- International Monetary Fund. Research Dept.
- Published Date:
- October 2018
World Economic and Financial Surveys
World Economic Outlook
International Monetary Fund
©2018 International Monetary Fund
Cover and Design: Luisa Menjivar and Jorge Salazar
Composition: AGS, An RR Donnelley Company
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
ISBN 978-1-48437-679-9 (paper)
978-1-48437-719-2 (Web PDF)
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 20, 2018. 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. 2018. World Economic Outlook: Challenges to Steady Growth. Washington, DC, October.
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- Assumptions and Conventions
- Further Information
- Executive Summary
- Chapter 1. Global Prospects and Policies
- Recent Developments and Prospects
- Forces Shaping the Outlook
- The Forecast
- Policy Priorities
- Scenario Box 1. Global Trade Tensions
- Box 1.1. Increasing Market Power
- Box 1.2. Growth Outlook: Advanced Economies
- Box 1.3. Growth Outlook: Emerging Market and Developing Economies
- Box 1.4. Inflation Outlook: Regions and Countries
- Box 1.5. Sharp GDP Declines: Some Stylized Facts
- Box 1.6. Predicting Recessions and Slowdowns: A Daunting Task
- Special Feature: Commodity Market Developments and Forecasts, with a Focus on Recent Trends in Energy Demand
- Box 1.SF.1. The Demand and Supply of Renewable Energy
- Online Annexes
- Annex 1.SF.1. Commodity Special Feature
- Chapter 2. The Global Recovery 10 Years after the 2008 Financial Meltdown
- Persistent Post–Global Financial Crisis Deviations in Output
- Policy Frameworks, Measures, and Postcrisis Output Performance
- Box 2.1. The Global Financial Crisis, Migration, and Fertility
- Box 2.2. The Employment Impact of Automation Following the Global Financial Crisis: The Case of Industrial Robots
- Box 2.3. The Role of Financial Sector Repair in the Speed of the Recovery
- Online Annexes
- Annex 2.1. Data Sources and Country Coverage
- Annex 2.2. Additional Details on Quantifying Postcrisis Deviations in Activity from Precrisis Trends
- Annex 2.3. Robot Diffusion and Its Employment Impact in the Aftermath of the Crisis
- Chapter 3. Challenges for Monetary Policy in Emerging Markets as Global Financial Conditions Normalize
- Extent of Improvements in Inflation Outcomes
- Determinants of Inflation in Emerging Markets
- Anchoring of Inflation Expectations
- Implications of Anchoring for Monetary Policy
- Summary and Policy Implications
- Box 3.1. Inflation Dynamics in a Wider Group of Emerging Market and Developing Economies
- Box 3.2. Clarity of Central Bank Communications and the Extent of Anchoring of Inflation Expectations
- Online Annexes
- Annex 3.1. Data Sources and Country Coverage
- Annex 3.2. Determinants of Inflation
- Annex 3.3. Anchoring of Inflation Expectations
- Annex 3.4. Anchoring of Inflation Expectations and Monetary Policy: Model-Based Guidance
- Annex 3.5. The Event Study Methodology for the Taper Tantrum
- Annex 3.6. Monetary Policy Reaction Function
- Statistical Appendix
- 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 2018
- Table 1.1. Overview of the World Economic Outlook Projections
- Table 1.5.1. Episodes of Declines in GDP per Capita Exceeding 20 Percent
- Table 1.5.2. Declines in GDP per Capita: Stylized Facts
- Table 1.5.3. Postcrisis Outcomes and Crisis Depth
- Table 1.SF.1. Total Demand Determinant for Baseline Specification
- 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 2.1. Total Factor Productivity Deviations Account for Large Share of GDP per Worker Deviations
- Table 2.2. Impact of Precrisis Conditions on 2011–13 GDP Deviations from Precrisis Trend
- Table 2.3. Financial Sector Support and Discretionary Fiscal Stimulus in Group of Twenty Economies
- Online Tables
- Annex Table 1.SF.1.1. Contribution to Electrification, 1971–2015
- Annex Table 1.SF.1.2. World Energy Usage, 2015 and 1971
- Annex Table 1.SF.1.3. Total Demand Determinants, by Varying Specifications
- Annex Table 1.SF.1.4. Primary Energy and Electricity Share Determinants
- Annex Table 2.1.1. Data Sources
- Annex Table 2.1.2. Country Coverage
- Annex Table 2.2.1. Banking Crises, 2007–08
- Annex Table 2.2.2. Tests of Equality of Distributions of 2015–17 Deviations
- Annex Table 2.2.3. Probability of Banking Crisis and the Strength of Restrictions on Banking Activities
- Annex Table 2.2.4. Banking Crisis and Regulations: Probit Regression
- Annex Table 2.2.5. Impact on 2011–13 GDP Deviations from One Standard Deviation Increase in Drivers
