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World Economic Outlook April 2015
Uneven GrowthShort‐term and long‐term factors
Research Department International Monetary Fund
April 2015
Global growth to remain moderate
• Global growth in 2015 projected to increase slightly relative to previous year; improvement expected in 20162015 forecast: 3.5 percent (no change relative to January 2015 WEO)
2016 forecast: 3.8 percent (no change relative to January 2015 WEO)
• Uneven prospects across the main countries and regions Improving prospects in advanced economies Lower growth in emerging market and developing economies in 2015, mainly due to weaker prospects in some major EMs and oil exporters
Complex forces shaping the outlook1. short‐term factors
• Sharp fall in oil prices A net positive for oil importers and the global economy, but a negative
shock for oil exporters
• Further declines in long‐term interest rates, declining inflation
• Exchange rate realignment (US$ appreciation; € and ¥ depreciation) Helps recovery in the euro area and Japan Easier MP globally, boost to growth Risks: balance sheets; global rebalancing?
Complex forces shaping the outlook2. longer‐term factors
• Crisis legacies Weak banks High debt levels (public, corporate, households)
• Long‐term factors Lower potential growth in advanced and major emerging market
economies, even as economies recover (demographics, convergence) Serial slowdown in EMs since 2010, leading to a reassessment of prospects
(including in China)
0.0
0.2
0.4
0.6
0.8
1.0
2014 15 16 17 18 19 20
Impact under full pass‐through
Impact under limited pass‐through
Global GDP Simulation Results(percent change)
Sources: IMF staff projections
Lower oil prices are a net positive for the outlook
• Supply shocks and higher energy efficiency mean that price decline is a net positive for global growth.
• Boost to real incomes in oil importers depends on the magnitude and duration of the positive supply shock and on the extent of pass‐through
• But not all positive: lower than expected growth in some economies also contributed to price declines
• Uncertainty about oil price prospects and underlying drivers of the recent price declines
5‐2.3
‐1.8
‐1.3
‐0.8
‐0.3
0.2
14 15 16 17 18 19 20
Headline Inflation, full
Headline Inflation, limited
Core Inflation, full
Core Inflation, limited
Global CPI Inflation Simulation Results(percent change)
Lower oil prices have led to rotation in EMDE downside risks
• Financial market turmoil Risk of capital flow reversal in
emerging market economies
These risks have risen in oil exporters, where external and balance sheet vulnerabilities have increased, while oil importers have gained buffers
Financial stability risks from energy sector
40
50
60
70
80
90
100
110Oil Price (USD/barrel) Exchange Rate (USD/Ruble)
First round of US sanctions
Second round of US sanctions
EU sanctions
New round of US and EU sanctions
Russia imposes retaliatory food import ban
Minsk agreement
Jan14
Mar14
May14
July14
Sep14
Nov14
Jan15
Mar15
Apr15
Crimea
70
80
90
100
110
120
130
140
150
1980 84 88 92 96 2000 04 08 12 16 20
Emerging Market and DevelopingEconomiesLatin America and the Caribbean
Low Income Developing Countries
Sub‐Saharan Africa
80
100
120
140
160
180
200
220
240
260
2005 06 07 08 09 10 11 12 13 14 15
Food
Metal
Energy
EMDE Terms of Trade(Index; 2000 = 100)
Commodity Prices(Index; 2005 = 100)
No boost for commodity exporters, but no bust either. Downside risks to commodity prices from supply response to high prices.
Source: IMF staff estimates. 7
16: Q4
60
70
80
90
100
110
120
2011 12 13 14
JapanUnited StatesEuro Area
Real Effective Exchange Rates(CPI based index; 2005 = 100)
Sources: Global Insight; IMF, International Financial Statistics database
Expected growth, monetary policy divergence, and oil prices have led to exchange rate realignments
• U.S. dollar has appreciated by over 10 percent in real effective terms
• The yen and the euro have depreciated
• This should boost demand and help inflation in Japan and the euro area
• Boost to global demand: growth is redistributed to economies where monetary policy easing is restricted by the zero lower bound
• Issues: how much of a growth boost, how fast?
