Fuel Exporters, Conditional on CToT
Figure 1.5.1. Net Remittances as a Share of Output, 2015
Figure 1.5.2. Financial Integration
Figure 1.5.3. Smoothing Effects of Remittances
Figure 1.5.4. Contribution of Remittances to Consumption Risk Sharing
Figure 1.SF.1. Commodity Market Developments
Figure 2.1. Distribution of Labor Market Indicators
Figure 2.2. Distribution of Nominal Wage Growth and Correlation with Changes in the Unemployment Rate
Figure 2.3. Job Attributes: Involuntary Part-Time Employment
Figure 2.4. Job Attributes: Temporary Contracts
Figure 2.5. Job Attributes: Hours per Worker
Figure 2.6. Average Nominal Wage Growth, 2009–16, Actual versus Imputed Using 2008 Sectoral Employment Shares
Figure 2.7. Changes in Labor Market Indicators, Actual versus Imputed Using 2008 Sectoral Employment Shares
Figure 2.8. Job Attributes and Changes in Sectoral Employment Shares, 2008–16
Figure 2.9. Effects on Growth of Compensation per Hour: Panel Estimation
Figure 2.10. Effects on Growth of Compensation per Hour: Country-by-Country Estimation, Cross-Country Dispersion
Figure 2.11. Effects of Involuntary Part-Time Employment on Growth of Compensation per Hour, 2000–16
Figure 2.12. Decomposition of Wage Dynamics, 2000–16
Figure 2.13. Year Fixed Effects and Common Drivers, 2000–16
Figure 2.14. Changes in Growth Expectations and Labor Market Institutions
Figure 2.15. Long-Term Drivers of Labor Market Dynamics
Figure 2.16. Effects on Involuntary Part-Time Employment Share, Aggregate Analysis
Figure 2.1.1. Evolution of Skill Premiums in the United States
Figure 2.1.2. Skill Premiums and Changes in Skill Premiums in European Economies
Figure 2.1.3. Nominal Wage Growth by Sector and Skill Group
Figure 2.1.4. Employment Shares by Skill
Figure 2.1.5. Employment Shares by Skill and Changes in Hours per Worker
Figure 2.2.1. Changes in Employment Shares
Figure 2.2.2. Changes in Employment Shares, 2007–14
Figure 2.2.3. Wage Cuts and Freezes, 2014
Figure 2.3.1. Estimated Nominal Wage Growth and Employment Growth Differences Based on Uncertainty and Growth Expectations
Figure 2.3.2. Wage and Employment Growth by Debt Maturity in 2008
Annex Figure 2.2.1. Distribution of Real Compensation Growth Measures
Annex Figure 2.2.2. Growth of Real Compensation per Hour and Unemployment Rates
Annex Figure 2.2.3. Factors Associated with Nominal Wage Growth
Annex Figure 2.2.4. Effects of Involuntary Part-Time Employment on Compensation and Wages, 2000–16
Annex Figure 2.2.5. Correlations between Aggregate Wage Growth and Two-Quarter-Lagged Public Wage Growth
Annex Figure 2.3.1. Decomposition of Wage Dynamics, 2000–16
Annex Figure 2.3.2. Decomposition of Sectoral Wage Dynamics, 2000–15
Annex Figure 2.3.3. Effects on Part-Time Employment Share, Sectoral Analysis
Figure 3.1. Average Global Temperature
Figure 3.2. Increase in Average Global Temperature and Contributions of Key Factors
Figure 3.3. Temperature and Precipitation across Broad Country Groups
Figure 3.4. Annual CO2 Emissions across Broad Country Groups
Figure 3.5. Temperature and Precipitation Projections under the RCP 8.5 Scenario
Figure 3.6. Natural Disasters: Historical and Projected Monthly Probability of Occurrence
Figure 3.7. Effect of Temperature Increase on Real per Capita Output
Figure 3.8. Effect of Temperature Increase on Real per Capita Output across the Globe
Figure 3.9. Effect of Temperature Increase on Sectoral Output Estimated at the Temperature of the Median Low-Income Developing Country
Figure 3.10. Effect of Temperature Increase on Productivity, Capital, and Labor Input Estimated at the Temperature of the Median Low-Income Developing Country
Figure 3.11. Effect of Temperature Increase on Real per Capita Output Estimated at the Temperature of the Median Low-Income Developing Country over Time
Figure 3.12. Coping with Weather Shocks and Climate Change: A Toolkit
Figure 3.13. Role of Policy Buffers
Figure 3.14. Role of Structural Policies and Institutions
Figure 3.15. Role of Development: Evidence from Subnational Data
Figure 3.16. Effect of Temperature and Natural Disasters on International Migration