- Annex Table 2.2.6. Impact on 2011–13 Investment Deviations from One Standard Deviation Increase in Drivers
- Annex Table 2.2.7. Impact on 2011–13 GDP Deviations from One Standard Deviation Increase in Drivers by Country Group
- Annex Table 2.2.8. Impact on 2015–17 GDP Deviations from One Standard Deviation Increase in Drivers
- Annex Table 2.3.1. Sectors, Individual Industries, and Abbreviations Used in Chapter, ISIC Revision and IFR Sector Classifications
- Annex Table 2.3.2. Crisis Exposure and Robot Density, Test in Median
- Annex Table 2.3.3. Cross-Section Difference-in-Differences Estimation of Impact of Crisis on Robot Density
- Annex Table 2.3.4. Ordinary Least Squares Estimation of Impact of Robot Adoption on Employment Using Output Loss
- Annex Table 2.3.5. Ordinary Least Squares Estimation of Impact of Robot Adoption on Employment by Medium Skills and High Output Loss
- Annex Table 2.3.6. Ordinary Least Squares Estimation of Impact of Robot Adoption on Employment by Labor Market Policies and Output Loss
- Annex Table 3.1.1. Data Sources
- Annex Table 3.1.2. Country Coverage
- Annex Table 3.2.1. Hybrid Phillips Curve: Estimation Results
- Annex Table 3.2.2. Hybrid Phillips Curve: Specification Augmented for External Factors
- Annex Table 3.2.3. Hybrid Phillips Curve: Alternative Forecast Horizon
- Annex Table 3.2.4. Hybrid Phillips Curve: Extensions
- Annex Table 3.3.1. Correlation of Relative Ranking across Anchoring Metrics, 2004–18
- Annex Table 3.6.1. Estimation of Monetary Policy Rules
- 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
- Figure 1. Real GDP Growth, by Country Group
- Figure 1.1. Global Activity Indicators
- Figure 1.2. Commodity and Oil Prices
- Figure 1.3. Global Inflation
- Figure 1.4. Advanced Economies: Monetary and Financial Market Conditions
- Figure 1.5. Real Effective Exchange Rate Changes, February–September 2018
- Figure 1.6. Emerging Market Economies: Interest Rates and Spreads
- Figure 1.7. Emerging Market Economies: Equity Markets and Credit
- Figure 1.8. Emerging Market Economies: Capital Flows
- Figure 1.9. Impact of Commodity Price Changes
- Figure 1.10. Global Investment and Trade
- Figure 1.11. Contributions to GDP Growth
- Figure 1.12. Per Capita Real GDP Growth
- Figure 1.13. Fiscal Indicators
- Figure 1.14. Global Current Account Balance
- Figure 1.15. Current Account Balances in Relation to Economic Fundamentals
- Figure 1.16. Net International Investment Position
- Figure 1.17. Growth for Creditors and Debtors
- Figure 1.18. Policy Uncertainty and Trade Tensions
- Figure 1.19. Geopolitical Risk Index
- Figure 1.20. Risks to the Global Outlook
- Figure 1.21. Projected Change in Public Debt
- Figure 1.22. Change in the Working-Age Population (15–64) Relative to 2015 Levels
- Scenario Figure 1. Real GDP in Trade Tensions Scenario
- Figure 1.1.1. Market Power over Time
- Figure 1.1.2. Markup Increase, by Subsector
- Figure 1.1.3. Advanced Economies: Distribution of Markups of All Firms
- Figure 1.1.4. Advanced Economies: Distribution of Markups of Firms, by Industry
- Figure 1.5.1. Ongoing Episodes of Large Declines in GDP per Capita
- Figure 1.6.1. World Economic Outlook Data: Recessions, Actual and Forecast
- Figure 1.6.2. Consensus Economics Data: Recessions, Actual and Forecast
- Figure 1.6.3. Severe Slowdowns, Actual and Forecast
- Figure 1.6.4. Forecast Errors during Severe Slowdowns
- Figure 1.6.5. Forecast Performance
- Figure 1.SF.1. Commodity Market Developments
- Figure 1.SF.2. Primary Energy Consumption and Supply
- Figure 1.SF.3. Energy Efficiency
- Figure 1.SF.4. Energy Demand and GDP per Capita
- Figure 1.SF.5. Biomass
- Figure 1.SF.6. Primary Energy Source Shares
- Figure 1.SF.7. Decomposition of Change in World Coal Intensity
- Figure 1.SF.1.1. Renewables Capacity
- Figure 2.1. Correlation of GDP Deviations between Periods
- Figure 2.2. Postcrisis Change in Inequality
- Figure 2.3. Postcrisis Output Deviations from Precrisis Trend, 2015–17
- Figure 2.4. Postcrisis Output Deviations from Precrisis Trend by Country Group, 2015–17
- Figure 2.5. Postcrisis Investment Deviations from Precrisis Trend: Mean Trajectory
- Figure 2.6. Postcrisis Capital Stock Deviations from Precrisis Trend, 2015–17
- Figure 2.7. Postcrisis Total Factor Productivity Deviations from Precrisis Trends, 2015–17
- Figure 2.8. Changes in Research and Development Expenditure, by Output Losses and Country Groups
- Figure 2.9. Average Change in Robot Density, by Output Losses and Country Groups, 2010–14
