International Monetary Fund

Search
Please send us your feedback

World Economic and Financial Surveys

World Economic Outlook (WEO)

Recovery Strengthens, Remains Uneven

April 2014

Global activity has broadly strengthened and is expected to improve further in 2014–15, according to the April 2014 WEO, with much of the impetus for growth coming from advanced economies. Although downside risks have diminished overall, lower-than-expected inflation poses risks for advanced economies, there is increased financial volatility in emerging market economies, and increases in the cost of capital will likely dampen investment and weigh on growth. Advanced economy policymakers need to avoid a premature withdrawal of monetary accommodation. Emerging market economy policymakers must adopt measures to changing fundamentals, facilitate external adjustment, further monetary policy tightening, and carry out structural reforms.
The report includes a chapter that analyzes the causes of worldwide decreases in real interest rates since the 1980s and concludes that global rates can be expected to rise in the medium term, but only moderately. Another chapter examines factors behind the fluctuations in emerging market economies’ growth and concludes that strong growth in China played a key role in buffering the effects of the global financial crisis in these economies.



Contents

Chapter 1: Recent Developments and Prospects

The Demand and Activity Perspective
The External Sector Perspective
Downside Risks
Policies
Special Feature: Commodity Prices and Forecasts
References
Boxes
1.1 Credit Supply and Economic Growth
1.2 Is China’s Spending Pattern Shifting (away from Commodities)?
1.3 Anchoring Inflation Expectations When Inflation Is Undershooting
1.4 Exchange Rate Regimes and Crisis Susceptibility in Emerging Markets
Tables
1.1 Overview of the World Economic Outlook Projections
1.SF.1 Root-Mean-Squared Errors across Forecast Horizons h (Relative to the Random Walk Model)
1.3.1 Consensus Consumer Price Index Inflation Expectations
Figures
Chart Data 1.1 Global Activity Indicators
Chart Data 1.2 GDP Growth Forecasts
Chart Data 1.3 Monetary Conditions in Advanced Economies
Chart Data 1.4 Fiscal Policies
Chart Data 1.5 Global Inflation
Chart Data 1.6 Capacity, Unemployment, and Output Trend
Chart 1.7 Overheating Indicators for the Group of Twenty Economies
Chart Data 1.8 Financial Market Conditions in Advanced Economies
Chart Data 1.9 Financial Conditions and Capital Flows in Emerging Market Economies
Chart Data 1.10 Monetary Policies and Credit in Emerging Market Economies
Chart Data 1.11 Exchange Rates and Reserves
Chart Data 1.12 External Sector
Chart Data 1.13 Risks to the Global Outlook
Chart Data 1.14 Recession and Deflation Risks
Chart Data 1.15 Slower Growth in Emerging Market Economies and a Faster Recovery in the United States
Chart Data 1.SF.1 Commodity Market Developments
Chart Data 1.SF.2 Brent Forecast Errors and Futures
Chart Data 1.SF.3 Vector Autoregression and Combination Forecasts
Chart Data 1.SF.4 Rolling Root-Mean-Squared Errors: Recursive Estimation
Chart Data 1.1.1 Cumulative Responses of GDP to a 10 Percentage Point Tightening of Lending Standards
Chart Data 1.1.2 Credit Supply Shocks
Chart Data 1.1.3 Contribution of Credit Supply Shocks to GDP
Chart Data 1.2.1 China: Real GDP Growth and Commodity Prices
Chart Data 1.2.2 Growth Rate of Global Commodity Consumption
Chart Data 1.2.3 Actual and Predicted Per Capita Commodity Consumption
Chart Data 1.2.4 Spending Patterns
Chart Data 1.3.1 Inflation Expectations in Euro Area, United States, Japan, and Norway
Chart Data 1.4.1 Distribution of Exchange Rate Regimes in Emerging Markets, 1980–2011
Chart Data 1.4.2 Predicted Crisis Probability in Emerging Markets, 1980–2011
Chart Data 1.4.3 Probability of Banking or Currency Crisis