Figure 3.17. Long-Term Impact of Temperature Increase for a Representative Low-Income Developing Country: Model Simulations
Figure 3.18. Vulnerability to Temperature Increase and Adaption Prospects
Figure 3.1.1. Effect of Tropical Cyclone Exposure on Real GDP per Capita
Figure 3.1.2. Cumulative Effect of Average Tropical Cyclone on Real GDP per Capita after Seven Years
Figure 3.2.1. Role of Policies: A Model-Based Analysis
Figure 3.4.1. Insurance Penetration: Non-Life Insurance Premium
Figure 3.4.2. Catastrophe Bond Market
Figure 3.4.3. Temperature Shocks and Stock Price Predictability: Food and Beverages Sector
Figure 3.6.1. Effectiveness of Mitigation Policies in China
Annex Figure 3.3.1. Effect of Temperature Increase on Real per Capita Output across the Globe, with Countries Rescaled in Proportion to Their Projected Population as of 2100
Annex Figure 3.6.1. The Long-Term Impact of Temperature Increase on Real per Capita Output across the Globe
Figure 4.1. Output Gap in Selected Countries
Figure 4.2. The Transmission of a Fiscal Shock
Figure 4.3. Tracking Tax Shocks in the United States
Figure 4.4. Dynamic Responses of Recipient Countries’ Output to Fiscal Shocks
Figure 4.5. Spillovers of Fiscal Shocks on Recipient Countries’ Output
Figure 4.6. Dynamic Responses of Components of Recipient Countries’ Output to a Fiscal Shock
Figure 4.7. Spillovers under Various Economic and Policy Conditions
Figure 4.8. Dynamic Responses of Components of Recipient Countries’ Output under Normal Times and Effective Lower Bound in Recipient Countries
Figure 4.9. Dynamic Responses of Recipient Countries’ Output to US Spending Shock under Various Exchange Rate Regimes
Figure 4.10. Impact of Fiscal Shocks on Global GDP Based on Various Instruments
Figure 4.11. Spillovers from US Fiscal Shocks with and without Monetary Accommodation
Figure 4.12. Regional GDP Impact of Government Spending Shocks from the United States, Europe, and China
Figure 4.13. Dynamic Responses to a US Government Spending Shock
Figure 4.14. Spillovers from US Spending Shock with and without a US Term-Premium Increase
Figure 4.15. Spillovers from Corporate Income Tax Reduction Financed by an Offsetting Increase in Value-Added Tax
Figure 4.16. Spillovers from Increase in Government Investment in Five Major Economies
Figure 4.1.1. Response of Recipient Countries’ Trade Balance and Real Exchange Rate vis-à-vis US Dollar
Annex Figure 4.3.1. Effects of Spending Shock and Tax Shock on Recipient Countries’ Output: Comparison with Panel Vector Autoregression
Annex Figure 4.3.2. Effects of Spending and Tax Shock on Recipient Countries’ Output: Forecast Errors
Annex Figure 4.3.3. Effects of US Tax Shock on Recipient Countries’ Output: Comparison with US Narrative Tax Shock, 1995–2007
Assumptions and Conventions
A number of assumptions have been adopted for the projections presented in the World Economic Outlook (WEO). It has been assumed that real effective exchange rates remained constant at their average levels during July 20 to August 17, 2017, except for those for the currencies participating in the European exchange rate mechanism II (ERM II), which are assumed to have remained constant in nominal terms relative to the euro; that established policies of national authorities will be maintained (for specific assumptions about fiscal and monetary policies for selected economies, see Box A1 in the Statistical Appendix); that the average price of oil will be $50.28 a barrel in 2017 and $50.17 a barrel in 2018 and will remain unchanged in real terms over the medium term; that the six-month London interbank offered rate (LIBOR) on US dollar deposits will average 1.4 percent in 2017 and 1.9 percent in 2018; that the three-month euro deposit rate will average −0.3 percent in 2017 and 2018; and that the six-month Japanese yen deposit rate will yield on average 0.1 percent in 2017 and 0.2 percent in 2018. These are, of course, working hypotheses rather than forecasts, and the uncertainties surrounding them add to the margin of error that would in any event be involved in the projections. The estimates and projections are based on statistical information available through September 22, 2017.