- Figure 2.10. Probability of Banking Crisis
- Figure 2.11. Postcrisis Deviations of Euro Area and Other Advanced Economies
- Figure 2.12. Impact on 2015–17 GDP Deviations from One Standard Deviation Increase in Drivers
- Figure 2.1.1. International Migration and the Global Financial Crisis
- Figure 2.1.2. Impact of Emigration Rate from One Standard Deviation Increase in Drivers at Different Horizons
- Figure 2.1.3. Total Fertility Rate
- Figure 2.1.4. Impact of Crisis Exposure on Fertility Rate at Different Horizons
- Figure 2.1.5. Impact on Fertility from One Standard Deviation Increase in Drivers at Different Horizons
- Figure 2.2.1. Effect of Robot Diffusion on Employment Growth
- Figure 2.2.2. Hollowing-Out Effect of Robot Diffusion on Employment Growth
- Figure 2.2.3. Labor Market Policies and Effect of Robot Diffusion on Employment Growth
- Figure 2.3.1. Containment and Resolution
- Figure 2.3.2. Timing of Recapitalization
- Figure 2.3.3. New Share Issuance by Banks
- Figure 2.3.4. Nonperforming Loan Ratio
- Figure 2.3.5. Postcrisis Paths
- Figure 3.1. Headline Consumer Price Index Inflation
- Figure 3.2. Institutional and Policy Changes, Global Shocks, and Financial Conditions
- Figure 3.3. Regional Differences and Dispersion in Headline Consumer Price Index Inflation in Emerging Market and Developing Economies
- Figure 3.4. Other Measures of Price Inflation in Emerging Markets
- Figure 3.5. Inflation Dynamics
- Figure 3.6. Coefficient Estimates from the Baseline Phillips Curve Specification
- Figure 3.7. Contributions to Deviation of Core Inflation from Target
- Figure 3.8. Time Fixed Effects and Common Drivers, by Subperiod
- Figure 3.9. Evolution of the Degree of Anchoring of Inflation Expectations, 2000–17
- Figure 3.10. Cross-Country Heterogeneity in Degree of Anchoring of Inflation Expectations, 2004–17
- Figure 3.11. Anchoring of Inflation Expectations and Policy Frameworks, 2004–17
- Figure 3.12. Gains from Anchoring Inflation Expectations
- Figure 3.13. Response to the Taper Tantrum
- Figure 3.14. Cumulative Exchange Rate Pass-Through
- Figure 3.15. Correlation between Detrended Policy Rate and Output Gap, 2004:Q1–2018:Q1
- Figure 3.16. Effects of Less-Anchored Inflation Expectations: Regression Results, 2004:Q1–2018:Q1
- Figure 3.1.1. Comparison of Macro Characteristics across Country Groups
- Figure 3.1.2. Inflation Dynamics
- Figure 3.1.3. Inflation, Food Shares, and Commodity Prices
- Figure 3.1.4. Central Bank Transparency
- Figure 3.2.1. Frequency of Monetary Policy Surprises, 2010–13 versus 2014–18
- Figure 3.2.2. Monetary Policy Predictability and Anchoring of Inflation Expectations
- Figure 3.2.3. Central Bank Communication and Monetary Policy Predictability
- Online Figures
- Annex Figure 1.SF.1.1 Renewable Total Primary Energy Supply Growth, by Select Regions
- Annex Figure 2.2.1. Estimates of Precrisis Trends for the United States
- Annex Figure 2.2.2. Structural Break
- Annex Figure 2.2.3. Postcrisis Output per Worker Deviations from Precrisis Trend, 2015–17
- Annex Figure 2.2.4. Distributions of GDP Deviations after Recessions
- Annex Figure 2.2.5. Change in Postcrisis and Precrisis Growth Rates in Sectoral Capital Stock
- Annex Figure 2.3.1. Sales of Robots for Professional Services
- Annex Figure 2.3.2. Sales of Robots for Domestic/Personal Services
- Annex Figure 2.3.3. Average Change in Robot Density (2010–14) and Initial Robot Stock in 2010
- Annex Figure 2.3.4. Effect of Crisis Exposure on Robot Diffusion
- Annex Figure 3.2.1. Contribution of Domestic and Global Factors to Inflation Dynamics
- Annex Figure 3.3.1. Degree of Anchoring, Rolling Windows
- Annex Figure 3.5.1. Effect of May 2013 “Taper Tantrum”: Alternative Classification Based on Pre-2013 Data
- Annex Figure 3.5.2. Effect of May 2013 “Taper Tantrum”: Alternative Classification Based on Median Measures
- Annex Figure 3.6.1. Net Capital Inflows to Emerging Markets, 2004–18
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 17 to August 14, 2018, 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 $69.38 a barrel in 2018 and $68.76 a barrel in 2019 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 2.5 percent in 2018 and 3.4 percent in 2019; that the three-month euro deposit rate will average −0.3 percent in 2018 and −0.2 percent in 2019; and that the six-month Japanese yen deposit rate will yield on average 0.0 percent in 2018 and 0.1 percent in 2019. 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 18, 2018.