Chapter 2: Country and Regional Perspectives

The United States and Canada: Firming Momentum
Europe
Asia: Steady Recovery
Latin America and the Caribbean: Subdued Growth
Commonwealth of Independent States: Subdued Prospects
The Middle East and North Africa: Turning the Corner?
Sub-Saharan Africa: Accelerating Growth
Spillover Feature: Should Advanced Economies Worry about Growth Shocks in Emerging Market Economies?
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
2.SF.1 Exports to Emerging Market Economies, 1995 versus 28
Figures
Chart Data 2.1 2014 GDP Growth Forecasts and the Effects of a Plausible Downside Scenario
Chart Data 2.2 United States and Canada: Recovery Firming Up
Chart Data 2.3 Advanced Europe: From Recession to Recovery
Chart Data 2.4 Emerging and Developing Europe: Recovery Strengthening, but with Vulnerabilities
Chart Data 2.5 Asia: Steady Recovery
Chart Data 2.6 Latin America and the Caribbean: Subdued Growth
Chart Data 2.7 Commonwealth of Independent States: Subdued Prospects
Chart Data 2.8 Middle East, North Africa, Afghanistan, and Pakistan: Turning a Corner?
Chart Data 2.9 Sub-Saharan Africa: Accelerating Growth
Chart Data 2.SF.1 Real Trade Linkages between Advanced Economies and Emerging Market Economies
Chart Data 2.SF.2 Financial Exposure of Advanced Economies to Emerging Market Economies
Chart Data 2.SF.3 Event Studies around Downturn Episodes in Emerging Market Economies
Chart Data 2.SF.4 Peak Effect of a Growth Shock to Emerging Market Economies on Advanced Economies' Output Growth
Chart Data 2.SF.5 Model Simulations of Potential Growth Spillover Effects from Emerging Market Economies on Advanced Economies

Chapter 3: Perspectives on Global Real Interest Rates

Stylized Facts: Measuring Real Rates and the Cost of Capital
Determinants of Real Rates: A Saving-Investment Framework
Which Factors Contributed to the Decline in Real Interest Rates?
Should We Expect a Large Reversal in Real Rates?
Summary and Policy Conclusions
References
Appendices
3.1 Model-Based Inflation and Dividend Growth Expectations
3.2 Investment Profitability
3.3 Fiscal Indicator
3.3 The Effect of Financial Crises on Investment and Saving
3.5 Sensitivity of Saving and Investment to Real Rates
3.6 Saving and Growth with Consumption Habit
3.7 Sample of Countries Used in Tables and Figures
Box
3.1 Saving and Economic Growth
Figures
Chart Data 3.1 Ten-Year Interest Rate on Government Bonds and Inflation
Chart Data 3.2 Real Interest Rate Comparison
Chart Data 3.3 Real Interest Rates, Real Returns on Equity, and Cost of Capital
Chart Data 3.4 Common Factors in Real Interest Rates
Chart Data 3.5 Real Interest Rate and Shifts in Demand for and Supply of Funds
Chart Data 3.6 Investment-to-GDP Ratios
Chart Data 3.7 Investment Shifts in Advanced Economies
Chart Data 3.8 Saving Shifts in Emerging Markets
Chart Data 3.9 Effect of Fiscal Policy on Real Interest Rates
Chart Data 3.10 Effect of U.S. Monetary Policy Shocks on Real Interest Rates
Chart Data 3.11 Real Long-Term Interest Rates and Real Returns on Equity
Chart Data 3.12 Portfolio Shifts and Relative Demand for Bonds versus Equity
Chart Data 3.13 Portfolio Shifts and Relative Riskiness of Bonds versus Equity, 1980–2013
Chart Data 3.14 Effect of Financial Crises on Saving- and Investment-to-GDP Ratios
Chart Data 3.15 Implications of Lower Real Interest Rates for Debt Sustainability
Chart Data 3.16 Investment Shifts in Advanced Economies
Chart Data 3.17 Global Long-Term Real Interest Rates
Chart Data 3.18 Convergence of Real Interest Rates in the Euro Area
Chart Data 3.1.1 Saving Rate and Accelerations (Decelerations) in GDP
Chart Data 3.1.2 Total Saving: Actual versus Conditional Forecasts

Chapter 4: On the Receiving End? External Conditions and Emerging Market Growth Before, During, and After the Global Financial Crisis