The following conventions are used throughout the WEO:
… to indicate that data are not available or not applicable;
– between years or months (for example, 2016–17 or January–June) to indicate the years or months covered, including the beginning and ending years or months; and
/ between years or months (for example, 2016/17) to indicate a fiscal or financial year.
“Billion” means a thousand million; “trillion” means a thousand billion.
“Basis points” refers to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).
Data refer to calendar years, except in the case of a few countries that use fiscal years. Please refer to Table F in the Statistical Appendix, which lists the economies with exceptional reporting periods for national accounts and government finance data for each country.
For some countries, the figures for 2016 and earlier are based on estimates rather than actual outturns. Please refer to Table G in the Statistical Appendix, which lists the latest actual outturns for the indicators in the national accounts, prices, government finance, and balance of payments indicators for each country.
What is new in this publication:
Data for Somalia are included in the emerging market and developing economies group composites. Somalia is classified as a member of the Middle East and North Africa region.
Starting with the October 2017 WEO, the real GDP per capita data in Statistical Tables A1, B1, and B2 are shown at purchasing power parity. This differs from the treatment of these data in the April 2017 WEO and earlier issues, in which the data were shown in local national currency.
In the tables and figures, the following conventions apply:
If no source is listed on tables and figures, data are drawn from the WEO database.
When countries are not listed alphabetically, they are ordered on the basis of economic size.
Minor discrepancies between sums of constituent figures and totals shown reflect rounding.
As used in this report, the terms “country” and “economy” do not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.
Composite data are provided for various groups of countries organized according to economic characteristics or region. Unless noted otherwise, country group composites represent calculations based on 90 percent or more of the weighted group data.
The boundaries, colors, denominations, and any other information shown on the maps do not imply, on the part of the International Monetary Fund, any judgment on the legal status of any territory or any endorsement or acceptance of such boundaries.
Further Information and Data
This version of the World Economic Outlook (WEO) is available in full through the IMF eLibrary (www.elibrary.imf.org) and the IMF website (www.imf.org). Accompanying the publication on the IMF website is a larger compilation of data from the WEO database than is included in the report itself, including files containing the series most frequently requested by readers. These files may be downloaded for use in a variety of software packages.
The data appearing in the WEO are compiled by the IMF staff at the time of the WEO exercises. The historical data and projections are based on the information gathered by the IMF country desk officers in the context of their missions to IMF member countries and through their ongoing analysis of the evolving situation in each country. Historical data are updated on a continual basis as more information becomes available, and structural breaks in data are often adjusted to produce smooth series with the use of splicing and other techniques. IMF staff estimates continue to serve as proxies for historical series when complete information is unavailable. As a result, WEO data can differ from those in other sources with official data, including the IMF’s International Financial Statistics.