The following conventions are used throughout the WEO:
- … to indicate that data are not available or not applicable;
- – between years or months (for example, 2017–18 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, 2017/18) 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. Table F in the Statistical Appendix lists the economies with exceptional reporting periods for national accounts and government finance data for each country.
For some countries, the figures for 2017 and earlier are based on estimates rather than actual outturns. Table G in the Statistical Appendix 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:
- Argentina’s consumer prices, which were previously excluded from the group composites because of data constraints, are now included starting from 2017 onward.
- Data for Aruba are included in the data aggregated for the emerging market and developing economies.
- Egypt’s forecast data, from which the nominal exchange rate assumptions are calculated, were previously excluded because the nominal exchange rate was a market sensitive issue; they are now made public.
- Swaziland is now called Eswatini.
- Venezuela redenominated its currency on August 20, 2018, by replacing 100,000 bolívares Fuertes (VEF) with 1 bolívar Soberano (VES). Local currency data, including the historical data, for Venezuela are expressed in the new currency beginning with the October 2018 WEO database.
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.
Corrections and Revisions
The data and analysis appearing in the World Economic Outlook (WEO) are compiled by the IMF staff at the time of publication. Every effort is made to ensure their timeliness, accuracy, and completeness. When errors are discovered, corrections and revisions are incorporated into the digital editions available from the IMF website and on the IMF eLibrary (see below). All substantive changes are listed in the online tables of contents.
Print and Digital Editions
Print copies of this World Economic Outlook can be ordered at https://www.bookstore.imf.org/books/title/world-economic-outlook-october-2018.
The WEO is featured on the IMF website at http://www.imf.org/publications/WEO. This site includes a PDF of the report and data sets for each of the charts therein.
The IMF eLibrary hosts multiple digital editions of the World Economic Outlook, including ePub, enhanced PDF, Mobi, and HTML: http://elibrary.imf.org/OCT18WEO.
Copyright and Reuse
Information on the terms and conditions for reusing the contents of this publication are at http://www.imf.org/external/terms.htm.
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 these 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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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; and Oya Celasun, Division Chief, Research Department.
The primary contributors to this report were Rudolfs Bems, Christian Bogmans, Francesca Caselli, Wenjie Chen, Francesco Grigoli, Bertrand Gruss, Zsóka Kóczán, Toh Kuan, Weicheng Lian, Akito Matsumoto, Mico Mrkaic, Malhar Nabar, Natalija Novta, Andrea Pescatori, and Petia Topalova.
Other contributors include Michal Andrle, Gavin Asdorian, Luisa Calixto, Yan Carrière-Swallow, Federico Diez, Angela Espiritu, Rachel Yuting Fan, Gregg Forte, Meron Haile, Mandy Hemmati, Benjamin Hilgenstock, Ava Yeabin Hong, Benjamin Hunt, Deniz Igan, Christopher Johns, Lama Kiyasseh, Jungjin Lee, Daniel Leigh, Daniela Muhaj, Susanna Mursula, Cynthia Nyanchama Nyakeri, Emory Oakes, Rafael Portillo, Evgenia Pugacheva, Adrian Robles Villamil, Susie Xiaohui Sun, Suchanan Tambunlertchai, Nicholas Tong, Julia Xueliang Wang, Shan Wang, Jilun Xing, Juan Yépez, Yuan Zeng, Qiaoqiao Zhang, Candice Huiyuan Zhao, Caroline Chenqi Zhou, and Jillian Zirnhelt.
Joseph Procopio from the Communications Department led the editorial team for the report, with production and editorial support from 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 20, 2018. 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.
Atypical foreword to the World Economic Outlook (WEO) highlights how data since the previous projection alter our baseline growth assumptions. It pays detailed attention to the most recent developments and interprets the implications for policies going forward. This WEO foreword—my last—will instead situate the current conjuncture in a broader historical context, the better to draw out lessons for the future.
The occasion justifies my unusual approach. This WEO is appearing shortly after the 10th anniversary of the Lehman Brothers collapse and, moreover, at a time of mounting uncertainties—not only over economic policies but also over the global framework of international relations within which policies are made.
The decade since the global financial crisis of 2008–09 has indeed brought dramatic economic and political developments, a trend that seems unlikely to recede any time soon. How can policymakers guide their economies through the troubled waters ahead? How can they strengthen and modernize the post–World War II multilateral system, which supported an unparalleled 70 years of peace and prosperity? To answer, we must consider not only the impact of the crisis itself but also the years just before, when some key patterns that have defined the post-crisis period first emerged.
