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WEO
World Economic Outlook (WEO)

Legacies, Clouds, Uncertainties

October 2014

 

 

Despite setbacks, an uneven global recovery continues. Largely due to weaker-than-expected global activity in the first half of 2014, the growth forecast for the world economy has been revised downward to 3.3 percent for this year, 0.4 percentage point lower than in the April 2014 World Economic Outlook (WEO). The global growth projection for 2015 was lowered to 3.8 percent.

Downside risks have increased since the spring. Shortterm risks include a worsening of geopolitical tensions and a reversal of recent risk spread and volatility compression in financial markets. Medium-term risks include stagnation and low potential growth in advanced economies and a decline in potential growth in emerging markets.

Given these increased risks, raising actual and potential growth must remain a priority. In advanced economies, this will require continued support from monetary policy and fiscal adjustment attuned in pace and composition to supporting both the recovery and longterm growth. In a number of economies, an increase in public infrastructure investment can also provide support to demand in the short term and help boost potential output in the medium term. In emerging markets, the scope for macroeconomic policies to support growth if needed varies across countries and regions, but space is limited in countries with external vulnerabilities. And in advanced economies as well as emerging market and developing economies, there is a general, urgent need for structural reforms to strengthen growth potential or make growth more sustainable.

World Economic Outlook, October 2014

Contents

Front Matter

Chapter 1: Recent Developments, Prospects, and Policy Priorities
Despite setbacks, an uneven global recovery continues. In advanced economies, the legacies of the precrisis boom and the subsequent crisis, including high private and public debt, still cast a shadow on the recovery. Emerging markets are adjusting to rates of economic growth lower than those reached in the precrisis boom and the postcrisis recovery. Overall, the pace of recovery is becoming more country specific. Read more...

  • Recent Developments and Prospects
  • Risks
  • Policies
  • Special Feature: Commodity Market Developments and Forecasts, with a Focus on Natural Gas in the World Economy
  • References
Boxes
1.1 Housing Markets across the Globe: An Update
1.2 The Origins of IMF Growth Forecast Revisions since 2011
1.SF.1 The Trade Implications of the U.S. Shale Gas Boom
Tables
1.1 Overview of the World Economic Outlook Projections
1.SF.1 World Fossil Fuel Reserves, Production, and Consumption
1.SF.2 Natural Gas Reserves, Production, and Consumption, by Country
1.SF.1.1. Regression Results
1.1.1 IMF Assessments of Housing Market Developments in Rebound Economies
1.2.1 Contribution to Global Growth Forecast Error
Figures
Chart Data 1.1 Global Activity Indicators
Chart Data 1.2 Global Inflation
Chart Data 1.3 Monetary Conditions in Advanced Economies
Chart Data 1.4 Financial Market Conditions in Advanced Economies
Chart Data 1.5 Financial Market Conditions and Capital Flows in Emerging Market Economies
Chart Data 1.6 Fiscal Policies
Chart Data 1.7 Monetary Policies and Credit in Emerging Market Economies
Chart Data 1.8 GDP Growth Forecasts
Chart Data 1.9 External Sector
Chart Data 1.10 Exchange Rates and Reserves
Chart Data 1.11 Risks to the Global Outlook
Chart Data 1.12 Recession and Deflation Risks
Chart Data 1.13 Iraq Oil Shock
Chart Data 1.14 Secular Stagnation
Chart Data 1.15 Capacity, Unemployment, and Output Trends
Chart Data 1.SF.1 Commodity Market Developments
Chart Data 1.SF.2 Balance of Risks
Chart Data 1.SF.3 Natural Gas Prices
Chart 1.SF.4 Liquefied Natural Gas Imports and Exports, 2013
Chart Data 1.SF.5 United States: Liquefied Natural Gas Imports
Chart Data 1.SF.6 Impulse Response of Relative Industrial Production to a Unit Relative Natural Gas Price Shock
Chart Data 1.SF.7 Japan: Liquefied Natural Gas Imports
Chart Data 1.SF.8 Japan: Liquefied Natural Gas Imports by Region
Chart Data 1.SF.1.1. Manufacturing Sector Exports
Chart Data 1.1.1 IMF Global House Price Index
Chart Data 1.1.2 Two-Speed Recovery in Housing Markets
Chart Data 1.1.3 Construction Gross Value Added and Residential Investment
Chart Data 1.1.4 Use of Macroprudential Tools to Manage Housing Booms
Chart Data 1.2.1 Growth Forecast Errors by Region, 2011–13
Chart Data 1.2.2 Partner-Country versus Domestic Growth Forecast Error
Chart Data 1.2.3 Growth Forecast Error versus Lagged Growth Forecast Error
Chart Data 1.2.4 Growth and Forecast Revisions in Major Economies

