## A Shifting Global Economic Landscape

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### Executive summary and baseline assumptions
- After a lackluster outturn in 2016, economic activity is projected to pick up pace in 2017 and 2018, especially in emerging market and developing economies.  
- Projections are subject to wide dispersion of possible outcomes given uncertainty surrounding the policy stance of the incoming U.S. administration and its global ramifications. The assumptions underpinning the forecast should be more specific by the time of the April 2017 World Economic Outlook.  
- The forecast assumes a changing policy mix under a new U.S. administration with some near-term fiscal stimulus and a less gradual normalization of monetary policy; it also incorporates a firming of oil prices following the agreement among OPEC members and several other major producers to limit supply.  
- The balance of risks is viewed as being to the downside, but upside risks to near-term growth exist if policy stimulus in the United States or China is larger than currently projected.

### Developments in the second half of 2016
- Global output growth is estimated at about 3 percent (at an annualized rate) for the third quarter of 2016—broadly unchanged relative to the first two quarters of the year.  
- Advanced economies:
  - Stronger-than-expected pickup in growth in the second half of 2016, driven by reduced inventory drag and some recovery in manufacturing; the United States rebounded strongly and is approaching full employment; output remains below potential in some advanced economies (notably the euro area).  
  - Historical revisions show Japan’s growth rate in 2016 and preceding years was stronger than previously estimated.  
- Emerging market and developing economies (EMDEs):
  - Much more diverse outcomes—China slightly stronger than expected (supported by continued policy stimulus), weaker activity in some Latin American countries (Argentina, Brazil), Turkey (tourism contraction), and mixed performance in Russia (slightly better reflecting firmer oil prices).  
- Commodity prices and inflation:
  - Oil prices increased following producer supply-limiting agreement; base metals strengthened with infrastructure and real estate investment in China and expectations of U.S. fiscal easing; headline inflation recovered in advanced economies while core inflation remained broadly unchanged and generally below targets; China’s producer price inflation moved to positive territory after over four years of deflation.  
- Financial markets:
  - Long-term nominal and real interest rates rose substantially since August, particularly in the United Kingdom and the United States since the November election. As of January 3, nominal yields on 10-year U.S. Treasury bonds have increased by close to one percentage point since August, and 60 basis points since the U.S. election. Increase in euro area long-term yields since August was about 35 basis points in Germany and 70 basis points in Italy. The U.S. Federal Reserve raised short-term interest rates in December. In EMDEs, financial conditions generally tightened with heterogeneous policy moves (rate hikes in Mexico and Turkey; cuts in Brazil, India, and Russia).  
- Exchange rates and capital flows:
  - The U.S. dollar appreciated in real effective terms by over 6 percent since August; several emerging market currencies depreciated substantially (notably the Turkish lira and the Mexican peso), while some commodity exporters’ currencies (notably Russia) appreciated. Preliminary data point to sharp nonresident portfolio outflows from emerging markets after the U.S. election.

### Forecast (key figures and revisions)
- Global growth:
  - 2016 now estimated at 3.1 percent (in line with October 2016 forecast).  
  - Projected at 3.4 percent for 2017 and 3.6 percent for 2018 (unchanged from October forecasts).  
- Advanced economies:
  - Projected growth of 1.9 percent in 2017 and 2.0 percent in 2018 (revisions of +0.1 and +0.2 percentage points relative to October).  
  - United States projection (highest-likelihood scenario) assumes fiscal stimulus raising growth to 2.3 percent in 2017 and 2.5 percent in 2018, a cumulative increase in GDP of ½ percentage point relative to the October forecast.  
  - Upward revisions for 2017 also for Germany, Japan, Spain, and the United Kingdom; downward revisions for Italy and Korea.  
- Emerging market and developing economies (EMDEs):
  - 2016 estimated at 4.1 percent; projected at 4.5 percent for 2017 (around 0.1 percentage point weaker than the October forecast) and 4.8 percent for 2018.  
  - China: 2017 growth forecast revised up to 6.5 percent, 0.3 percentage point above the October forecast. Continued reliance on stimulus and rapid credit expansion raises risks of a sharper slowdown or disruptive adjustment, exacerbated by capital outflow pressures.  
  - Nigeria: forecast revised up primarily reflecting higher oil production due to security improvements.  
  - India: growth forecasts trimmed by one percentage point for the current (2016–17) and 0.4 percentage point for the next fiscal year, primarily due to the temporary negative consumption shock from the currency note withdrawal and exchange initiative.  
  - Other emerging Asia: down in Indonesia (weaker private investment) and Thailand (slowdown in consumption and tourism).  
  - Latin America: downgraded reflecting weaker-than-expected outturns in Argentina and Brazil, tighter financial conditions and U.S.-related uncertainty in Mexico, and continued deterioration in Venezuela.  
  - Middle East: Saudi Arabia growth expected weaker in 2017 due to oil production cuts under OPEC agreement; civil strife weighing heavily on other countries.