The Precrisis Decade
It was in the period before the crisis when some of our current economic vulnerabilities first came to be. The chart tracks real global growth since 1980, along with the contributions of advanced economies and of emerging market and developing economies. After the Asian crisis (1997–98) and the collapse of the dotcom bubble (2000–01), the growth of emerging market and developing economies accelerated significantly while advanced economies, even though recovering, grew at rates below prior levels.
Two things stand out. First, advanced economies’ growth has generally trended downward since the mid-2000s. This long-term decline stems from aging workforces and slower productivity growth, which coincide with falling economic dynamism and rising market concentration. Notably, the longer-term future growth rates that the WEO projects for advanced economies are below current levels.
Figure 1.Real GDP Growth, by Country Group
Source: IMF, World Economic Outlook, October 2018.
Note: Grey area denotes projections.
Second, the start of the new millennium brought a growth surge in emerging market and developing economies that decisively placed them ahead of advanced economies’ growth. Rapid Chinese growth was responsible for some, but clearly not all, of this decoupling, because the pattern remains even after subtracting China’s algebraic growth contribution (as well as India’s, for that matter). The growth acceleration is a robust consequence of stronger policy frameworks in many emerging market and developing economies, including their embrace of more open trade. Because it also derives from the greater weight of these fast-growing economies in the world economy, their distinct growth advantage over advanced economies looks likely to continue unless advanced economies can meet their structural economic challenges.
The Asian crisis and the dot-com collapse—and intervening events like the forced bailout of Long-Term Capital Management (LTCM) in 1998, which avoided a possible systemic financial meltdown—illustrate pointedly how balance-sheet weaknesses and asset-price bubbles can bring down financial institutions and entire economies. In his 1998 Henry L. Stimson Lecture at Yale University, Alexandre Lamfalussy wrote presciently of the US market turmoil that followed that year’s Russian default: “If such developments can take place in the model market of the world, what is the practical value of recommending that emerging markets copy this model?”
Many emerging market and developing economies did draw and act on lessons from these crises, for example, by embracing inflation targeting, adopting more flexible exchange rate regimes, and implementing macroprudential policies—lessons well worth remembering today. Advanced economies, however, were more complacent, often viewing financial crises as problems to which only emerging market and developing economies were susceptible—notwithstanding the contradictory evidence from several near-misses, including LTCM. The result was the global financial crisis, which ended the mid-decade global boom. As a group, emerging market and developing economies generally weathered that crisis well, given its severity, and they have continued to grow more quickly than during the 1980s and 1990s.
The Postcrisis Decade
World growth took a rarely precedented tumble in 2009, but all regions of the world experienced a bounce back in 2010–11, supported by vigorous countercyclical responses throughout the Group of Twenty countries. Many advanced economies reduced policy interest rates to the zero lower bound and began to experiment with unconventional monetary policies.
After 2010–11, however, a succession of shocks—the euro area crisis, reversals of fiscal stimulus in major economies, wobbles in Chinese growth, and falling commodity prices—all prevented continued strong and synchronized growth. Relatively favorable economic fundamentals in the United States made it likely that the Federal Reserve would be the first among major central banks to normalize monetary policy, and the dollar strengthened starting in the summer of 2014. Global markets were spooked a year later when China, feeling the resulting pressure on its heavily managed exchange rate, began to allow its currency to fall against the dollar. The tensions did not recede quickly. Within a month of the Federal Reserve’s first interest-rate hike in nearly 10 years at the end of 2015, global financial markets swooned and commodity prices fell further. The 2016 global growth rate of 3.3 percent was the lowest since 2009.
Economic optimism began to return midway through 2016, despite any effects from the surprise outcome of the UK Brexit referendum in June. Late that year, manufacturing activity surged and growth picked up broadly around the world, leading to the most evenly balanced global upswing since 2010. Global trade, which had grown unusually slowly during 2012–16, also rebounded as investment began to recover. As of the April 2018 WEO, we projected global growth to rise to 3.9 percent in both 2018 and 2019, and for the first time in a while, assessed short-term risks to our growth forecast to be evenly balanced between potential positive and negative surprises.
Now, in October 2018, the outlook is one of less balanced and more tentative expansion than we hoped for last April. Growth in the United States remains exceptionally robust for now, powered by a procyclical fiscal expansion that may, however, weigh on US and global growth later. But we have downgraded near-term growth prospects for the euro area, Korea, and the United Kingdom. Our reassessment is more dramatic for emerging markets as a group, where we see growth easing in Latin America (notably Argentina, Brazil, Mexico), the Middle East (notably Iran), and emerging Europe (notably Turkey). Our 2019 growth projection for China is also lower than in April, given the latest round of US tariffs on Chinese imports, as are our projections for India. Owing to these changes, our international growth projections for both this year and next are downgraded to 3.7 percent, 0.2 percentage point below our last assessments and the same rate achieved in 2017. At the global level, recent data show weakening in trade, manufacturing, and investment. Overall, world economic growth is still solid compared with earlier this decade, but it appears to have plateaued.
