The baseline projection for global growth in 2016 is a modest 3.2 percent, broadly in line with last year, and a 0.2 percentage point downward revision relative to the January 2016 World Economic Outlook Update. The recovery is projected to strengthen in 2017 and beyond, driven primarily by emerging market and developing economies, as conditions in stressed economies start gradually to normalize. But uncertainty has increased, and risks of weaker growth scenarios are becoming more tangible. The fragile conjuncture increases the urgency of a broad-based policy response to raise growth and manage vulnerabilities.

Contents

Front Matter

Chapter 1. Recent Developments and Prospects
Major macroeconomic realignments are affecting prospects differentially across countries and regions. These include the slowdown and rebalancing in China; a further decline in commodity prices, especially for oil, with sizable redistributive consequences across sectors and countries; a related slowdown in investment and trade; and declining capital flows to emerging market and developing economies. These realignments—together with a host of noneconomic factors, including geopolitical tensions and political discord—are generating substantial uncertainty. On the whole, they are consistent with a subdued outlook for the world economy—but risks of much weaker global growth have also risen.

Annex
1.1 Regional Projections
Boxes
Scen.1 The Estimated Impact of Lower Oil Prices
Scen.2 Responding to Secular Stagnation Forces
1.1 Dissecting the Global Trade Slowdown
1.2 Macroeconomic Developments and Outlook in Low-Income Developing Countries: The Role of External Factors
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 Real Effective Exchange Rate Changes, August 2015–February 2016
Chart Data 1.5 Emerging Market Economies: Capital Flows
Chart Data 1.6 Advanced Economies: Monetary and Financial Market Conditions
Chart Data 1.7 Advanced Economies: Credit, House Prices, and Balance Sheets
Chart Data 1.8 Emerging Market Economies: Interest Rates
Chart Data 1.9 Emerging Market Economies: Equity Markets and Credit
Chart Data 1.10 China’s Share of Value-Added Exports and Change in Export Volume Growth
Chart Data 1.11 Terms-of-Trade Windfall Gains and Losses, Domestic Demand, Imports, and Output
Chart Data 1.12 Energy and Mining Investment
Chart Data 1.13 Global Investment and Trade Slowdown
Chart Data 1.14 Fiscal Policies
Chart Data 1.15 External Sector
Chart Data 1.16 Creditors versus Debtors
Chart Data 1.17 Risks to the Global Outlook
Chart Data 1.18 Recession and Deflation Risks
Chart Data 1.1.1 Trade and Output Growth
Chart Data 1.1.2 Import Elasticity
Chart Data 1.1.3 Import Volume Index by End Use
Chart Data 1.1.4 Capital Goods Import Volume Index
Chart Data 1.2.1 Low-Income Developing Countries: Real GDP Growth
Chart Data 1.2.2 Low-Income Developing Countries: Purchasing-Power-Parity GDP Shares
Chart Data 1.2.3 Terms-of-Trade Windfall Gains and Losses
Chart Data 1.2.4 Trading Partners’ GDP Growth Changes
Chart Data 1.2.5 Sovereign Bond Spreads in Low-Income Developing Countries
Chart Data 1.2.6 Simulated Effects of Lower Oil Prices on Growth and Public Debt in Low-Income Developing Countries
Chart Data Scen.
Fig. 1
Decomposition of the Change in Oil Prices: 2014 World Economic Outlook versus April 2016 World Economic Outlook
Chart Data Scen.
Fig. 2
Oil Scenario
Chart Data Scen.
Fig. 3
Secular Stagnation and Reform
Chart Data 1.SF.1 Commodity Market Developments
Chart Data 1.SF.2 World Energy Intensity
Chart Data 1.SF.3 Car Ownership and GDP per Capita, 2013
Chart Data 1.SF.4 World Energy Consumption Share by Fuel Type
Chart Data 1.SF.5 Carbon Emissions for Various Fuels
Chart Data 1.SF.6 Electricity Generation
Chart Data 1.SF.7 Cost of Renewables and Research and Development Efforts
Chart Data 1.SF.8 U.S. Sales of Electric Vehicles and Gasoline Price
Chart Data 1.SF.9 Duck Curve: Illustrative Change in Projections of Net Load Curve
Chart Data 1.SF.10 World Patents
Chart 1.SF.11 Direct Normal Irradiation
Tables
1.1 Overview of the World Economic Outlook Projections
1.SF.1 World Energy Usage, 2013
1.SF.2 Summary of Severe Accidents in the Energy Sector, 1970–2008
1.SF.3 Global Share of Greenhouse Gas Emissions by Country
1.SF.4 Greenhouse Gas Emissions Target Reductions, Paris Agreement, December 2015
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