### Risks to the outlook
- Downside skew over the medium term, with two-sided risks:
  - Potential shift toward inward-looking policies and protectionism, widening global imbalances, sharp exchange rate movements, and increased restrictions on trade and migration that would hurt productivity, incomes, and market sentiment.  
  - In advanced economies with impaired balance sheets, prolonged weak private demand and insufficient reforms (including bank balance sheet repair) could cause permanently lower growth and inflation with negative debt-dynamics implications.  
  - Vulnerabilities in some large EMDEs due to high corporate debt, declining profitability, weak bank balance sheets, unhedged foreign liabilities, and reliance on short-term borrowing—raising exposure to tighter global financial conditions, capital flow reversals, and sharp depreciations.  
  - Low-income economies with eroded fiscal buffers face heightened vulnerability to external shocks.  
  - Geopolitical risks and noneconomic factors (civil war, domestic conflict, refugee crises, terrorism, prolonged droughts, disease outbreaks) could exacerbate hardship and depress global market sentiment.  
- Upside risks:
  - Stronger-than-assumed policy stimulus in the United States and/or China could accelerate global activity and positive spillovers to trading partners, subject to protectionist responses; higher investment if confidence in global demand recovery strengthens.

### Policy priorities and recommendations
- Advanced economies with negative output gaps and muted wage pressures:
  - Keep monetary policy accommodative, using unconventional strategies as needed.  
  - Deploy fiscal support calibrated to available space and oriented toward protecting the vulnerable and lifting medium-term growth prospects; if fiscal adjustment cannot be postponed, calibrate pace and composition to minimize output drag.  
- Advanced economies without substantially negative output gaps:
  - Target fiscal support to strengthen safety nets (including refugee integration where relevant) and raise longer-term potential output via high-quality infrastructure and supply-friendly, equitable tax reform.  
  - Allow for gradual monetary policy normalization consistent with well-anchored inflation expectations.  
- Structural reforms (broadly):
  - Reinforce macro policies with reforms to boost labor force participation, invest in skills, improve labor-market matching, liberalize entry into closed professions, increase dynamism and innovation, and promote business investment including R&D.  
- Emerging market and developing economies:
  - Enhance financial resilience to reduce vulnerability to tighter global conditions, sharp currency moves, and capital flow reversals.  
  - Economies with large/rising nonfinancial debt, unhedged foreign liabilities, or short-term funding for long-term investments should strengthen risk management and contain balance sheet mismatches.  
- Low-income countries:
  - Restore fiscal buffers while continuing efficient spending on critical capital needs and social outlays, strengthen debt management, improve domestic revenue mobilization, and implement structural reforms (including education) to support diversification and higher productivity.  
- Commodity-dependent countries:
  - Use recent market firming for relief but urgently reestablish macro stability: allow exchange rate adjustment where possible, tighten monetary policy as needed to tackle inflation, and ensure fiscal consolidation is as growth-friendly as possible—especially important for countries with pegs where exchange rates cannot act as shock absorbers; pursue export diversification over the longer term.  
- Multilateral actions:
  - Continued multilateral effort is required to minimize risks to financial stability and sustain global living standard improvements. Well-targeted initiatives should help those adversely affected by trade opening to find jobs in expanding sectors and share long-term benefits of economic integration more broadly.