These more moderate growth numbers and the weaker incoming data that underpin them owe, in part, to a sharp rise in policy uncertainty over the past year—a development yet to be reflected in advanced economy financial markets but evident in news-based uncertainty measures. Uncertainty over trade policy is prominent in the wake of US actions (or threatened actions) on several fronts, the responses by its trading partners, and a general weakening of multilateral consultation on trade issues. The possible failure of Brexit negotiations poses another risk. Amid the trade uncertainties, financial conditions are tightening for emerging market and developing economies as they adjust to progressive interest rate hikes by the Federal Reserve and an impending end of asset purchases by the European Central Bank. Compared with 10 years ago, many of these economies have higher levels of corporate and sovereign debt, leaving them more vulnerable. With geopolitical tensions also relevant in several regions, we judge that, even for the near future, the possibility of unpleasant surprises outweighs the likelihood of unforeseen good news.
Perhaps the biggest secular challenge for many advanced economies centers on the slow growth of workers’ incomes, perceptions of lower social mobility, and, in some countries, inadequate policy responses to structural economic change. Not only has the trend in long-term advanced economy growth been downward; in many countries, the more meager gains have gone primarily to the relatively well-off. In the United States, for example, median real household income was about the same in 2016 as in 1999. This pattern clearly predates the global financial crisis and the euro area crisis. But the crises themselves, along with aspects of the policy response, further soured the public mood. Such discontent in turn helped give rise to current tensions over trade policy as well as a broader skepticism toward centrist policies and leaders, who have traditionally supported global cooperation as the proper response to shared challenges.
Policymakers must take a long-term perspective to address this malaise. Inclusive fiscal policies, educational investments, and ensuring access to adequate health care can reduce inequality and are key priorities. So too are more secure social safety nets that can help workers adjust to a range of structural shocks, whether from globalization, technological change, or (in some countries) climate change. Policies to promote labor force participation and the economic inclusion of women and youth are especially important. Structural reform priorities differ by country, but in general, addressing them will raise output and growth over the medium term. That said, due consideration must be given to those who are already disadvantaged but might lose out further. Support for research and development and basic and applied scientific research offers the promise of raising growth rates, as many studies have shown. These policy priorities are also relevant to emerging market and developing economies.
Most countries also need to build fiscal buffers to make room for policy responses to the next recession when it comes and to reduce the long-term tax costs of servicing high public debts. Several emerging market and developing economies must undertake fiscal reforms to ensure the sustainability of public finances and improve market sentiment. Global and national actions have buttressed financial stability since the crisis, but the work remains incomplete in several respects, including, for example, safeguarding the nonbank financial sector and resolution in insolvency, especially for systemically important international banks, where a cooperative global framework is urgently needed. Some financial oversight measures that grew out of the crisis could be simplified, but a wholesale rollback would risk future instability. Even piecemeal deregulation must be cautious and carefully considered, because a sequence of smaller actions could eventually weaken the system enough to leave it fragile. Indeed, precisely because monetary policy will need to remain accommodative where inflation is below target levels and will need to proceed cautiously elsewhere, effective macro- and microprudential levers must remain available.
The growing weight of emerging market and developing economies in the global economy means that advanced economies internalize fewer of the global gains from their own support of multilateral cooperation. They perceive the leakage of benefits to other countries to be relatively larger now than in the past, compared with their own benefits. This change may tempt some to retreat into an imagined self-sufficiency. But economic interdependence is greater than ever—through trade, finance, knowledge spillovers, migration, and environmental impacts, to name a few channels—and that makes cooperation in areas of common concern more important than ever too, including for advanced economies.
Multilateralism must evolve so that every country views it to be in its self-interest, even in a multipolar world. But that will require domestic political support for an internationally collaborative approach. Inclusive policies that ensure a broad sharing of the gains from economic growth are not only desirable in their own right; they can also help convince citizens that international cooperation works for them. I am proud that during my tenure, the IMF has increasingly championed such policies while supporting multilateral solutions to global challenges. Without more inclusive policies, multilateralism cannot survive. And without multilateralism, the world will be a poorer and more dangerous place.
The steady expansion under way since mid-2016 continues, with global growth for 2018–19 projected to remain at its 2017 level. At the same time, however, the expansion has become less balanced and may have peaked in some major economies. Downside risks to global growth have risen in the past six months and the potential for upside surprises has receded.