The WEO data and metadata provided are “as is” and “as available,” and every effort is made to ensure their timeliness, accuracy, and completeness, but it cannot be guaranteed. When errors are discovered, there is a concerted effort to correct them as appropriate and feasible. Corrections and revisions made after publication are incorporated into the electronic editions available from the IMF eLibrary (www.elibrary.imf.org) and on the IMF website (www.imf.org). All substantive changes are listed in detail in the online tables of contents.
For details on the terms and conditions for usage of the WEO database, please refer to the IMF Copyright and Usage website (www.imf.org/external/terms.htm).
Inquiries about the content of the WEO and the WEO database should be sent by mail, fax, or online forum (telephone inquiries cannot be accepted):
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Preface
The analysis and projections contained in the World Economic Outlook are integral elements of the IMF’s surveillance of economic developments and policies in its member countries, of developments in international financial markets, and of the global economic system. The survey of prospects and policies is the product of a comprehensive interdepartmental review of world economic developments, which draws primarily on information the IMF staff gathers through its consultations with member countries. These consultations are carried out in particular by the IMF’s area departments—namely, the African Department, Asia and Pacific Department, European Department, Middle East and Central Asia Department, and Western Hemisphere Department—together with the Strategy, Policy, and Review Department, the Monetary and Capital Markets Department, and the Fiscal Affairs Department.
The analysis in this report was coordinated in the Research Department under the general direction of Maurice Obstfeld, Economic Counsellor and Director of Research. The project was directed by Gian Maria Milesi-Ferretti, Deputy Director, Research Department; Oya Celasun, Division Chief, Research Department; and Helge Berger, Assistant Director, Research Department and Head of the IMF’s Spillover Task Force.
The primary contributors to this report were Sebastian Acevedo, Patrick Blagrave, Christian Bogmans, Francesco Grigoli, Giang Ho, Gee Hee Hong, Zsóka Kóczán, Ksenia Koloskova, Toh Kuan, Weicheng Lian, Akito Matsumoto, Mico Mrkaic, Malhar Nabar, Natalija Novta, Marcos Poplawski-Ribeiro, Evgenia Pugacheva, Petia Topalova, and Esteban Vesperoni.
Other contributors include JaeBin Ahn, Gavin Asdorian, Manoj Atolia, Claudio Baccianti, Kimberly Beaton, Jared Bebee, Felicia Belostecinic, John C. Bluedorn, Luis Catão, Eugenio Cerutti, Angela Espiritu, Rachel Yuting Fan, Alan Xiaochen Feng, Bertrand Gruss, Meron Haile, Mahnaz Hemmati, Benjamin Hilgenstock, Ava Yeabin Hong, Benjamin Hunt, Hao Jiang, Christopher Johns, Sung Eun Jung, Alimata Kini-Kaboré, Lama Kiyasseh, Robin Koepke, Jungjin Lee, Yiqun Li, Ricardo Marto, Trevor Charles Meadows, Joannes Mongardini, Susanna Mursula, Cynthia Nyanchama Nyakeri, Emory Oakes, Ian Parry, Adina Popescu, Daniel Rivera Greenwood, Ippei Shibata, Kadir Tanyeri, Nicholas Tong, Jilun Xing, Yuan Zeng, Qiaoqiao Zhang, and Huiyuan Zhao.
Joseph Procopio from the Communications Department led the editorial team for the report, with production and editorial support from Michael Harrup, Christine Ebrahimzadeh, and Linda Kean and editorial assistance from James Unwin, Lucy Scott Morales, Sherrie Brown, and Vector Talent Resources.
The analysis has benefited from comments and suggestions by staff members from other IMF departments, as well as by Executive Directors following their discussion of the report on September 21, 2017. However, both projections and policy considerations are those of the IMF staff and should not be attributed to Executive Directors or to their national authorities.
Foreword
The global cyclical upswing that began midway through 2016 continues to gather strength. Only a year and a half ago, the world economy faced stalling growth and financial market turbulence. The picture now is very different, with accelerating growth in Europe, Japan, China, and the United States. Financial conditions remain buoyant across the world, and financial markets seem to be expecting little turbulence going forward, even as the Federal Reserve continues its monetary normalization process and the European Central Bank inches up to its own.