8
Nominal Effective Exchange Rates(Changes between August 2014 and March 2015,in percent)
‐40
‐30
‐20
‐10
0
10
20
RUS
BRA EA
MEX
CAN
JPN
AUS
DEU
MYS
FRA
BEL
SWE
NLD ITA
ESP
TUR
POL
SGP
IDN
ZAF
KOR
GBR
HKG
CHE
THA
IND
SAU
CHN
USA
Feb. 15
1
2
3
4
Jan. 14 Apr. 14 Jul. 14 Oct. 14 Jan. 15
5‐year 5‐year forward inflation swap10‐year government bond yield
Apr.15
‐0.50
0.00
0.50
1.00
1.50
2.00
2.50
2014H2 2015 2016 2017
USEuropeJapan
Policy Rate Expectations(percent; dashed lines are from theOctober 2014 WEO)
Sources: Bloomberg, L.P.
Markets still expect the Fed to start tightening in mid‐2015, but at a slower pace
• Domestic employment conditions likely to suggest tightening…. Robust growth rebound since 2014Q2 Boost from lower oil prices Unemployment rate expected to reach the
FOMC’s mid‐point NAIRU estimate in 2015
• But inflation and external conditions argue against urgency Dollar appreciation a drag on external demand Core inflation below target, further downdraft
from oil price decline Declining MT inflation expectations
9
United States Interest Rates(percent)
‐300
200
700
2010 11 12 13 14
United States BBEM Sovereign (EMBI)EM Corporate (CEMBI)
EMDE funding conditions have remained favorable. But capital flow reversal risks remain a concern, given expected change to context of current international asset
price configuration.
Interest Rate Spreads(basis points)
10
May 22, 2013
‐100
‐50
0
50
100
150
200
70
90
110
130
150
170
Jan‐13 Jul‐13 Jan‐14 Jul‐14 Jan‐15
Advanced Economies 1/
Emerging Market Economies 2/
June 2014
Equity Prices(Index, Jan. 1, 2013 = 100)
Ten‐Year Government Bond Yields(change since Jan. 1, 2013 in bps)
‐8
‐4
0
4
8
12
16
2000 2005 2010 2015 2020
SSA
Current Account Plus Reserve Change(Percent of GDP)
Key factors supporting higher growth
• In advanced economies
Monetary policy very accommodative
Financial market conditions supportive
Moderate fiscal consolidation in 2014‐15
Exchange rate realignment in some cases
• Emerging and developing economies
Higher external demand in AEs and still‐favorable financial conditions
Gradual lifting of structural impediments to growth in some economies
Recovery in economies affected by geopolitical tensions or domestic strife
‐1
0
1
2
3
4
5
6
7
8
9
2010 11 12 13 14 15 16
Advanced economies
Emerging market and developing economies
GDP Growth(annualized quarterly percent change;dashed lines are from October 2014 WEO)
World AEs. U.S. EA Japan U.K. Germany France Italy Spain
2015(Apr 2015) 3.5 2.4 3.1 1.5 1.0 2.7 1.6 1.2 0.5 2.5
2015(Jan 2015) 3.5 2.4 3.6 1.2 0.6 2.7 1.3 0.9 0.4 2.0
2016(Apr 2015) 3.8 2.4 3.1 1.6 1.2 2.3 1.7 1.5 1.1 2.0
2016(Jan 2015) 3.7 2.4 3.3 1.4 0.8 2.4 1.5 1.3 0.8 1.8
Advanced Economies Real GDP Growth Projections (percent change from a year earlier)
Source: IMF, World Economic Outlook.
The outlook is for a continued recovery, but the pace is moderate and uneven…
EMDEs China India Russia Brazil S. Africa LAC SSA Nigeria LIDCs
2015(Apr 2015) 4.3 6.8 7.5 ‐3.8 ‐1.0 2.0 0.9 3.0 4.8 5.5
2015(Jan 2015) 4.3 6.8 6.3 ‐3.0 0.3 2.1 1.3 3.2 4.8 5.9
2016(Apr 2015) 4.7 6.3 7.5 ‐1.1 1.0 2.1 2.0 3.3 5.0 6.0
2016(Jan 2015) 4.7 6.3 6.5 ‐1.0 1.5 2.5 2.3 3.5 5.2 6.1
Emerging Market and Developing Economies Real GDP Growth Projections (percent change from a year earlier)
Source: IMF, World Economic Outlook.
