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World Economic and Financial Surveys

World Economic Outlook (WEO)

Transitions and Tensions

October 2013

Global growth is in low gear, and the drivers of activity are changing. These dynamics raise new policy challenges. Advanced economies are growing again but must continue financial sector repair, pursue fiscal consolidation, and spur job growth. Emerging market economies face the dual challenges of slowing growth and tighter global financial conditions. This issue of the World Economic Outlook examines the potential spillovers from these transitions and the appropriate policy responses. Chapter 3 explores how output comovements are influenced by policy and financial shocks, growth surprises, and other linkages. Chapter 4 assesses why certain emerging market economies were able to avoid the classical boom-and-bust cycle in the face of volatile capital flows during the global financial crisis.



Contents

Chapter 1: Global Prospects and Policies

Growth Dynamics Further Diverge
External Sector Developments
Policy Challenges
Rebalancing Global Demand
Special Feature: Commodity Market Review
Boxes


1.SF.1. Booms and the Current Account: Cross-Country Experience


1.SF.2. Oil Price Drivers and the Narrowing WTI-Brent Spread
1.1 Taper Talks: What to Expect when the United States Is Tightening
1.2 What Explains the Slowdowns in the BRICS?
1.3 External Rebalancing in the Euro Area
1.4 Abenomics: Risks after Early Success?
Tables
1.1 Overview of the World Economic Outlook Projections
1.SF.1 First-Round Trade Balance Impact from Changes in Commodity Prices
1.SF.2 Temporary Oil Price Shock Impact on GDF and Current Accounts: Scenarios 1, 2, and 3
1.1.1 Real GDP Growth
1.2.1 The Slowdown of Real and Potential Growth in the BRICS
1.2.2 Five-Year-Ahead Forecast Growth and Average Growth from 1998 to 2013 in the BRICS
Figures
Chart Data 1.1 Global Growth
Chart Data 1.2 Global Activity Indicators
Chart Data 1.3 GDP Growth Forecasts
Chart Data 1.4 Monetary Conditions in Advanced Economies
Chart Data 1.5 Fiscal Policies
Chart Data 1.6 Global Inflation
Chart 1.7 Overheating Indicators for the G20 Economies
Chart Data 1.8 Financial Market Conditions
Chart Data  1.9 Capital Flows
Chart Data 1.10 Exchange Rates and Reserves
Chart Data 1.11 Financial Conditions in Emerging Markets since May 2013
Chart Data 1.12 Capacity and Credit in Emerging Market Economies
Chart Data 1.13 Real GDP Projections Past and Current
Chart Data 1.14 Global Trade and Imbalances
Chart Data 1.15 Risks to the Global Outlook
Chart Data 1.16 Recession and Deflation Risks
Chart Data 1.17 Plausible Downside Scenario
Chart Data 1.18 Rebalancing Scenario
Chart Data 1.SF.1 IMF Commodity Price Indices
Chart Data 1.SF.2 Commodity Prices and Emerging Markets Economic Activity
Chart Data 1.SF.3 Trade Balance Impacts of Energy and Metal Price Declines
Chart Data 1.SF.4 Illustrative Impact of Chinese Demand Slowdown on Commodity Exporters
Chart Data 1.SF.5 Balance of Risks
Chart Data 1.SF.6 U.S. Oil and Gas Production Projections
Chart Data 1.SF.7 Medium-Term Impact of U.S. Energy Boom
Chart Data 1.SF.8 Natural Gas and Oil Prices in the United States and Germany
Chart Data 1.SF.1.1 Giant Oil and Gas Discoveries and the Current Account
Chart Data 1.SF.2.1 WTI–Brent Price Differentials
Chart Data 1.SF.2.2 Brent SVAR Historical Decomposition
Chart Data 1.SF.2.3 WTI–Brent Differential: Historical Decomposition
Chart Data 1.1.1 U.S. Growth and Financial Indicators
Chart Data 1.1.2 Global Economic and Financial Conditions during U.S. Monetary Policy Tightening
Chart Data 1.1.3 Gross Capital Inflows to Emerging Markets
Chart Data 1.2.1 Real GDP Growth
Chart Data 1.2.2 Composition of 2011–13 Growth Changes
Chart Data 1.2.3 World Export Growth, the U.S. Real Interest Rate, and Commodity Prices
Chart Data 1.3.1 Developments in External Balance
Chart Data 1.3.2 Cumulative Unit Labor Cost Adjustment
Chart Data 1.3.3 Export Performance and External Adjustment
Chart Data 1.4.1 Inflation Expectations
Chart Data 1.4.2 Effect of Abenomics under Various Scenarios