Chapter 2. Understanding the Slowdown in Capital Flows to Emerging Markets
Net capital flows to emerging market economies have slowed since 2010, affecting all regions. This chapter shows that both weaker inflows and stronger outflows have contributed to the slowdown and that much of the decline in inflows can be explained by the narrowing differential in growth prospects between emerging market and advanced economies. The chapter also highlights that the incidence of external debt crises in the ongoing episode has so far been much lower, although the slowdown in net capital inflows has been comparable in breadth and size to the major slowdowns of the 1980s and 1990s. Improved policy frameworks have contributed greatly to this difference. Crucially, more flexible exchange rate regimes have facilitated orderly currency depreciations that have mitigated the effects of the global capital flow cycle on many emerging market economies. Higher levels of foreign asset holdings by emerging market economies, in particular higher levels of foreign reserves, as well as lower shares of external liabilities denominated in foreign currency (that is, less of the so-called original sin) have also been instrumental.

  • Anatomy of the Slowdown in Net Capital Inflows
  • Historical Comparisons: What Is Different This Time?
  • What Is Driving the Recent Slowdown in Capital Flows to Emerging Market Economies?
  • Conclusions
  • References
Annexes
2.1 Sample of Emerging Market Economies
2.2 Data
2.3 Methodology
Boxes
2.1 Capital Flows to Low-Income Developing Countries
2.2 U.S. Monetary Policy and Capital Flows to Emerging Markets
Figures
Chart Data 2.1 Net Capital Inflows to Emerging Market Economies and Number of Debt Crises, 1980–2015:Q3
Chart Data 2.2 Net Capital Inflows to Emerging Market Economies, 2000–15:Q3
Chart Data 2.3 Capital Inflows and Outflows for Emerging Market Economies
2000–15:Q3
Chart Data 2.4 Capital Inflows and Outflows for Emerging Market Economies by Asset Type: 2000–15:Q3
Chart Data 2.5 Net Capital Inflows by Region, 2000–15:Q3
Chart Data 2.6 Net Reserve Assets of Emerging Market Economies, 2000–15:Q3
Chart Data 2.7 Exchange Rates of Emerging Market Economies, 2010–15:Q3
Chart Data 2.8 Net Capital Inflow Slowdown and Exchange Rate Changes, 2010–15:Q3
Chart Data 2.9 Cost of Financing, Sovereign Spreads, and Capital Flows in Emerging Market Economies
Chart Data 2.10 Three Major Net Capital Inflow Slowdown Episodes
Chart Data 2.11 External Balance Sheets of Emerging Market Economies,
1980–2014
Chart Data 2.12 Gross Capital Inflows and Outflows of Emerging Market Economies,
1980–2014
Chart Data 2.13 Net External Debt Liabilities of Emerging Market Economies,
1980–2014
Chart Data 2.14 Outstanding Debt of Emerging Market Economies Denominated in Domestic Currency,
1995–2015
Chart Data 2.15 Net Capital Outflows and the Current Account during the 2010–15 Slowdown
Chart Data 2.16 Nominal Effective Exchange Rate Adjustment in 1995–2000 and
2010–15:Q3
Chart Data 2.17 Role of Global Factors in the Recent Slowdown
Chart Data 2.18 Estimated Time Fixed Effects and Average Gross Capital Inflows to Emerging Market Economies
Chart Data 2.19 Share of Variation in Gross Capital Inflows Explained by Global Factors
Chart Data 2.20 2010–15 Gross Capital Inflow Slowdown and Country-Specific Characteristics
Chart Data 2.21 Differences in the Contribution of Global Factors between More and Less Flexible Exchange Rate Regimes
Chart Data 2.1.1 Net Capital Inflows to Low-Income Developing Countries, 2000–14
Chart Data 2.1.2 Capital Inflows and Outflows of Low-Income Developing Countries,
2000–14
Chart Data 2.1.3 Capital Inflows to Low-Income Developing Countries by Asset Type and Net Capital Inflows by Region, 2000–14
Chart Data 2.1.4 Net Reserve Assets and Current Account Balance, 2000–14
Chart Data 2.1.5 Net Capital Inflows to Low-Income Developing Countries, 2012–15, Restricted Sample
Chart Data 2.1.6 Exchange Rates of Low-Income Developing Countries, 2009–15:Q3
Chart Data 2.2.1 Correlation between Emerging Market Fund Flows and Emerging Market Total Portfolio Inflows
Tables
2.1 Foreign Reserves and the Current Account in Balance of Payments Adjustments
2.2 Large Depreciations, Banking Sector Stress, and External Crises during Slowdown Episodes
2.2.1 Short-Term Determinants of Emerging Market Fund Flows
Annex
2.1.1
Countries in the Chapter’s Emerging Market Economies Sample
Annex
2.1.2
External Crisis Episodes, 1980–2015
Annex
2.1.3
Large Depreciation Episodes, 1995–2000
Annex
2.1.4
Large Depreciation Episodes, 2010–15
Annex
2.3.1
Role of Global Factors in Explaining Gross Capital Inflows
Annex
2.3.2
Role of Global Factors in Explaining Gross Capital Outflows
Annex
2.3.3
Role of Country Characteristics in Explaining Gross Capital Inflows
Annex
2.3.4
Role of Country Characteristics in Explaining Gross Capital Outflows
Annex
2.3.5
Role of Interaction Terms in Explaining Gross Capital Inflows
Annex
2.3.6
Role of Country Characteristics and Global Factors in Explaining Gross Capital Inflows