Effects of External Factors on Emerging Market Growth
Global Chain or Global China? Quantifying China’s Impact
Growth Effects: The Long and the Short of It
Shifting Gears: Have Emerging Markets’ Growth Dynamics Changed since the Global Financial Crisis?
Policy Implications and Conclusions
References
Appendices
4.1 Data Definitions, Sources, and Descriptions
4.2 Estimation Approach and Robustness Checks
Box
4.1 The Impact of External Conditions on Medium-Term Growth in Emerging Market Economies
Tables
4.1 Impulse Responses to Shocks within the External Block: Baseline Model
4.2 Impulse Responses to Shocks within the External Block: Modified Baseline Model with China Real GDP Growth
4.3 Share of Output Variance Due to External Factors
4.4 Data Sources
4.5 Sample of Emerging Market Economies and International Organization for Standardization Country Codes
4.6 Correlations of Domestic Real GDP Growth with Key Variables, 1998–2013
4.1.1 Growth Regressions for Emerging Markets, 1997–2011
4.1.2 Growth Regressions for Emerging Markets: Brazil, China, India, Russia, and South Africa versus Other Emerging Market Partner Growth, 1997–2011
4.1.3 Growth Regressions for Emerging Markets
Figures
Chart Data 4.1 Growth Developments in Advanced and Emerging Market and Developing Economies
Chart Data 4.2 Average Country Rankings, 2000–12
Chart Data 4.3 Impulse Responses of Domestic Real GDP Growth to External Demand Shocks
Chart Data 4.4 Impulse Responses to External Financing Shock
Chart Data 4.5 Impulse Responses to U.S. High-Yield Spread Shock
Chart Data 4.6 Correlations between Growth Responses to External Shocks and Country-Specific Characteristics
Chart Data 4.7 Impulse Responses of Domestic Real GDP Growth to Terms-of-Trade Growth Shock
Chart Data 4.8 Historical Decompositions of Real GDP Growth into Internal and External Factors
Chart Data 4.9 Impulse Responses to Real GDP Growth Shock in China
Chart Data 4.10 Historical Decomposition of Real GDP Growth with China as an Explicit External Factor
Chart Data 4.11 Emerging Markets’ Output and Growth Performance after Global Recessions
Chart Data 4.12 Out-of-Sample Growth Forecasts Conditional on External Factors, by Country
Chart Data 4.13 Conditional Forecast and Actual Growth since the Global Financial Crisis, by Country
Chart Data 4.14 Domestic Real GDP Growth across Emerging Markets versus United States and China
Chart Data 4.15 Average Growth for Regional Groups of Emerging Market Economies
Chart Data 4.16 Impact of Prior Choice on Average Impulse Responses
Chart Data 4.17 Average Impulse Responses to Shocks from Alternative U.S. Monetary Policy Variables
Chart Data 4.18 Domestic Real GDP Growth Response to U.S. Federal Funds Rate and 10-Year U.S. Treasury Bond Rate under Alternative Specifications
Chart Data 4.19 Average Impulse Responses to Alternative Measures of U.S. Monetary Policy Shock
Chart Data 4.20 Alternative Monetary Policy Shocks
Chart Data 4.21 Impulse Response of Domestic Real GDP Growth to External Financing Shocks
Chart Data 4.22 Average Impulse Responses of Domestic Real GDP Growth to Shocks under Alternative Vector Autoregression Specifications
Chart Data 4.23 Brazil: Comparison of Responses under the Baseline Model with Responses from Model with Sample Beginning in the First Quarter of 1995
Chart Data 4.24 Comparison of Impulse Responses from Panel Vector Autoregression with Responses from the Baseline Model
Chart Data 4.1.1 Export Partner Growth Elasticity
Chart Data 4.1.2 Export Partner Growth

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, 2013
Table B. Advanced Economies by Subgroup
Table C. European Union
Table D. Emerging and Developing Economies by Region and Main Source of Export Earnings
Table E. Emerging Market and Developing Economies by Region, Net External Position, Status as Heavily Indebted Poor Countries, and Low-Income Developing Countries
Table F. Key Data Documentation
Box A1. Economic Policy Assumptions Underlying the Projections for Selected Economies
 
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 GDP per Capita
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