These positive developments give good cause for greater confidence, but neither policymakers nor markets should be lulled into complacency. A closer look suggests that the global recovery may not be sustainable—not all countries are participating, inflation often remains below target with weak wage growth, and the medium-term outlook still disappoints in many parts of the world. The recovery is also vulnerable to serious risks. Financial markets that ignore these risks are susceptible to disruptive repricing, and are sending a misleading message to policymakers. Policymakers, in turn, need to maintain a longer-term vision and seize the current opportunity to implement the structural and fiscal reforms needed for greater resilience, productivity, and investment. The possibility that they don’t—governments far too often wait for crises to push them into decisive action—is itself a source of risks to the outlook, as well as a barrier to more inclusive and sustainable growth. Recent economic progress provides a global environment of opportunity, and policymakers should not let their chance go to waste.
The current recovery is incomplete in some important ways: within countries, across countries, and over time.
Within countries. Even as negative output gaps close across the advanced economies, growth in nominal and real wages remains weak compared with past recoveries. Weak wage growth is one source of the surprisingly weak inflation that itself is a source of concern, as it leaves nominal interest rates low and makes encounters with the effective lower bound, the point at which central banks can no longer lower interest rates, more likely. Chapter 2 of this World Economic Outlook report studies the recent surprisingly slow growth of nominal wages, which reinforces a longer trend of stagnant median wages, rising income inequality, and job polarization such that middle-skill but well-paying jobs have become increasingly scarce. Those developments have stoked considerable popular anti-globalization backlash—one significant threat to the world economy—although technological developments and government policies together have played larger roles in increasing income inequality, and fears of faster automation are a current cause of anxiety. Emerging markets have faced similar pressures in the face of trade liberalization and technological change, but growth has in many cases lifted all deciles of their income distributions and attitudes toward trade’s effects on labor markets remain largely optimistic.
Across countries. The current upswing reaches more broadly than any in a decade—roughly 75 percent of the world economy, measured by GDP at purchasing power parity—is sharing in the acceleration. But that means the glass is 25 percent empty, implying a drag on world growth and a potential source of destabilizing political shocks. Emerging and low-income commodity exporters, especially energy exporters, continue to struggle, as do several countries experiencing civil or political unrest, mostly in the Middle East, North and sub-Saharan Africa, and Latin America. And many of these same countries are the ones that are also most exposed to the negative impacts of climate change—already being felt via more frequent extreme weather events in some regions, such as heat waves and heavy precipitation. Chapter 3 focuses on the economic costs of climate change and the need for adaptation investments in low-income countries. Advanced economies will not be immune to future climate developments, however—through either direct impacts in some advanced regions, such as the coastal United States, or the spillovers from mass migrations and geopolitical instability emanating from poorer countries.
Over time. Behind recent positive growth developments, longer-term trend per capita growth rates in many economies will be lower than trend growth rates of the past. In particular, most advanced economies face medium-term growth rates significantly lower than in the decade before the global financial crisis of 2007–09. The reasons behind these slowdowns differ across countries. For some economies, notably China’s, declining long-term growth is a natural result of rebalancing and convergence. For emerging commodity exporters, which benefited from China’s own rapid manufacturing growth in years past, permanently lower export prices call for new growth models. For advanced economies, expected slow productivity growth and aging workforces play major roles. Lower trend per capita growth rates can be problematic for several reasons: they make it harder for the poor to raise their living standards; they raise the pain of reallocating resources in the face of economic changes; they deter productivity-enhancing investment; they harm the sustainability of publicly funded social safety nets; and they feed political resentment by undermining hopes for the future and beliefs about the fairness of economic outcomes. In turn, these forces could derail the baseline forecast.