### Section 2 — Policy priorities and multilateral action
- Economic fairness requires multilateral and national efforts to crack down on tax evasion and prevent tax avoidance practices.  
- Strengthening the resilience of the financial system should continue, including by:
  - recapitalizing institutions and cleaning up balance sheets where necessary,  
  - ensuring effective national and international banking resolution frameworks,  
  - addressing emerging risks from nonbank intermediaries.  
- A stronger global safety net can protect economies with robust fundamentals that may nevertheless be vulnerable to cross-border contagion and spillovers.  
- Multilateral cooperation is indispensable to address longer-term global challenges, such as:
  - meeting the 2015 Sustainable Development Goals,  
  - mitigating and coping with climate change,  
  - preventing the spread of global epidemics.

### Key projections and indicators (selected figures)
- Note: Real effective exchange rates are assumed to remain constant at the levels prevailing during November 4-December 2, 2016. Economies are listed on the basis of economic size. The aggregated quarterly data are seasonally adjusted.  
- World Growth Based on Market Exchange Rates: 2.6, 2.4, 2.8, 3.0, 0.0, 0.1, 2.5, 2.9, 2.9.  
- World Trade Volume (goods and services): 2.7, 1.9, 3.8, 4.1, 0.0, –0.1.  
- Commodity Prices (U.S. dollars):
  - Oil: the average price of oil in U.S. dollars a barrel was $42.7 in 2016; the assumed price based on futures markets (as of December 6, 2016) is $51.2  in 2017 and $53.1 in 2018.  
  - Nonfuel (average based on world commodity export weights): –17.4, –2.7, 2.1, –0.9, 1.2, –0.2, 6.6, 0.2, –1.4.  
- Consumer Prices:
  - Advanced Economies: 0.3, 0.7, 1.7, 1.9, 0.0, 0.0, 1.0, 1.8, 2.0.  
  - Emerging Market and Developing Economies (excludes Argentina and Venezuela): 4.7, 4.5, 4.5, 4.4, 0.1, 0.2, 3.9, 4.0, 3.9.  
- London Interbank Offered Rate (percent):
  - On U.S. Dollar Deposits (six month): 0.5, 1.0, 1.7, 2.8, 0.4, 0.7.  
  - On Euro Deposits (three month): –0.0, –0.3, –0.3, –0.2, 0.1, 0.2.  
  - On Japanese Yen Deposits (six month): 0.1, 0.0, 0.0, 0.0, 0.1, 0.1.

### Country and regional notes (selected)
- Advanced Economies and Emerging Market and Developing Economies are reported with quarterly estimates and projections that account for approximately 90 percent and 80 percent, respectively, of annual output at purchasing-power-parity weights (footnote 2).  
- Japan's historical national accounts figures reflect a comprehensive revision by the national authorities, released in December 2016, including the switch from the System of National Accounts 1993 to the System of National Accounts 2008 and updating the benchmark year from 2005 to 2011 (footnote 3).  
- For India, data and forecasts are presented on a fiscal year basis and GDP from 2011 onward is based on GDP at market prices with FY2011/12 as a base year (footnote 5).  
- ASEAN-5 comprises Indonesia, Malaysia, Philippines, Thailand, Vietnam (footnote 6).  
- At the time of finalizing the forecasts for Saudi Arabia, a revised quarterly GDP series consistent with the new annual GDP data had not been published; hence, Q4-over-Q4 data are not shown (footnote 7).  
- World Trade Volume growth is a simple average of growth rates for export and import volumes (goods and services) (footnote 8).  
- Oil price series is a simple average of prices of U.K. Brent, Dubai Fateh, and West Texas Intermediate crude oil (footnote 9).  
- Emerging Market and Developing Economies consumer price series excludes Argentina and Venezuela (footnote 10).

