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WEO
World Economic Outlook (WEO)

Adjusting to Lower Commodity Prices

October 2015

 

 



Global growth for 2015 is projected at 3.1 percent, 0.3 percentage point lower than in 2014, and 0.2 percentage point below the forecasts in the July 2015 World Economic Outlook (WEO) Update. Prospects across the main countries and regions remain uneven. Relative to last year, the recovery in advanced economies is expected to pick up slightly, while activity in emerging market and developing economies is projected to slow for the fifth year in a row, primarily reflecting weaker prospects for some large emerging market economies and oil-exporting countries. In an environment of declining commodity prices, reduced capital flows to emerging markets and pressure on their currencies, and increasing financial market volatility, downside risks to the outlook have risen, particularly for emerging market and developing economies.



Contents

Front Matter

Chapter 1. Recent Developments and Prospects
Global growth declined in the first half of 2015, reflecting a further slowdown in emerging markets and a weaker recovery in advanced economies. It is now projected at 3.1 percent for 2015 as a whole, slightly lower than in 2014, and 0.2 percentage point below the forecasts in the July 2015 World Economic Outlook (WEO) Update. Prospects across the main countries and regions remain uneven. Relative to last year, growth in advanced economies is expected to pick up slightly, while it is projected to decline in emerging market and developing economies. With declining commodity prices, depreciating emerging market currencies, and increasing financial market volatility, downside risks to the outlook have risen, particularly for emerging market and developing economies. Global activity is projected to gather some pace in 2016. In advanced economies, the modest recovery that started in 2014 is projected to strengthen further. In emerging market and developing economies, the outlook is projected to improve: in particular, growth in countries in economic distress in 2015 (including Brazil, Russia, and some countries in Latin America and in the Middle East), while remaining weak or negative, is projected to be higher next year, more than offsetting the expected gradual slowdown in China.

  • Recent Developments and Prospects
  • Risks
  • Policies
  • Special Feature: Commodity Market Developments and Forecasts, with a Focus on Metals in the World Economy
  • References
Annex
1.1 Regional Projections
Boxes
Scen.1 A Structural Slowing in Emerging Market Economies
1.1 What Is the Effect of Recessions?
1.2 Small Economies, Large Current Account Deficits
1.3 Capital Flows and Financial Deepening in Developing Economies
1.SF.1 The New Frontiers of Metal Extraction: The North-to-South Shift
Tables
1.1 Overview of the World Economic Outlook Projections
1.SF.1 World Crude Steel Production, 2014
1.SF.2 Metal Trade Evolution
1.SF.3 Net Metal Exports
1.SF.1.1 Impact of Political Institutions on Mineral Discoveries
1.2.1 Median Country Characteristics
1.2.2 Cross-Sectional Current Account Models
1.2.2 Profile of Countries with Large Current Account Deficits
1.3.1 Gross Capital Inflows and Private Credit: Two-State Least-Squares Estimates
Annex
1.1.1
European Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
Annex
1.1.2
Asian and Pacific Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
Annex
1.1.3
Western Hemisphere Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
Annex
1.1.4
Commonwealth of Independent States Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
Annex
1.1.5
Middle East and North African Economies, Afghanistan, and Pakistan: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
Annex
1.1.6
Sub-Saharan African Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment
Figures
Chart Data 1.1 Global Activity Indicators
Chart Data 1.2 Global Inflation
Chart Data 1.3 Commodity and Oil Markets
Chart Data 1.4 Financial Conditions in Advanced Economies
Chart Data 1.5 Advanced Economies: Monetary Conditions
Chart Data 1.6 Financial Conditions in Emerging Market Economies
Chart Data 1.7 Monetary Policies and Credit in Emerging Market Economies
Chart Data 1.8 Growth, Employment, and Labor Productivity in Advanced Economies
Chart Data 1.9 Fiscal Policies
Chart Data 1.10 GDP Growth Forecasts
Chart Data 1.11 External Sector
Chart Data 1.12 Capital Flows in Emerging Market Economies
Chart Data 1.13 Real Exchange Rates and Current Account Gaps
Chart Data 1.14 Risks to the Global Outlook
Chart Data 1.15 Recession and Deflation Risks
Chart Data 1.1.1 Advanced Economies: Real GDP
Chart Data 1.1.2 Portugal: Evolution of Log Real GDP and Extrapolated Trends
Chart Data 1.2.1 Sources of External Financing, Current Account Deficit Countries
Chart Data 1.2.2 Composition of Net International Investment Position, Current Account Deficit Countries
Chart Data 1.3.1 Gross Capital Inflows and Private Credit in Selected Low-Income Developing Countries
Chart Data Scen.
Fig. 1
World Economic Outlook Stagnation Scenario
Chart Data 1.SF.1 Commodity Market Developments
Chart Data 1.SF.2 Metal Price Indices
Chart Data 1.SF.3 Production and Consumption of Metals
Chart Data 1.SF.4 Evolution of Metal Market
Chart Data 1.SF.5 Development of Metal Market
Chart Data 1.SF.6 China: Composition of Metal Use and Growth Rates by Sector
Chart Data 1.SF.7 China: Metal Imports
Chart Data 1.SF.8 Growth Rates of Metal Price Index
Chart Data 1.SF.1.1 Metal Deposit Discoveries in Latin America and the Caribbean and Sub-Saharan Africa
Chart Data 1.SF.1.2 Number of Metal Deposit Discoveries by Region and Decade