The preceding gaps in the recovery challenge policymakers to action—action that should take place now, while times are good. Needed structural reforms differ across countries, but all countries have ample room for measures that would raise economic resilience along with potential output. For some countries where output gaps have closed, the time has come to think about gradual fiscal consolidation, to reduce swollen public debt levels and create buffers to be used in the next recession. Such actions could entail adverse spillovers abroad, as discussed in Chapter 4. Countries with more fiscal space can, however, offset the reduction in global demand—for example, through much-needed productive infrastructure investment or through fiscal spending that supports structural reforms. This global fiscal package can also help reduce excess global imbalances.
Critically important to inclusive and sustainable growth is investment in people at all life-cycle stages, but especially the young. Better education, training, and retraining can both ease labor market adjustment to secular economic transformation—coming from all sources, not only trade—and raise productivity. In the short term, the excessive youth unemployment that afflicts many countries urgently deserves attention. Investing in human capital should help to push labor’s income share upward, contrary to the broad trend of recent decades—but governments should also consider correcting distortions that may have reduced workers’ bargaining power excessively. In sum, policy should promote an environment conducive to sustainable real wage growth.
Numerous global problems require multilateral action. Priorities for mutually beneficial cooperation include strengthening the global trading system, further improving financial regulation, enhancing the global financial safety net, reducing international tax avoidance, fighting famine and infectious diseases, mitigating greenhouse gas emissions before they create more irreversible damage, and helping poorer countries, which are not themselves substantial emitters, adapt to climate change. If the strength of the current upswing makes the moment ideal for domestic reforms, its breadth makes multilateral cooperation opportune. Policymakers should act while the window of opportunity is open.
Maurice Obstfeld
Economic Counsellor
Executive Summary
The global upswing in economic activity is strengthening. Global growth, which in 2016 was the weakest since the global financial crisis at 3.2 percent, is projected to rise to 3.6 percent in 2017 and to 3.7 percent in 2018. The growth forecasts for both 2017 and 2018 are 0.1 percentage point stronger compared with the April 2017 World Economic Outlook (WEO) forecast. Broad-based upward revisions in the euro area, Japan, emerging Asia, emerging Europe, and Russia—where growth outcomes in the first half of 2017 were better than expected—more than offset downward revisions for the United States and the United Kingdom.
But the recovery is not complete: while the baseline outlook is strengthening, growth remains weak in many countries, and inflation is below target in most advanced economies. Commodity exporters, especially of fuel, are particularly hard hit as their adjustment to a sharp stepdown in foreign earnings continues. And while short-term risks are broadly balanced, medium-term risks are still tilted to the downside. The welcome cyclical pickup in global activity thus provides an ideal window of opportunity to tackle the key policy challenges—namely to boost potential output while ensuring its benefits are broadly shared, and to build resilience against downside risks. A renewed multilateral effort is also needed to tackle the common challenges of an integrated global economy.
The global pickup in activity that started in the second half of 2016 gained further momentum in the first half of 2017. Growth is projected to rise over this year and next in emerging market and developing economies, supported by improved external factors—a benign global financial environment and a recovery in advanced economies. Growth in China and other parts of emerging Asia remains strong, and the still-difficult conditions faced by several commodity exporters in Latin America, the Commonwealth of Independent States, and sub-Saharan Africa show some signs of improvement. In advanced economies, the notable 2017 growth pickup is broad based, with stronger activity in the United States and Canada, the euro area, and Japan. Prospects for medium-term growth are more subdued, however, as negative output gaps shrink (leaving less scope for cyclical improvement) and demographic factors and weak productivity weigh on potential growth.
Changes to aggregate growth forecasts relative to the April 2017 WEO are generally positive but modest, with some meaningful changes for specific country groups and individual countries.