Chapter 2: Country and Regional Perspectives
After a slowdown in the first half of 2014, global growth is forecast to strengthen to 3.5 percent in the second half of 2014 and 3.8 percent in 2015. But growth is uneven and still weak overall and remains susceptible to many downside risks. Production disruptions or sharply higher global oil prices—due to geopolitical tensions—would reduce global growth, as would an unexpected tightening in financial conditions owing to higher-than-expected U.S. long-term interest rates or increased risk aversion. Over the medium term, protracted weak demand in advanced economies could result in lower growth everywhere, including, in part, through negative supply-side effects.

  • The United States and Canada: Recovery to Continue after Temporary Setback
  • Europe
  • Asia and Pacific: Steady Growth Ahead
  • Latin America and the Caribbean: Still Losing Speed
  • Commonwealth of Independent States: Coping with Geopolitical Uncertainties
  • The Middle East, North Africa, Afghanistan, and Pakistan: Fragile Recovery
  • Sub-Saharan Africa: Maintaining Speed
  • Spillover Feature: Underlying Drivers of U.S. Yields Matter for Spillovers
  • 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 2015 GDP Growth Forecasts and the Effects of a Plausible Downside Scenario
Chart Data 2.2 The United States and Canada: Recovery to Continue after a Temporary Setback
Chart Data 2.3 Advanced Europe: At Different Stages of Recovery
Chart Data 2.4 Emerging and Developing Europe: Domestic Demand Taking Hold
Chart Data 2.5 Asia and Pacific: Steady Growth Ahead
Chart Data 2.6 Latin America and the Caribbean: Still Losing Speed
Chart Data 2.7 Commonwealth of Independent States: Coping with Geopolitical Uncertainties
Chart Data 2.8 The Middle East, North Africa, Afghanistan, and Pakistan: Fragile Recovery
Chart Data 2.9 Sub-Saharan Africa: Maintaining Speed
Chart Data 2.SF.1 Implied Volatility
Chart Data 2.SF.2 Drivers of U.S. Yields
Chart Data 2.SF.3 Spillovers from U.S. Money and Real Shocks
Chart Data 2.SF.4 United States: Average Response of Industrial Production after Varying Intervals
Chart Data 2.SF.5 Spillovers from U.S. Money and Real Shocks by Country Group

Chapter 3: Is It Time for an Infrastructure Push? The Macroeconomic Effects of Public Investment
This chapter finds that increased public infrastructure investment raises output in both the short and long term, particularly during periods of economic slack and when investment efficiency is high. This suggests that in countries with infrastructure needs, the time is right for an infrastructure push: borrowing costs are low and demand is weak in advanced economies, and there are infrastructure bottlenecks in many emerging market and developing economies. Debt-financed projects could have large output effects without increasing the debt-to-GDP ratio, if clearly identified infrastructure needs are met through efficient investment.