Chapter 2. Where Are Commodity Exporters Headed? Output Growth in the Aftermath of the Commodity Boom
Commodity prices have declined sharply over the past three years, and output growth has slowed considerably among those emerging market and developing economies that are net exporters of commodities. A critical question for policymakers in these countries is whether commodity windfall gains and losses influence potential output or merely trigger transient fluctuations of actual output around an unchanged trend for potential output. The analysis in this chapter suggests that both actual and potential output move together with the commodity terms of trade but that actual output commoves twice as strongly as potential output. The weak commodity price outlook is estimated to subtract almost 1 percentage point annually from the average rate of economic growth in commodity exporters over 2015–17 as compared with 2012–14. In exporters of energy commodities, the drag is estimated to be larger: about 2¼ percentage points on average over the same period. The projected drag on the growth of potential output is about one-third of that for actual output.

  • Introduction
  • Commodity Terms-of-Trade Windfalls: A Model-Based Illustration
  • Five Decades of Evidence: Commodity Terms-of-Trade Cycles and Output
  • Sectoral Reallocation during Commodity Booms: Case Studies
  • Conclusions
  • References
Annexes
2.1 Data Sources, Index Construction, and Country Grouping
2.2 Methodology for Dating Commodity Price Cycles
2.3 Stylized Facts and Event Studies
2.4 Local Projection Method
Boxes
2.1 The Not-So-Sick Patient: Commodity Booms and the Dutch Disease Phenomenon
2.2 Commodity Booms and Public Investment
2.3 Getting By with a Little Help from a Boom: Do Commodity Windfalls Speed Up Human Development?
2.4 Do Commodity Exporters’ Economies Overheat during Commodity Booms?
Tables
2.1 Commodity Exports
Annex 2.1.1 Data Sources
Annex 2.1.2 Commodity-Exporting Emerging Market and Developing Economies
Annex 2.4.1 Sample of Commodity Exporters Used in the Local Projection Method Estimations, 1960–2007
Annex 2.4.2 Country Coverage for Key Macroeconomic Variables in the Local Projection Method Estimations
Figures
Chart Data 2.1 World Commodity Prices, 1960–2015
Chart Data 2.2 Average Growth in Commodity-Exporting versus Other Emerging Market and Developing Economies, 1990–2015
Chart Data 2.3 Real Income, Output, and Domestic Demand, 2000–10
Chart Data 2.4 Model Simulations: Macroeconomic Effects of a Commodity Boom
Chart Data 2.5 Consumption Dynamics with Overly Optimistic Commodity Price Expectations
Chart Data 2.6 Sovereign Bond Yield Spreads and the Commodity Terms of Trade
Chart Data 2.7 Identification of Cycles in the Commodity Terms of Trade: Three Country Examples
Chart Data 2.8 Event Studies: Average Annual Growth Rates of Key Macroeconomic Variables during Commodity Terms-of-Trade Upswings and Downswings
Chart Data 2.9 Variation in Average Output Growth between Upswings and Downswings: The Role of Policy Frameworks and Financial Depth
Chart Data 2.10 Most Recent Upswing: Average Real Growth Rates during Upswings and Downswings
Chart Data 2.11 Macroeconomic Variables in the Aftermath of Commodity Terms-of-Trade Shocks
Chart Data 2.12 Output in the Aftermath of Commodity Terms-of-Trade Shocks: Role of Income Level and Type of Community
Chart Data 2.13 Commodity Booms and Macroeconomic Indicators in Australia, Canada, and Chile
Chart Data 2.14 Growth of Capital and Labor by Sector: Boom versus Preboom Periods
Chart Data 2.15 Evolution of Activity in Nontradables Relative to Manufacturing, Commodity Importers Relative to Commodity Importers
Chart Data 2.16 Total Factor Productivity Growth Decompositions
Chart Data 2.17 Investment and Total Factor Productivity Growth
Chart Data Annex
2.2.1
Characteristics, Amplitudes, and Durations of Cycles
Chart Data Annex
2.3.1
Commodity Intensity, Policy Frameworks, and Financial Depth: Commodity-Exporting Emerging Markets Relative to Low-Income Developing Countries
Chart Data Annex
2.3.2
Average Differences in Real Growth Rates between Upswings and Downswings
Chart Data 2.1.1 Manufacturing Export Performance
Chart Data 2.2.1 Long-Term Effects of Heightened Public Investment during Commodity Booms
Chart Data 2.3.1 Human Development Indicators
Chart Data 2.3.2 Comparing the Performance of Commodity and Noncommodity Exporters
Chart Data 2.3.3 Event Studies: Average Changes in Human Development Indicators during Upswings and Downswings
Chart Data 2.4.1 Output Gaps in Six Commodity Exporters
Chart Data 2.4.2 Changes in the Output Gap and Terms of Trade
Chart Data 2.4.3 Real-Time and Multivariate-Filter Estimates of 2007 Output Gaps