The outlook is for a continued recovery, but the pace is moderate and uneven…
Perspectives on growth slowdown in emerging markets
• On surface, many idiosyncratic factors: Geopolitical factors/sanctions/oil for Russia
(and CIS) Drought, Petrobras, tighter macro stance in
Brazil Oil shock in vulnerable exporters (eg
Venezuela)
• Growth declining since 2010, and forecasts over‐optimistic: Role of China’s boom and slowdown in driving
commodity price cycle, expansion in Asia Stronger commodity prices lifting potential
output, but not potential growth Easy financial conditions: a boost to output, but
not a durable lift‐off to growth? (to a lesser extent): AE growth over‐estimated
‐2
‐1
0
1
2
04 05 06 07 08 09 10 11 12 13 14 15
Emerging and developing economies
Sub‐Sahara Africa
Least Developed Countries 1/
1/ Based on definition by United Nations.
Medium‐term Growth Expectations(5‐year ahead forecast for real GDP growth; change from April 2004 WEO)
‐5
0
5
10
15
20
1979 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020
Average of GDP Growth(1979‐2009)
China Contribution to Global GDP Growth(percent)
China GDP Growth(percent)
Growth in China expected to moderate. Risks of stronger real estate slowdown?
‐0.5
0.0
0.5
1.0
1.5
2.0
‐5
0
5
10
15
20
Contribution to Global Growth
PPP Share (Right scale)
Source: IMF staff estimates15
Scenario: Only a modest recovery of potential output growth in AEs
6
Advanced Economies 1/
Source: IMF staff estimates.1/ Consists of Australia, Canada, Germany, France, Italy, Japan, Korea, Spain, U.K., and U.S.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2001‐04 2005‐07 2008‐14 2015‐20
Capital growth Potential employment growth TFP Potential output growth
(Averages in percent; contributions by components in percentages
Scenario: Decreasing potential output growth in large EMs
7
Emerging Markets excluding China 1/
Source: IMF, World Economic Outlook. 1/ Consists of Brazil, India, Mexico, Russia, and Turkey.
‐1
0
1
2
3
4
5
6
7
2001‐04 2005‐07 2008‐14 2015‐20
TFPPotential employment growthCapital growthPotential output growth
China
‐2
0
2
4
6
8
10
12
14
2001‐04 2005‐07 2008‐14 2015‐20
TFPTrend employment growthCapital growthPotential output growth
(Averages in percent; contributions by components in percentages points)
A more balanced distribution of risks to global growth
• Upside: Greater global demand boost from lower oil pricesMore conservative growth baseline for EMs
• Downside: Financial market turmoil
Risk of capital flow reversal in emerging market economies
Stagnation risks in the euro area and Japan Lower potential growth
Expectations of lower potential growth can slow investment today Geopolitical risks remain high
Policies• Advanced economies: demand and supply
Demand support to the recovery Boost to public investment Structural reform to boost potential output (country specific)
• Emerging and developing economies Address vulnerabilities Increase potential output (country specific) Oil exporters:
use fiscal space for a gradual adjustment of public spending to the lower oil prices. Allowing substantial exchange rate depreciation will be the main means available to
others to cushion the impact of the shock on their economies. • All economies
Lower oil prices are an opportunity to reform energy subsidies and taxes
Thank you
May 22, 2013May 22, 2013
Leading indicators suggest that global growth will pick up, but unevenly across countries and still at a moderate pace
2010 11 12 13 14 Feb.15
‐5
0
5
10
15
20
25
Manufacturing PMI(deviations from 50)
Industrial production
World trade volumes
World Trade, Industrial Production, and Manufacturing PMI(three‐month moving average, annualized percent change)
‐6
‐4
‐2
0
2
4
6
8
2012 13 14 Feb.15
UnitedStates
Euro area
Japan
‐3
‐2
‐1
0
1
2
3
4
5
2012 13 14 Feb.15
China
Emerging Asiaexcl. ChinaLAC
Manufacturing PMI(three‐month moving average; deviations from 50)
In both advanced and emerging market economies, financial conditions have eased since October 2014
0
40
80
120
160
200
DJ Euro Stoxx
S&P 500
MSCI Emerging Market
TOPIX
0
2
4
6
8
10
12
1 172 343 514 685 856 10271198
Japan 10 Year Government Bond Yield
United States 10 Year Government BondYieldUnited States 30 Year Fixed Mortgage
Equity Markets(national currency)
Key Interest Rates(percent)
Government Bond Yields(percent)
2010 11 130
1
2
3
4
5
6
7
8
9
10
Germany
Italy
Spain
France
12 Mar.15
2010 11 12 13 Mar.15
2010 11 12 13 Apr.15
May 22, 2013
May 22, 2013