Chapter 2: Country and Regional Perspectives

The United States and Canada: A Modest Recovery
Europe: Supporting the Fledgling Recovery
Asia: A Lower Growth Trajectory
Latin America and the Caribbean: Growth Is Subdued
Commonwealth of Independent States: Slower Growth amid Weak External and Internal Demand
Middle East, North Africa, Afghanistan, and Pakistan: Growth Hinges on Improvements in Oil Production and Confidence
Sub-Saharan Africa: Continued Dynamism
References
Tables
2.1 Selected Advanced Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
2.2 Selected European Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
2.3 Selected Asian Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
2.4 Selected Western Hemisphere Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
2.5 Commonwealth of Independent States: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
2.6 Selected Middle East and North African Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
2.7 Selected Sub-Saharan African Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
Figures
Chart Data 2.1 The Effects of a Plausible Downside Scenario
Chart Data 2.2 United States and Canada: 2013 GDP Growth Forecasts
Chart Data 2.3 United States and Canada: A Modest Recovery
Chart Data 2.4 Europe: 2013 GDP Growth Forecasts
Chart Data 2.5 Advanced Europe: Abating Tail Risks, but Prolonged Stagnation
Chart Data 2.6 Emerging Europe: Growth Continues despite Increased Financial Volatility
Chart Data 2.7 Asia: 2013 GDP Growth Forecasts
Chart Data 2.8 Asia: A Lower Growth Trajectory
Chart Data 2.9 Latin America and the Caribbean: 2013 GDP Growth Forecasts
Chart Data 2.10 Latin America: Growth Is Subdued
Chart Data 2.11 Commonwealth of Independent States: 2013 GDP Growth Forecasts
Chart Data 2.12 Commonwealth of Independent States: Slower Growth amid Weak External and Internal Demand
Chart Data 2.13 Middle East, North Africa, Afghanistan, and Pakistan: 2013 GDP Growth Forecasts
Chart Data 2.14 Middle East, North Africa, Afghanistan, and Pakistan: Growth Hinges on Improvements in Oil Production and Confidence
Chart Data 2.15 Sub-Saharan Africa: 2013 GDP Growth Forecasts
Chart Data 2.16 Sub-Saharan Africa: Continued Dynamism

Chapter 3: Dancing Together? Spillovers, Common Shocks, and the Role of Financial and Trade Linkages

Output Comovements: Conceptual Framework and Stylized Facts
The Role of Common Shocks and Financial and Trade Linkages
Spillovers of Country-Specific Shocks to Other Countries and the Role of Financial and Trade Linkages
Summary and Implications for the Outlook
Conclusions
Appendix
3.1 Data Definitions, Sources, and Country Groupings
3.2 Multiperiod Comovement Regressions
3.3 Growth Regressions
Boxes
3.1 Output Synchronicity in the Middle East, North Africa, Afghanistan, and Pakistan and in the Caucasus and Central Asia
3.2 Spillovers from Changes in U.S. Monetary Policy
References
Figures
Chart Data 3.1 The Evolution of Output Comovements, 2004–12
Chart Data 3.2 Output Comovements: 1978–2012
Chart Data 3.3 Output Comovements: Back to Precrisis Levels?
Chart Data 3.4 What’s Behind “Common Shocks”?
Chart Data 3.5 Growth Surprises in the United States, Euro Area, and China and their Impact on Growth in Other Countries
Chart Data 3.6 Peak Impact of Growth Disappointments on Other Regions
Chart Data 3.7 Cross-Border Impact of Financial Shocks
Chart Data 3.8 Impact of U.S. and Euro Area Financial Shocks
Chart Data 3.9 Cross-Border Impact of Policy Shocks
Chart Data 3.10 Peak Impact of Fiscal Policy Shocks on Other Regions
Chart Data 3.11 Cross-Border Impact of Monetary Policy Shocks on Industrial Production
Chart Data 3.12 Peak Impact of Monetary Policy Shocks on Other Regions
Chart Data 3.13 Impact of U.S. Credit Supply Shocks
Chart Data 3.14 Comparison of Various Output Comovement Measures
Chart Data 3.15.a Growth Surprise Shocks
Chart Data 3.15.b Financial Shocks
Chart Data 3.15.c Policy Shocks
Chart Data 3.16.a Cross-Border Impact of Growth Surprises in the United States, Euro Area, and China on Growth in Other Countries
Chart Data 3.16.b b Cross-Border Impact of Growth Surprises in the United States and Euro Area on Growth in Other Countries
Chart Data 3.16.c Cross-Border Impact of Fiscal Policy Shocks on Growth in Other Countries
Chart Data 3.16.d Cross-Border Impact of Monetary Policy Shocks on Growth in Other Countries
Chart Data 3.17 Cross-Border Output Impact of Tax- versus Spending-Based Shocks
Chart Data 3.1.1 Output Comovements between MCD Groups and External Partners
Chart Data 3.1.2 Output Comovements in Middle East and Central Asia Country Groups
Chart Data 3.2.1 Impact of Monetary Policy Shocks
Chart Data 3.1.1 Monthly Percent Increase on Short-Term Rates
Chart Data 3.2.3 Response to Federal Funds Rate Shocks
Chart Data 3.2.4 Exchange Rate Response to Federal Funds Rate Surprises
Chart Data 3.2.5 Monetary Policy Autonomy

