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WEO
World Economic Outlook (WEO)

Uneven Growth: Short- and Long-Term Factors

April 2015

 

 

Global growth remains moderate, with uneven prospects across the main countries and regions. It is projected to be 3.5 percent in 2015, in line with forecasts in the January 2015 World Economic Outlook (WEO) Update. Relative to last year, the outlook for advanced economies is improving, while growth in emerging market and developing economies is projected to be lower, primarily reflecting weaker prospects for some large emerging market economies and oil-exporting countries.

Contents

Front Matter

Chapter 1. Recent Developments and Prospects
Global growth in 2014 was a modest 3.4 percent, reflecting a pickup in growth in advanced economies relative to the previous year and a slowdown in emerging market and developing economies. Complex forces that affected global activity in 2014 are still shaping the outlook: medium- and long-term trends, global shocks, and many country- or region-specific factors. Growth is projected to be stronger in 2015 relative to 2014 in advanced economies, but weaker in emerging markets, reflecting more subdued prospects for some large emerging market economies and oil exporters. The chapter discusses recent developments in and prospects for the world economy, explores potential risks (both downside and upside), and makes policy recommendations. A special feature looks at developments in commodity markets, focusing specifically on investment in an era of low oil prices.

  • Recent Developments and Prospects
  • Risks
  • Policies
  • Special Feature: Commodity Market Developments and Forecasts, with a Focus on Investment in an Era of Low Oil Prices
  • References
Boxes
Scen.1 The Global Impact of Lower Oil Prices
Scen.2 Global Implications of Exchange Rate Movements
1.1 The Oil Price Collapse: Demand or Supply?
1.2 Understanding the Role of Cyclical and Structural Factors in the Global Trade Slowdown
Table
1.1 Overview of the World Economic Outlook Projections
Figures
Chart Data 1.1 Global Activity Indicators
Chart Data 1.2 Global Inflation
Chart Data 1.3 Advanced Economies: Monetary Conditions
Chart Data 1.4 Commodity and Oil Markets
Chart Data 1.5 Financial Market Conditions in Advanced Economies
Chart Data 1.6 Financial Market Conditions and Capital Flows in Emerging Market Economies
Chart Data 1.7 Fiscal Policies
Chart Data 1.8 Monetary Policies and Credit in Emerging Market Economies
Chart Data 1.9 GDP Growth Forecasts
Chart Data 1.10 External Sector
Chart Data 1.11 Exchange Rates and Reserves
Chart Data 1.12 Risks to the Global Outlook
Chart Data 1.13 Recession and Deflation Risks
Chart Data 1.14 Capacity, Unemployment, and Output Trends
Chart Data 1.SF.1 Commodity Price Indices
Chart Data 1.SF.2 Oil Supply Growth
Chart Data 1.SF.3 Brent Futures Curves
Chart Data 1.SF.4 Brent Price Prospects, March 17, 2015
Chart Data 1.SF.5 United States: Weekly Rig Count
Chart Data 1.SF.6 Global Oil Investment and Oil Price
Chart Data 1.SF.7 Response of Oil Investment to Oil Prices
Chart Data 1.SF.8 Response of Oil Production to Oil Investment
Chart Data 1.SF.9 OPEC and Non-OPEC Oil Production and Investment
Chart Data 1.SF.10 Conventional and Unconventional Oil Production and Investment
Chart Data 1.SF.11 Evolution of Break-Even Prices
Chart Data 1.SF.12 Oil Production and Operating Costs by Country
Chart Data Scen.
Fig. 1
Potential Impact of the Decline in Oil Prices since August 2014
Chart Data Scen.
Fig. 2
Impact of Exchange Rate Shifts since August 2014
Chart Data 1.1.1 Drivers of Oil Prices: Daily Two-Variable Model, July 2014–January 2015
Chart Data 1.1.2 Drivers of Oil Prices: Daily Two-Variable Model, 1986 and 2008
Chart Data 1.1.3 Drivers of Oil Prices: Quarterly Four-Variable Model
Chart Data 1.2.1 Growth in Real GDP and Volume of Imports
Chart Data 1.2.2 Cumulative Import Volumes: Data, Model, and Linear Trend
Chart Data 1.2.3 Long-Term Elasticity
Chart Data 1.2.4 Long-Term Elasticities

Chapter 2. Country and Regional Perspectives
Global growth is forecast at 3.5 percent in 2015 and 3.8 percent in 2016, with uneven prospects across the main countries and regions of the world. The distribution of risks to near-term global growth has become more balanced relative to the October World Economic Outlook but is still tilted to the downside. The decline in oil prices could boost activity more than expected. Geopolitical tensions continue to pose threats, and risks of disruptive shifts in asset prices remain relevant. In some advanced economies, protracted low inflation or deflation also pose risks to activity. The chapter takes a region-by-region look at the recent development in the world economy and the outlook for 2015, with particular attention to notable development in countries within each region.