Global growth is projected at 3.7 percent for 2018–19—0.2 percentage point lower for both years than forecast in April. In the United States, momentum is still strong as fiscal stimulus continues to increase, but the forecast for 2019 has been revised down due to recently announced trade measures, including the tariffs imposed on $200 billion of US imports from China. Growth projections have been marked down for the euro area and the United Kingdom, following surprises that suppressed activity in early 2018. Among emerging market and developing economies, the growth prospects of many energy exporters have been lifted by higher oil prices, but growth was revised down for Argentina, Brazil, Iran, and Turkey, among others, reflecting country-specific factors, tighter financial conditions, geopolitical tensions, and higher oil import bills. China and a number of Asian economies are also projected to experience somewhat weaker growth in 2019 in the aftermath of the recently announced trade measures. Beyond the next couple of years, as output gaps close and monetary policy settings continue to normalize, growth in most advanced economies is expected to decline to potential rates—well below the averages reached before the global financial crisis of a decade ago. Slower expansion in working-age populations and projected lackluster productivity gains are the prime drivers of lower medium-term growth rates. US growth will decline as fiscal stimulus begins to unwind in 2020, at a time when the monetary tightening cycle is expected to be at its peak. Growth in China will remain strong but is projected to decline gradually, and prospects remain subpar in some emerging market and developing economies, especially for per capita growth, including in commodity exporters that continue to face substantial fiscal consolidation needs or are mired in war and conflict.
Risks to global growth skew to the downside in a context of elevated policy uncertainty. Several of the downside risks highlighted in the April 2018 World Economic Outlook (WEO)—such as rising trade barriers and a reversal of capital flows to emerging market economies with weaker fundamentals and higher political risk—have become more pronounced or have partially materialized. While financial market conditions remain accommodative in advanced economies, they could tighten rapidly if, for example, trade tensions and policy uncertainty were to intensify. Monetary policy is another potential trigger. The US economy is above full employment, yet the path of interest rate increases that markets anticipate is less steep than that projected by the Federal Reserve. Unexpectedly high inflation readings in the United States could therefore lead investors to abruptly reassess risks. Tighter financial conditions in advanced economies could cause disruptive portfolio adjustments, sharp exchange rate movements, and further reductions in capital inflows to emerging markets, particularly those with greater vulnerabilities.
The recovery has helped lift employment and income, strengthened balance sheets, and provided an opportunity to rebuild buffers. Yet, with risks shifting to the downside, there is greater urgency for policies to enhance prospects for strong and inclusive growth. Avoiding protectionist reactions to structural change and finding cooperative solutions that promote continued growth in goods and services trade remain essential to preserve and extend the global expansion. At a time of above-potential growth in many economies, policymakers should aim to enact reforms that raise medium-term incomes to the benefit of all. With shrinking excess capacity and mounting downside risks, many countries need to rebuild fiscal buffers and strengthen their resilience to an environment in which financial conditions could tighten suddenly and sharply.
In advanced economies, economic activity lost some momentum in the first half of 2018 after peaking in the second half of 2017. Outcomes fell short of projections in the euro area and the United Kingdom; growth in world trade and industrial production declined; and some high-frequency indicators moderated. Core inflation remains very different across advanced economies—well below objectives in the euro area and Japan, but close to target in the United Kingdom and the United States. Across emerging market and developing economies, activity continued to improve gradually in energy exporters but softened in some importers. Activity slowed more markedly in Argentina, Brazil, and Turkey, where country-specific factors and a souring of investor sentiment were also at play. Inflation has generally increased in emerging market and developing economies, in part reflecting the pass-through of currency depreciations. While financial conditions have tightened in many emerging market and developing economies, they remain supportive in advanced economies, despite continued federal funds rate increases in the United States.
Global growth is forecast at 3.7 percent for 2018–19, 0.2 percentage point below the April 2018 WEO projection, and is set to soften over the medium term. Global financial conditions are expected to tighten as monetary policy normalizes; the trade measures implemented since April will weigh on activity in 2019 and beyond; US fiscal policy will subtract momentum starting in 2020; and China will slow, reflecting weaker credit growth and rising trade barriers. In advanced economies, marked slowdowns in working-age population growth and lackluster productivity advances will hold back gains in medium-term potential output. Across emerging market and developing economies, medium-term prospects are mixed. Projections remain favorable for emerging Asia and emerging Europe, excluding Turkey, but are tepid for Latin America, the Middle East, and sub-Saharan Africa, where—despite the ongoing recovery—the medium-term outlook for commodity exporters remains generally subdued, with a need for further economic diversification and fiscal adjustment. Prospects for 2018–19 were marked down sharply for Iran, reflecting the impact of the reinstatement of US sanctions. For Turkey, market turmoil, sharp currency depreciation, and elevated uncertainty will weigh on investment and consumer demand, likewise justifying a sharp negative revision in growth prospects. Growth for China and a number of Asian economies have also been revised down following the recently announced trade measures. Some 45 emerging market and developing economies—accounting for 10 percent of world GDP in purchasing-power-parity terms—are projected to grow by less than advanced economies in per capita terms over 2018–23, and hence to fall further behind in living standards.