Chapter 3. Time for a Supply-Side Boost? Macroeconomic Effects of Labor and Product Market Reforms in Advanced Economies
This chapter finds that product and labor market reforms raise output and employment in the medium term, but complementary macroeconomic policies are needed to maximize their short-term payoff given the current economic slack in most advanced economies. Product market reforms deliver gains in the short term, while the impact of labor market reforms varies across types of reforms and depends on overall economic conditions. Reductions in labor tax wedges and increases in public spending on active labor market policies have larger effects during periods of slack, in part because they usually entail some degree of fiscal stimulus. In contrast, reforms to employment protection arrangements and unemployment benefit systems have positive effects in good times, but can become contractionary in periods of slack. These results suggest the need for carefully prioritizing and sequencing reforms.

  • The Economics of Product and Labor Market Reforms: A Primer
  • The Macroeconomic Effects of Reforms: A Model-Based Analysis
  • The Macroeconomic Effects of Reforms: An Empirical Analysis
  • Summary and Policy Implications
  • References
Annexes
3.1 Modeling the Effects of Product and Labor Market Reforms
3.2 Identification of Reforms and Policy Shocks
3.3 The Macroeconomic Effects of Reforms: Empirical Analysis
3.4 Country Coverage and Data Sources
Boxes
3.1 Breaking the Deadlock: Identifying the Political Economy Drivers of Structural Reforms
3.2 Reforming Collective-Bargaining Systems to Achieve High and Stable Employment
3.3 The Potential Productivity Gains from Further Trade and Foreign Direct Investment Liberalization
3.4 Can Reform Waves Turn the Tide? Some Case Studies Using the Synthetic Control Method
Figures
Chart Data 3.1 Evolution of Potential Output Growth and Its Components in Advanced Economies
Chart Data 3.2 Evolution of Product Market Regulations
Chart Data 3.3 Evolution of Labor Market Institutions
Chart Data 3.4 Selected Model Results
Chart Data 3.5 Macroeconomic Effects of Product Market Reforms
Chart Data 3.6 Direct and Indirect Sectoral Output Effects of Product Market Reforms
Chart Data 3.7 Direct Effects of Product Market Reforms on Incumbent Firms’ Output
Chart Data 3.8 Direct Effects of Product Market Reforms on Incumbent Firms’ Employment: The Role of Firm Size
Chart Data 3.9 Direct Effects of Product Market Reforms on Incumbent Firms’ Investment: The Role of Financial Conditions
Chart Data 3.10 Macro and Sectoral Effects of Employment Protection Legislation Reforms
Chart Data 3.11 Unemployment Effects of Unemployment Benefit Reforms
Chart Data 3.12 Macroeconomic Effects of Labor Tax Wedge Cuts
Chart Data 3.13 Macroeconomic Effects of Spending Shocks on Active Labor Market Policies
Chart Data 3.14 Role of Fiscal Policy in Shaping the Effects of Employment Protection Legislation and Unemployment Benefit Reforms on Unemployment
Chart Data 3.15 Effects of Reforms on Participation Rates of Women and Older Workers
Chart Data 3.2.1 Portugal: Employment Growth during the Global Financial Crisis among Firms Not Affiliated with an Employer Association
Chart Data 3.2.2 Change in Unemployment Rate
Chart Data 3.3.1 Trade Liberalization
Chart Data 3.4.1 Log of Real GDP per Capita in Purchasing-Power-Parity Terms
Chart Data Annex
3.2.1
Number of Reforms Identified
Chart Data Annex
3.3.1
Effects of Reforms on Economic Activity: Robustness Check
Tables
3.1 Effect of Product and Labor Market Reforms on Macroeconomic Outcomes
3.1.1 Drivers of Reforms
Annex
3.2.1
Examples of Reforms Identified
Annex
3.4.1
Country Coverage
Annex
3.4.2
Macroeconomic Data Sources
 

Statistical Appendix

  • Assumptions
  • What's New
  • Data and Conventions
  • Country Notes
  • 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, 2015
  • 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 and General 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