  • The United States and Canada: A Solid Recovery
  • Europe
  • Asia and Pacific: Moderating but Still Outperforming Other Regions
  • Latin America and the Caribbean: Another Year of Subpar Growth
  • Commonwealth of Independent States: Oil Price Slump Worsens Outlook
  • The Middle East, North Africa, Afghanistan, and Pakistan: Oil, Conflicts, and Transitions
  • Sub-Saharan Africa: Resilience in the Face of Headwinds
  • References
Tables
2.1 Advanced Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
2.2 European Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
2.3 Asian and Pacific Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
2.4 Western Hemisphere Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
2.5 Commonwealth of Independent States Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
2.6 Middle East and North African Economies, Afghanistan, and Pakistan: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
2.7 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 an Oil Price Shock
Chart Data 2.2 United States and Canada: A Solid Recovery
Chart Data 2.3 Advanced Europe: Spillovers from a Stagnant Euro Area
Chart Data 2.4 Emerging and Developing Europe: Slower Growth amid Weak External Demand
Chart Data 2.5 Asia and Pacific: Moderating but Still Outperforming
Chart Data 2.6 Latin America and the Caribbean: Persistent Weakness
Chart Data 2.7 Commonwealth of Independent States: Coping with Geopolitical Risks and Lower Oil Prices
Chart Data 2.8 Middle East, North Africa, Afghanistan, and Pakistan: Oil, Conflicts, and Transitions
Chart Data 2.9 Sub-Saharan Africa: Resilience in the Face of Headwinds

Chapter 3. Where Are We Headed? Perspectives on Potential Output
This chapter finds that potential output growth across advanced and emerging market economies has declined in recent years. In advanced economies, this decline started as far back as the early 2000s and worsened with the global financial crisis. In emerging market economies, in contrast, it began only after the crisis. The chapter’s analysis suggests that potential output growth in advanced economies is likely to increase slightly from current rates as some crisis-related effects wear off, but to remain below precrisis rates in the medium term. The main reasons are aging populations and the gradual increase in capital growth from current rates as output and investment recover from the crisis. In contrast, in emerging market economies, potential output growth is expected to decline further, owing to aging populations, weaker investment, and lower total factor productivity growth as these economies catch up to the technological frontier.

  • Introduction
  • Potential Output: A Primer
  • Looking Back: How Did Potential Growth Evolve before the Crisis?
  • How Did Potential Growth Evolve during the Crisis?
  • Where Are We Headed?
  • Summary Findings and Policy Implications
  • References
Annexes
3.1 Data Sources and Country Groupings
3.2 Multivariate Filter Methodology
3.3 Estimating Trend Labor Force Participation Rates
3.2 Potential Output in the Aftermath of the Global Financial Crisis
3.2 Human Capital Growth Projections
Boxes
3.1 Steady As She Goes: Estimating Sustainable Output
3.2 U.S. Total Factor Productivity Spillovers
3.3 Total Factor Productivity Growth in Advanced Economies: A Look into Sectoral Patterns
3.4 The Effects of Financial Crises on Labor Productivity: The Role of Sectoral Reallocation
3.5 The Effects of Structural Reforms on Total Factor Productivity
Tables
3.1.1 Countries Included in the Analysis
3.1.2 Data Sources
3.2.1 Properties of Adjusted Total Factor Productivity Compared with Solow Residual, Advanced Economies, 1970–2007
3.2.2 Transmission Channels
3.5.1 Impact of Product and Labor Market Frictions on Total Factor Productivity Growth
3.5.2 Impact of Information and Communications Technology, Human Capital, and Research and Development
Figures
Chart Data 3.1 Output Compared to Precrisis Expectations
Chart Data 3.2 WEO Medium-Term Growth Projections
Chart Data 3.3 Precrisis Potential Output Growth Evolution
Chart Data 3.4 Variation in Potential Output Growth across Countries
Chart Data 3.5 Determinants of Potential Output Growth in Advanced Economies
Chart Data 3.6 Determinants of Potential Output Growth in Emerging Market Economies
Chart Data 3.7 Components of Potential Output Growth during the Global Financial Crisis in Advanced Economies
Chart Data 3.8 Components of Potential Output Growth during the Global Financial Crisis in Emerging Market Economies
Chart Data 3.9 Effect of Demographics on Employment Growth
Chart Data 3.10 Investment-to-Capital Ratio
Chart Data 3.11 Future Evolution of Potential Output Growth and Its Components
Chart Data Annex
3.2.1
Potential Output Growth
Chart Data Annex
3.3.1
Population Share Distributions by Age
Chart Data Annex
3.4.1
Aftermath of the Global Financial Crisis in Advanced Economies
Chart Data Annex
3.4.2
Aftermath of the Global Financial Crisis in Emerging Market Economies
Chart Data Annex
3.5.1
Human Capital Growth Projections
Chart Data 3.1.1 Output Gap in Selected Euro Area Economies: Multivariate Filter Augmented with Financial Variables versus That with Inflation Only
Chart Data 3.1.2 Credit and Output Gaps Implied by the Dynamic Stochastic General Equilibrium Model
Chart Data 3.2.1 U.S. Total Factor Productivity Spillovers to Other Advanced Economies
Chart Data 3.3.1 Employment and Value Added, 1980–2007
Chart Data 3.3.2 Selected Country Groups: Total Factor Productivity Growth in Goods and Services Sectors
Chart Data 3.3.3 Information and Communications Technology Productivity Growth and Spillovers
Chart Data 3.4.1 Response of Labor Productivity to Crises
Chart Data 3.5.1 Short- and Medium-Term Impact of Structural Reforms on Total Factor Productivity Growth