  • The Economics of Infrastructure: A Primer
  • Public and Infrastructure Capital and Investment: Where Do We Stand?
  • The Macroeconomic Effects of Public Investment
  • Summary and Policy Implications
  • References
Appendixes
3.1 Data Sources and Country Groupings
3.2 The Macroeconomic Effects of Public Investment
Boxes
3.1 Public Investment in Japan during the Lost Decade
3.2 Improving the Efficiency of Public Investment
3.3 Fiscal Balance Sheets: The Significance of Nonfinancial Assets and Their Measurement
3.4 The Macroeconomic Effects of Scaling Up Public Investment in Developing Economies
3.5 Fiscal Institutions, Rules, and Public Investment
Tables
3.1 Elasticity of Output to Public Capital
3.2 Economy Group Composition
3.3 Data Sources
3.4 Effect of Public Investment on Output in Advanced Economies: Robustness Checks
3.5 Effect of Public Investment on Output in Emerging Market and Developing Economies: Public Investment Shocks Derived from a Fiscal Policy Rule
3.6 Effects of Public Investment on Output in Emerging Market and Developing Economies: Public Investment Instrumented by Predicted Official Loan Disbursement
3.3.1 Summary Classification of Nonfinancial Assets
Figures
Chart Data 3.1 WEO Medium-Term Growth Projections
Chart Data 3.2 Evolution of Public Capital Stock and Public Investment
Chart Data 3.3 Physical Measures of Infrastructure
Chart Data 3.4 Quality of Infrastructure in G7 Economies
Chart Data 3.5 Effect of Public Investment in Advanced Economies
Chart Data 3.6 Effect of Public Investment in Advanced Economies: Role of Economic Conditions, Efficiency, and Mode of Financing
Chart Data 3.7 Output and Public Debt in the Aftermath of Public Investment Booms
Chart Data 3.8 Effect of Public Investment on Output in Emerging Market and Developing Economies
Chart Data 3.9 Model Simulations: Effect of Public Investment in Advanced Economies in the Current Scenario
Chart Data 3.10 Model Simulations: Effect of Public Investment in Advanced Economies––Role of Monetary Policy, Efficiency, and Return on Public Capital
Chart Data 3.11 Model Simulations: Effect of Public Investment in Advanced Economies and Emerging Markets
Chart Data 3.12 Evolution of Public Capital Stock and Public Investment
Chart Data 3.13 Effect of Public Investment Shocks on Output, Recessions versus Expansions: Robustness Checks
Chart Data 3.14 Effect of Public Investment Shocks on Output, High versus Low Efficiency: Robustness Checks
Chart Data 3.15 Effect of Changes in Public Investment in Advanced Economies
Chart Data 3.16 Distribution of Public Investment Booms over Time
Chart Data 3.17 Output and Public Debt in the Aftermath of Public Investment Booms: Robustness Checks
Chart Data 3.18 Output and Public Debt in the Aftermath of Public Investment Booms: Role of Natural Resources
Chart Data 3.1.1 Japan: Public Investment and Growth
Chart Data 3.1.2 Japan: Budget and Implementation of Public Investment
Chart Data 3.2.1 Public Efficiency Measured by Efficiency Frontiers
Chart Data 3.2.2 Public Investment Management Index Scores in Emerging Markets and Low-Income Countries
Chart Data 3.3.1 General Government Assets and Liabilities, 2012
Chart Data 3.4.1 Role of Type of Financing in Scaling Up Public Investment in Low-Income Countries
Chart Data 3.4.2 Role of Improving Public Investment Efficiency in Low-Income Countries
Chart Data 3.5.1 Fiscal Policies and Public Investment

Chapter 4: Are Global Imbalances at a Turning Point?
Global current account (“flow”) imbalances have narrowed significantly since their peak in 2006, and their configuration has changed markedly in the process. The imbalances that used to be the main concern—the large deficit in the United States and surpluses in China and Japan—have more than halved. But some surpluses, especially those in some European economies and oil exporters, remain large, and those in some advanced commodity exporters and major emerging market economies have since moved to deficit. This chapter argues that the reduction of large flow imbalances has diminished systemic risks to the global economy. Nevertheless, two concerns remain.