Chapter 4: The Yin and Yang of Capital Flow Management: Balancing Capital Inflows with Capital Outflows

Financial Adjustment and Resilience
How Are the More Resilient Economies Different?
Case Studies
Overall Analysis
Conclusions
Box
4.1 Simulating Vulnerability to International Capital Market Conditions
Figures
Chart Data 4.1 Gross Capital Inflows
Chart Data 4.2 Account, GDP, Consumption, and Unemployment
Chart Data 4.3 Policies and Institutions
Chart Data 4.4 External Financial Integration
Chart Data 4.5 Economic Structure and Reserves
Chart Data 4.6 Chile
Chart Data 4.7 Malaysia
Chart Data 4.8 The Czech Republic
Chart Data 4.1.1 Responses to Changes in International Capital Market Conditions

Statistical Appendix

Text (Download PDF)
Assumptions
What's New
Data and Conventions
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, 2012
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
Table F. 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 (Tables A13–A14)
    Flow of Funds (Table A15)
    Medium-Term Baseline Scenario (Table A16)
 
List of Tables Part A (Download PDF)
A1. Summary of World Output
A2. Advanced Economies: Real GDP and Total Domestic Demand
A3. Advanced Economies: Components of Real GDP
A4. Emerging Market and Developing Economies: Real GDP
A5. Summary of Inflation
A6. Advanced Economies: Consumer Prices
A7. Emerging Market and Developing Economies: Consumer Prices
A8. Major Advanced Economies: General Government Fiscal Balances and Debt
A9. Summary of World Trade Volumes and Prices
A10. Summary of Balances on Current Account
A11. Advanced Economies: Balance on Current Account
A12. Emerging Market and Developing Economies: Balance on Current Account
A13. Emerging Market and Developing Economies: Net Financial Flows
A14. Emerging Market and Developing Economies: Private Financial Flows
A15. Summary of Sources and Uses of World Savings
A16. Summary of World Medium-Term Baseline Scenario
 
List of Tables Part B (Download PDF - available on the web only)
B1. Advanced Economies: Unemployment, Employment, and Real per Capita GDP
B2. Emerging Market and Developing Economies: Real GDP
B3. Advanced Economies: Hourly Earnings, Productivity, and Unit Labor Costs in Manufacturing
B4. Emerging Market and Developing Economies: Consumer Prices
B5. Summary of Fiscal and Financial Indicators
B6. Advanced Economies: General and Central Government Net Lending/Borrowing and Excluding Social Security Schemes
B7. Advanced Economies: General Government Structural Balances
B8. Emerging Market and Developing Economies: General Government Net Lending/Borrowing and Overall Fiscal Balance
B9. Emerging Market and Developing Economies: General Government Net Lending/Borrowing
B10. Advanced Economies: Exchange Rates
B11. Emerging Market and Developing Economies: Broad Money Aggregates
B12. Advanced Economies: Export Volumes, Import Volumes, and Terms of Trade in Goods and Services
B13. Emerging Market and Developing Economies by Region: Total Trade in Goods
B14. Emerging Market and Developing Economies by Source of Export Earnings: Total Trade in Goods
B15. Advanced Economies: Current Account Transactions
B16. Emerging Market and Developing Economies: Balances on Current Account
B17. Emerging Market and Developing Economies by Region: Current Account Transactions
B18. Emerging Market and Developing Economies by Analytical Criteria: Current Account Transactions
B19. Summary of Balance of Payments, Financial Flows, and External Financing
B20. Emerging Market and Developing Economies by Region: Balance of Payments and External Financing
B21. Emerging Market and Developing Economies by Analytical Criteria: Balance of Payments and External Financing
B22. Summary of External Debt and Debt Service
B23. Emerging Market and Developing Economies by Region: External Debt by Maturity and Type of Creditor
B24. Emerging Market and Developing Economies by Analytical Criteria: External Debt, by Maturity and Type of Creditor
B25. Emerging Market and Developing Economies: Ratio of External Debt to GDP
B26. Emerging Market and Developing Economies: Debt-Service Ratios
B27. Emerging Market and Developing Economies, Medium-Term Baseline Scenario: Selected Economic Indicators
 
World Economic Outlook, Selected Topics