In line with stronger-than-expected momentum in the first half of 2017, the forecast sees a stronger rebound in advanced economies in 2017 (to 2.2 percent versus 2.0 percent foreseen in April), driven by stronger growth in the euro area, Japan, and Canada. In contrast, compared with the April 2017 WEO forecast, growth has been marked down for 2017 in the United Kingdom and for both 2017 and 2018 in the United States, implying a 0.1 percentage-point aggregate growth downgrade for advanced economies in 2018. Activity in the United Kingdom slowed more than anticipated in the first half of 2017; as for the United States, given the significant policy uncertainty, the forecast now uses a baseline assumption of unchanged policies, whereas in April it assumed a fiscal stimulus driven by then-anticipated tax cuts.
Growth prospects for emerging and developing economies are marked up by 0.1 percentage point for both 2017 and 2018 relative to April, primarily owing to a stronger growth projection for China. The country’s 2017 forecast (6.8 percent, against 6.6 percent in April) reflects stronger growth outturns in the first half of 2017 as well as more buoyant external demand. For 2018, the revision mainly reflects an expectation that the authorities will maintain a sufficiently expansionary policy mix to meet their target of doubling real GDP between 2010 and 2020. Growth forecasts have also been marked up for emerging Europe for 2017, reflecting stronger growth in Turkey and other countries in the region, for Russia for 2017 and 2018, and Brazil in 2017.
Financial market sentiment has generally been strong, with continued gains in equity markets in both advanced and emerging market economies. Given current expectations of a more gradual pace of monetary policy normalization compared with March, US long-term interest rates have declined by some 25 basis points since then, and the dollar has depreciated by more than 5 percent in real effective terms, with a commensurate real appreciation of the euro. Despite expectations of more robust global demand going forward, commodity prices have remained low, with oil prices reflecting stronger-than-anticipated supply.
Headline consumer price inflation has softened since the spring, as the boost to prices from the oil price recovery of 2016 has faded and the decline in oil prices in recent months has started to exert downward pressure. Despite stronger growth in domestic demand, core inflation has generally remained muted across advanced economies, reflecting still-weak wage growth (Chapter 2). Inflation is likely to rise only gradually toward central bank targets. Across emerging and developing economies, the waning of pass-through effects from earlier currency depreciations against the US dollar, and in some cases recent appreciations, have helped moderate core inflation rates.
Short-term risks are broadly balanced. On the positive side, the recovery could strengthen further, supported by strong consumer and business confidence and benign financial conditions. At the same time, in an environment of high policy uncertainty and geopolitical tensions, policy missteps—which the baseline assumes will be avoided—could take a toll on market confidence, resulting in tighter financial conditions and weaker asset prices.
Risks to growth in the medium term are still skewed to the downside, owing to several potential hazards:
A more rapid and sizable tightening of global financial conditions. This could take the form of higher long-term interest rates in the United States and elsewhere, triggered by faster-than-expected monetary policy normalization or a decompression of term premia, with adverse repercussions for vulnerable economies. Monetary policy tightening in the euro area, if it had to come while the recovery in prices and growth is still lagging in highly indebted member economies, could pose risks for these economies if they have not undertaken the needed fiscal adjustment and implemented structural reforms to boost supply potential. Tighter global financial conditions could also result from a sharp decrease in global risk appetite from its currently strong levels, which would take a toll on macroeconomic activity through weaker confidence, lower asset valuations, and wider risk premia.
Financial turmoil in emerging market economies. The upward revision to China’s growth forecasts reflects a slower rebalancing of activity toward services and consumption, a higher projected debt trajectory, and diminished fiscal space. Unless the Chinese authorities counter the associated risks by accelerating their recent encouraging efforts to curb the expansion of credit, these factors imply a heightened probability of a sharp growth slowdown in China, with adverse international repercussions. Following a period of abundant credit supply, a sudden tightening of global financial conditions (and an associated US dollar appreciation) could expose financial fragilities in some emerging markets, imposing strains on economies with US dollar pegs, high leverage, and balance sheet mismatches.
Persistently low inflation in advanced economies. If domestic demand were to falter, it could lead to a decline in medium-term inflation expectations, prolonging and reinforcing the weakness in inflation. Low inflation and nominal interest rates would in turn reduce central banks’ capacity to lower real interest rates to restore full employment in an economic downturn.