Chapter 4. Private Investment: What’s the Holdup?
Private fixed investment in advanced economies contracted sharply during the global financial crisis, and there has been little recovery since. Investment has generally slowed more gradually in the rest of the world. Although housing investment fell especially sharply during the crisis, business investment accounts for the bulk of the slump, and the overriding factor holding it back has been the overall weakness of economic activity. In some countries, other contributing factors include financial constraints and policy uncertainty. These findings suggest that addressing the general weakness in economic activity is crucial for restoring growth in private investment.

  • Is There a Global Slump in Private Investment?
  • Is the Slump in Private Investment Due to Housing or Is It Broader?
  • How Much of the Slump in Business Investment Reflects Weak Economic Activity?
  • Which Firms Have Cut Back More on Investment? The Roles of Financial Constraints and Policy Uncertainty
  • Have Firms’ Investment Decisions Become Disconnected from Profitability and Financial Market Valuations?
  • Policy Implications
  • References
Annexes
4.1 Aggregate Data
4.2 Firm-Level Data
4.3 Instrumental Variables Estimation
4.4 Local Projection Methods
4.5 Accelerator Model Estimation Results
Box
4.1 After the Boom: Private Investment in Emerging Market and Developing Economies
Tables
4.1 Firm-Level Evidence: Financial Constraint Channel
4.2 Firm-Level Evidence: Policy Uncertainty Channel
4.3 Investment, Tobin’s Q, Profits, and Cash
4.1.1 Data Sources
4.2.1 Aggregate Firm-Level Investment versus National Investment
4.3.1 Investment-Output Relationship: Instrumental Variables Estimation
4.5.1 Baseline Accelerator Model
4.5.2 Accelerator Model: In-Sample versus Out-of-Sample Estimates
4.5.3 Selected Euro Area Economies: Baseline and Augmented Accelerator Model—Equalized Sample
Figures
Chart Data 4.1 Real Private Investment
Chart Data 4.2 Real Private Investment, 2008–14
Chart Data 4.3 Categories of Real Fixed Investment
Chart Data 4.4 Decomposition of the Investment Slump, 2008–14
Chart Data 4.5 Shares and Relative Prices of Investment Categories
Chart Data 4.6 Real Business Investment and Output Relative to Forecasts: Historical Recessions versus Global Financial Crisis
Chart Data 4.7 Real Business Investment: Actual and Predicted Based on Weak Economic Activity
Chart Data 4.8 Accelerator Model: Real Business Investment
Chart Data 4.9 Real Business Investment: Accelerator Model Residuals and Investment Losses Relative to Precrisis Forecasts, 2008–14
Chart Data 4.10 Selected Euro Area Economies: Accelerator Model—Role of Financial Constraints and Policy Uncertainty
Chart Data 4.11 Firm Survey Responses: Factors Limiting Production
Chart Data 4.12 Firm Investment since the Crisis, by Firm Type
Chart Data 4.13 Tobin’s Q and Real Business-Investment-to-Capital Ratios
Chart Data 4.14 Investment: Actual and Predicted Based on Tobin’s Q
Chart Data Annex
4.3.1
Actual versus Predicted Real Business Investment—Robustness
Chart Data Annex
4.5.1
Accelerator Model: In Sample versus Out of Sample
Chart Data Annex
4.5.2
Accelerator Model: Controlling for the User Cost of Capital
Chart Data 4.1.1 Real Private Fixed Investment
Chart Data 4.1.2 Private Investment and Output Forecast Errors: Historical versus Post-2011 Slowdown
Chart Data 4.1.3 Contributors to the Private Investment Slowdown since 2011
 
  Data Download: Private and Business Investment

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, 2014
  • 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. Economies with Exceptional Reporting Periods
  • Table G. 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)
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
B18. Emerging Market and Developing Economies by Analytical Criteria: External Debt by Maturity
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
IMF Executive Board Discussion of the Outlook, April 2015