The balance of risks to the global growth forecast is tilted to the downside, both in the short term and beyond. The potential for upside surprises has ebbed, given diminished growth momentum and tighter financial conditions in emerging market and developing economies. At the same time, several of the downside risks highlighted in the April 2018 WEO—such as rising trade barriers and a reversal of capital flows to emerging market economies with weaker external positions, such as Argentina and Turkey—have become more pronounced or have partially materialized.
Escalating trade tensions and the potential shift away from a multilateral, rules-based trading system are key threats to the global outlook. Since the April 2018 WEO, protectionist rhetoric has increasingly turned into action, with the United States imposing tariffs on a variety of imports, including on $200 billion of imports from China, and trading partners undertaking or promising retaliatory and other protective measures. An intensification of trade tensions, and the associated rise in policy uncertainty, could dent business and financial market sentiment, trigger financial market volatility, and slow investment and trade. Higher trade barriers would disrupt global supply chains and slow the spread of new technologies, ultimately lowering global productivity and welfare. More import restrictions would also make tradable consumer goods less affordable, harming low-income households disproportionately.
Still-easy global financial conditions could tighten sharply, triggered by more aggressive monetary policy tightening in advanced economies or the materialization of other risks that shift market sentiment. Such developments would expose vulnerabilities that have accumulated over the years, dent confidence, and undermine investment (a key driver of the baseline growth forecast). In the medium term, risks stem from a potential continued buildup of financial vulnerabilities, the implementation of unsustainable macroeconomic policies amid a subdued growth outlook, rising inequality, and declining trust in mainstream economic policies. A range of other noneconomic risks are also relevant. If any of these risks materializes, the likelihood of other adverse developments will rise.
The environment of continued expansion offers a narrowing window of opportunity to advance policies and reforms—both multilaterally and at the country level—that extend the momentum and raise medium-term growth for the benefit of all, while building buffers for the next downturn and strengthening resilience to an environment where financial conditions could tighten suddenly and sharply.
Foster cooperation. Countries need to work together to tackle challenges that extend beyond their own borders. To preserve and broaden the gains from decades of rules-based global trade integration, countries should cooperate to reduce trade costs further and resolve disagreements without raising distortionary barriers. Cooperative efforts are also essential for completing the financial regulatory reform agenda, strengthening international taxation, enhancing cybersecurity, tackling corruption, and mitigating and coping with climate change.
Bring inflation to target, build buffers, curb excess imbalances. Monetary accommodation needs to continue where inflation is weak, but cautious, well-communicated, data-dependent normalization should proceed where inflation is close to target. Fiscal policy should aim to rebuild buffers for the next downturn, and the composition of public spending and revenues should be designed to bolster potential output and inclusiveness. In countries at or close to full employment, with an excess current account deficit and an unsustainable fiscal position (notably the United States), public debt needs to be stabilized and eventually reduced, and procyclical stimulus, which is contributing to rising global imbalances and heightened risks to the US and global economies, should be withdrawn. Countries with both excess current account surpluses and fiscal space (for example, Germany) should increase public investment to boost potential growth and reduce external imbalances.
Strengthen the potential for higher and more inclusive growth. All countries should grasp the opportunity to adopt structural reforms and policies that raise productivity and ensure broad-based gains—for instance, by encouraging technological innovation and diffusion, increasing labor force participation (especially by women and youth), supporting those displaced by structural change, and investing in education and training to enhance job opportunities.
Build resilience. Macro- and microprudential policies face the challenges of building financial buffers, curtailing rising leverage, limiting excessive risk taking, and containing financial stability risks (including threats to cybersecurity). In the euro area, balance sheet repair needs to continue. Emerging market economies should aim to keep contingent liabilities and balance sheet mismatches in check. Building on recent efforts, China should continue to rein in credit growth and address financial risks, even if growth temporarily slows. Among the main findings of Chapter 2 is that countries with stronger fiscal positions before the global financial crisis, and those with more flexible exchange rate regimes, experienced smaller output losses. Underscoring the importance of macroprudential policies and effective supervision, countries with greater financial vulnerabilities before the global financial crisis suffered larger output losses. The analysis in Chapter 3 highlights important ways in which emerging market and developing economies can reap the benefits from stronger institutions. In the current juncture where global financial conditions are normalizing, more credible monetary policy frameworks that effectively anchor inflation expectations can make the economy more resilient to adverse external shocks by improving the tradeoff between inflation and output.
Improve convergence prospects for low-income developing countries. Continued progress toward the 2030 United Nations Sustainable Development Goals is imperative to foster greater economic security and better living standards for a rising share of the world’s population. Given their generally high levels of public indebtedness, low-income developing countries need to make decisive progress to strengthen their fiscal positions while prioritizing well-targeted measures to reduce poverty. They must also boost the resilience of their financial systems. Investing in human capital, improving access to credit, and reducing infrastructure gaps can promote economic diversification and improve the capacity to cope with climate shocks.