A broad rollback of the improvements in financial regulation and oversight achieved since the global financial crisis. Such a rollback could lower capital and liquidity buffers or weaken supervisory effectiveness, with negative repercussions for global financial stability.
An inward shift in policies. A shift toward protectionism would reduce trade and cross-border investment flows, harming global growth.
Noneconomic factors. These would include geopolitical tensions, domestic political discord, risks from weak governance and corruption, extreme weather events, and terrorism and security concerns, which could derail growth.
These risks are closely interconnected and can be mutually reinforcing. For example, an inward turn in policies could be associated with increased geopolitical tensions as well as with rising global risk aversion; noneconomic shocks can weigh directly on economic activity while shaking confidence and market sentiment; and a faster-than-anticipated tightening of global financial conditions or a shift toward protectionism in advanced economies could exacerbate capital outflow pressures on emerging markets.
The welcome cyclical pickup in global economic activity after disappointing growth over the past few years provides an ideal window of opportunity to undertake key reforms designed to boost potential output and ensure that its benefits are broadly shared and to build resilience against downside risks. With countries still facing differences in cyclical conditions, varied stances of monetary and fiscal policy remain appropriate. Completing the economic recovery and adopting strategies to ensure fiscal sustainability remain important goals in many economies.
Important areas of strategic focus include:
Raising potential output: Structural reforms and growth-friendly fiscal policy are needed to boost productivity and labor supply, with differing priorities across countries. Looking ahead, ongoing structural transformation (labor-saving technological change and cross-border competition) demands comprehensive policy approaches, including policies that reduce the pain of adjustment and provide opportunities for all.
Securing the recovery and building resilience: In advanced economies, monetary policy settings should remain accommodative until there are firm signs of inflation returning to targets. As documented in Chapter 2, still-subdued wage pressures mostly reflect remaining slack, not fully captured by headline unemployment rates. At the same time, stretched asset valuations and increasing leverage in some parts of the financial sector require close monitoring, with proactive micro- and macroprudential supervision, as necessary. The stance of fiscal policy should be aligned with structural reform efforts, taking advantage of favorable cyclical conditions to place public debt on a sustainable path while supporting demand where still needed and feasible. As Chapter 4 emphasizes, higher public spending designed to boost potential output can result in both domestic benefits as well as positive spillovers to other countries, especially if it involves economies with slack and monetary accommodation. Indeed, adopting these policy recommendations would help reduce external imbalances, notably for advanced economies with excess surpluses, where stronger domestic demand would offset negative demand effects from the needed rebalancing by deficit countries. In many emerging market and developing economies, fiscal space to support demand is limited, especially in commodity exporters. But monetary policy can generally be supportive, as inflation appears to have peaked in many countries. Exchange rate flexibility helps with the adjustment to commodity price shocks. Efforts to improve governance and the investment climate would also strengthen growth prospects. In low-income countries, many of which need to undertake durable fiscal adjustment efforts and reduce financial vulnerabilities, growth-enhancing reforms would help make the best use of the coming demographic dividend by spurring job creation.
Strengthening international cooperation: For many of the challenges that the global economy confronts, individual country actions can be more effective if supported by multilateral cooperation. Preserving the global economic expansion will require policymakers to avoid protectionist measures and to do more to ensure that gains from growth are shared more widely. In addition to preserving an open trading system, key areas for collective action include: safeguarding global financial stability; achieving equitable tax systems and avoiding a race to the bottom; continuing to support low-income countries as they pursue their development goals; and mitigating and adapting to climate change. As Chapter 3 illustrates, many of the economies suffering the worst consequences of higher temperatures and changed weather patterns are those with the fewest resources to deal with these challenges. Richer countries will increasingly feel direct negative effects from unmitigated climate change, however, and will not be immune to spillovers from the rest of the world.