Chapter 3. Exchange Rates and Trade Flows: Disconnected?
Recent exchange rate movements have been unusually large, triggering a debate regarding their likely effects on trade. Historical experience in advanced and emerging market and developing economies suggests that exchange rate movements typically have sizable effects on export and import volumes. A 10 percent real effective depreciation in an economy’s currency is associated with a rise in real net exports of, on average, 1.5 percent of GDP, with substantial cross-country variation around this average. Although these effects fully materialize over a number of years, much of the adjustment occurs in the first year. The boost to exports associated with currency depreciation is found to be largest in countries with initial economic slack and with domestic financial systems that are operating normally. Some evidence suggests that the rise of global value chains has weakened the relationship between exchange rates and trade in intermediate products used as inputs into other economies’ exports. However, the bulk of global trade still consists of conventional trade, and there is little evidence of a general trend toward disconnect between exchange rates and total exports and imports.

  • Introduction
  • From Exchange Rates to Trade: Historical Evidence
  • Disconnect or Stability?
  • Implications for the Outlook
  • References
Annexes
3.1 Data
3.2 Estimation of Trade Elasticities
3.3 Derivation of the Marshall-Lerner Condition under Incomplete Pass-Through
3.4 Analysis of Large Exchange Rate Depreciation Episodes
3.5 Trade Elasticities over Time: Stability Tests
Boxes
3.1 The Relationship between Exchange Rates and Global-Value-Chain-Related Trade
3.2 Measuring Real Effective Exchange Rates and Competitiveness: The Role of Global Value Chains
3.3 Japanese Exports: What’s the Holdup?
Tables
3.1 Exchange Rate Pass-Through and Price Elasticities
Annex
3.1.1
Data Sources
Annex
3.1.2
Economies Included in Estimation of Trade Elasticities
Annex
3.1.3
Economies Covered in the Trade in Value Added Database
Annex
3.1.4
Economies Included in the Rolling Regressions
Annex
3.4.1
Large Exchange Rate Depreciations Not Associated with Banking Crises
Annex
3.4.2
Large Exchange Rate Depreciations Associated with Banking Crises
Annex
3.5.1
Trade Elasticities over Time: Stability Tests
3.1.1 Responses of Global-Value-Chain-Related Trade to the Real Effective Exchange Rate
Figures
Chart Data 3.1 Recent Exchange Rate Movements in Historical Perspective
Chart Data 3.2 Long-Term Exchange Rate Pass-Through and Price Elasticities
Chart Data 3.3 Effect of a 10 Percent Real Effective Depreciation on Real Net Exports
Chart Data 3.4 Export Dynamics Following Large Exchange Rate Depreciations
Chart Data 3.5 Export Dynamics Following Large Exchange Rate Depreciations: The Role of Initial Economic Slack
Chart Data 3.6 Export Dynamics Following Large Exchange Rate Depreciations Associated with Banking Crises
Chart Data 3.7 Evolution of Global Value Chains
Chart Data 3.8 Trade Elasticities over Time in Different Regions
Chart Data 3.9 Ratios of Exports and Imports to GDP, 1990–2014
Chart Data 3.10 Export Dynamics Following Large Exchange Rate Depreciations: Through and After 1997
Chart Data 3.11 Illustrative Effect of Real Effective Exchange Rate Movements since January 2013 on Real Net Exports
Chart Data Annex
3.2.1
Exchange Rate Pass-Through Estimates: Comparison with Bussière, Delle Chiaie, and Peltonen 2014
Chart Data Annex
3.2.2
Income Elasticities of Imports and Exports
Chart Data Annex
3.4.1
Export Dynamics Following Large Exchange Rate Depreciations
Chart Data Annex
3.4.2
Export Dynamics Following Large Exchange Rate Depreciations Identified Based on the Real Effective Exchange Rate
Chart Data Annex
3.4.3
Export Dynamics Following Laeven and Valencia 2013 Currency Crises
Chart Data Annex
3.4.4
Export Dynamics Following Large Exchange Rate Depreciations: Role of Initial Output Gap
Chart Data 3.1.1 Decomposition of Gross Exports and Imports, 1995 versus 2011
Chart Data 3.1.2 Global Value Chain Trade Elasticities
Chart Data 3.2.1 Real Effective Exchange Rate Weights Assigned to China and Germany
Chart Data 3.2.2 Comparison of Conventional and Input-Output Real Effective Exchange Rates
Chart Data 3.3.1 Japan: Exchange Rate and Exports
Chart Data 3.3.2 Exchange Rate, Profits, and Pass-Through
Chart Data 3.3.3 Offshoring and Exports
 

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, and 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 - 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 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. Selected 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. Emerging Market and Developing Economies: 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, October 2015