Chapter

World Economic Outlook1

Author(s):
International Monetary Fund. Middle East and Central Asia Dept.
Published Date:
April 2011
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The global economic recovery is gaining strength, but unemployment remains high in advanced economies, and new macroeconomic risks are building in emerging market economies. World growth is forecast to be about 4½ percent in 2011, down modestly from 5 percent in 2010 (see table). Real GDP in advanced economies and emerging and developing economies is expected to expand by about 2½ percent and 6½ percent, respectively. Downside risks have diminished but continue to outweigh upside risks.

In advanced economies, the handoff from public to private demand is advancing, reducing concerns that diminishing fiscal policy support might cause a “double-dip” recession. Financial conditions are improving, but weak sovereign balance sheets and still-moribund real estate markets continue to present major concerns, especially in certain euro area economies. Financial risks are also to the downside as a result of the high funding requirements of banks and sovereigns. New downside risks are building on account of rising commodity prices, notably for oil, and, relatedly, geopolitical uncertainty, as well as overheating and booming asset markets in emerging market economies. However, there is also the potential for upside surprises to growth in the short term, owing to strong corporate balance sheets in advanced economies and buoyant demand in emerging and developing economies.

Overview of the World Economic Outlook Projections(Percent change)
Year-over-Year
Projections
200920102011
World output-0.55.04.4
Advanced economies-3.43.02.4
Of which:United States-2.62.82.8
European Union-4.11.81.8
Emerging and developing economies2.77.36.5
Of which:MENAP2.13.93.9
CCA3.76.65.7
Commonwealth of Independent States-6.44.65.0
Of which: Russia-7.84.04.8
World trade volume (goods and services)-10.912.47.4
Commodity prices
Oil1-36.327.935.6
Nonfuel2-15.826.325.1
Sources: IMF, World Economic Outlook and Regional Economic Outlook (April 2011).

Simple average of prices of U.K. Brent, Dubai, and West Texas Intermediate crude oil. The average price of oil in U.S. dollars a barrel was $79.0 in 2010; the assumed price based on future markets is $107.2 in 2011 and $108.0 in 2012.

Average (measured in U.S. dollars) based on world commodity export weights.

Sources: IMF, World Economic Outlook and Regional Economic Outlook (April 2011).

Simple average of prices of U.K. Brent, Dubai, and West Texas Intermediate crude oil. The average price of oil in U.S. dollars a barrel was $79.0 in 2010; the assumed price based on future markets is $107.2 in 2011 and $108.0 in 2012.

Average (measured in U.S. dollars) based on world commodity export weights.

In many emerging market economies, demand is robust, and overheating is a growing policy concern. Developing economies, particularly in sub-Saharan Africa, have also resumed fast and sustainable growth. However, rising food and commodity prices pose a threat to the real incomes of poor households, adding to social and economic tensions, notably in the Middle East and North Africa. Oil price increases since January 2011 and information on supply, including on spare capacity, suggest that the latest supply disruptions so far would have only mild effects on economic activity.

In advanced economies, strengthening the recovery will require keeping monetary policy accommodative as long as wage pressures are subdued, inflation expectations are well anchored, and bank credit is sluggish. At the same time, fiscal positions need to be placed on sustainable medium-term paths by implementing fiscal consolidation plans and entitlement reforms supported by stronger fiscal rules and institutions. The need is particularly urgent in the United States to stem the risk of globally destabilizing changes in bond markets. More generally, greater trust needs to be reestablished in euro area banks through ambitious stress tests and restructuring and recapitalization programs. In Japan, where an earthquake has exacted a terrible human toll, the immediate fiscal priority is to support reconstruction. The challenge for many emerging and some developing economies is to ensure that present boom-like conditions do not develop into overheating over the coming year. Many of these economies will also need to provide well-targeted support for poor households that struggle with high food prices.

Greater progress in advancing global demand rebalancing is essential to put the recovery on a stronger footing over the medium term. This will require action by many countries, notably fiscal adjustment in key external deficit economies and greater exchange rate flexibility and structural reforms that eliminate distortions that boost savings in key surplus economies.

See IMF, World Economic Outlook and Global Financial Stability Report (both April 2011) for more information.

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