  • Introduction
  • Narrowing the Bulge: The Evolution of Flow Imbalances
  • The Mechanics of the Adjustment
  • The Durability of the Adjustment
  • The Stock Dimension of Imbalances
  • Looking Ahead: How Will Global Imbalances Evolve?
  • Conclusion
  • References
Appendixes
4.1 Data Definitions, Sources, and Descriptions
4.2 Panel Estimations
4.3 Distortions, Policies, and Imbalances
4.4 Counterfactual Output Gap Analysis
4.5 Vulnerability Thresholds
Boxes
4.1 Switching Gears: The 1986 External Adjustment
4.2 A Tale of Two Adjustments: East Asia and the Euro Area
Tables
4.1 Largest Deficit and Surplus Economies, 2006 and 2013
4.2 Largest Debtor and Creditor Economies (Net Foreign Assets and Liabilities), 2006 and 2013
4.3 Decomposition of Changes in Net Foreign Assets between 2006 and 2013
4.4 Data Sources
4.5 Sample Economies
4.6 Panel Regression Results, 1970–2013
4.7 Panel Regression Results, 2007–13
4.8 Estimated Threshold Values and Associated Classification Errors
4.1.1 Largest Deficit and Surplus Economies, 1986 and 1991
4.1.2 Panel Regression Results, Post–Plaza Accord versus Post–2006 Current Account Adjustments
Figures
Chart Data 4.1 Global Current Account (“Flow”) Imbalances
Chart Data 4.2 Largest Deficit Economies, 2006 and 2013
Chart Data 4.3 Largest Surplus Economies, 2006 and 2013
Chart Data 4.4 Key Indicators of External Adjustment, 2006 Episode
Chart Data (continued)
Chart Data 4.5 Growth of Domestic Demand Relative to Trading Partners versus 2006 Current Account
Chart Data 4.6 Change in Real Effective Exchange Rate (CPI Based) versus 2006 Current Account
Chart Data 4.7 Changes in Domestic Demand and Current Account
Chart Data 4.8 Changes in Real Effective Exchange Rate and Current Account
Chart Data 4.9 Current Account Balances, Cyclically Adjusted and Unadjusted
Chart Data 4.10 Largest Deficit and Surplus Economies: Current Account Gaps
Chart Data 4.11 Understanding Changes in Distortions Using External Balance Assessment Regressions, 2006 versus 2013
Chart Data 4.12 Global Net Foreign Assets (“Stock”) Imbalances
Chart Data 4.13 Gross Foreign Assets and Liabilities
Chart Data 4.14 Adjustment in Net Foreign Assets versus Current Account Balance
Chart Data 4.15 Global Current Account Imbalances
Chart Data 4.16 Global Net Foreign Asset Imbalances
Chart Data 4.17 Determining Net Foreign Asset Sustainability
Chart Data 4.18 Largest Deficit/Debtor Economies: Current Account versus Net Foreign Assets, 2006, 2013, and 2019
Chart Data 4.1.1 Global Current Account Imbalances in Absolute Terms
Chart Data 4.1.2 Historical Decomposition of Current Account Adjustment
Chart Data 4.2.1 Current Account Balances
Chart Data 4.2.2 Real GDP
Chart Data 4.2.3 Real Domestic Demand Growth
Chart Data 4.2.4 Real External Demand Growth
Chart Data 4.2.5 Real Effective Exchange Rates (CPI-Based)
Chart Data 4.2.6 Exports and Imports as a Share of GDP
Chart Data 4.2.7 Real Exports, Imports, and Foreign GDP

Annex

Statistical Appendix

  • 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 Market 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 Current Account Balances
A11. Advanced Economies: Balance on Current Account
A12. Emerging Market and Developing Economies: Balance on Current Account
A13. Summary of Financial Account Balances
A14. Summary of Net Lending and Borrowing
A15. 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. Summary of Current Account Transactions
B16. Summary of External Debt and Debt Service
B17. Emerging Market and Developing Economies by Region: External Debt by Maturity and Type of Creditor
B18. Emerging Market and Developing Economies by Analytical Criteria: External Debt by Maturity and Type of Creditor
B19. Emerging Market and Developing Economies: Ratio of External Debt to GDP
B20. Emerging Market and Developing Economies: Debt-Service Ratios
B21. Emerging Market and Developing Economies, Medium-Term Baseline Scenario: Selected Economic Indicators
 
World Economic Outlook, Selected Topics