*Source: WEO Update, January 2017.*

### Section 1

### A Shifting Global Economic Landscape

### Executive summary and baseline assumptions
- After a lackluster outturn in 2016, economic activity is projected to pick up pace in 2017 and 2018, especially in emerging market and developing economies.  
- Projections are subject to wide dispersion of possible outcomes given uncertainty surrounding the policy stance of the incoming U.S. administration and its global ramifications. The assumptions underpinning the forecast should be more specific by the time of the April 2017 World Economic Outlook.  
- The forecast assumes a changing policy mix under a new U.S. administration with some near-term fiscal stimulus and a less gradual normalization of monetary policy; it also incorporates a firming of oil prices following the agreement among OPEC members and several other major producers to limit supply.  
- The balance of risks is viewed as being to the downside, but upside risks to near-term growth exist if policy stimulus in the United States or China is larger than currently projected.

### Developments in the second half of 2016
- Global output growth is estimated at about 3 percent (at an annualized rate) for the third quarter of 2016—broadly unchanged relative to the first two quarters of the year.  
- Advanced economies: stronger-than-expected pickup in growth in the second half of 2016, driven by reduced inventory drag and some recovery in manufacturing; the United States rebounded strongly and is approaching full employment; output remains below potential in some advanced economies (notably the euro area). Historical revisions show Japan’s growth rate in 2016 and preceding years was stronger than previously estimated.  
- Emerging market and developing economies (EMDEs): much more diverse outcomes—China slightly stronger than expected (supported by continued policy stimulus), weaker activity in some Latin American countries (Argentina, Brazil), Turkey (tourism contraction), and mixed performance in Russia (slightly better reflecting firmer oil prices).  
- Commodity prices and inflation: oil prices increased following producer supply-limiting agreement; base metals strengthened with infrastructure and real estate investment in China and expectations of U.S. fiscal easing; headline inflation recovered in advanced economies while core inflation remained broadly unchanged and generally below targets; China’s producer price inflation moved to positive territory after over four years of deflation.  
- Financial markets: long-term nominal and real interest rates rose substantially since August, particularly in the United Kingdom and the United States since the November election. As of January 3, nominal yields on 10-year U.S. Treasury bonds have increased by close to one percentage point since August, and 60 basis points since the U.S. election. Increase in euro area long-term yields since August was about 35 basis points in Germany and 70 basis points in Italy. The U.S. Federal Reserve raised short-term interest rates in December. In EMDEs, financial conditions generally tightened with heterogeneous policy moves (rate hikes in Mexico and Turkey; cuts in Brazil, India, and Russia).  
- Exchange rates and capital flows: the U.S. dollar appreciated in real effective terms by over 6 percent since August; several emerging market currencies depreciated substantially (notably the Turkish lira and the Mexican peso), while some commodity exporters’ currencies (notably Russia) appreciated. Preliminary data point to sharp nonresident portfolio outflows from emerging markets after the U.S. election.

### Forecast (key figures and revisions)
- Global growth:
  - 2016 now estimated at 3.1 percent (in line with October 2016 forecast).  
  - Projected at 3.4 percent for 2017 and 3.6 percent for 2018 (unchanged from October forecasts).  
- Advanced economies:
  - Projected growth of 1.9 percent in 2017 and 2.0 percent in 2018 (revisions of +0.1 and +0.2 percentage points relative to October).  
  - United States projection (highest-likelihood scenario) assumes fiscal stimulus raising growth to 2.3 percent in 2017 and 2.5 percent in 2018, a cumulative increase in GDP of ½ percentage point relative to the October forecast.  
  - Upward revisions for 2017 also for Germany, Japan, Spain, and the United Kingdom; downward revisions for Italy and Korea.  
- Emerging market and developing economies (EMDEs):
  - 2016 estimated at 4.1 percent; projected at 4.5 percent for 2017 (around 0.1 percentage point weaker than the October forecast) and 4.8 percent for 2018.  
  - China: 2017 growth forecast revised up to 6.5 percent, 0.3 percentage point above the October forecast. Continued reliance on stimulus and rapid credit expansion raises risks of a sharper slowdown or disruptive adjustment, exacerbated by capital outflow pressures.  
  - Nigeria: forecast revised up primarily reflecting higher oil production due to security improvements.  
  - India: growth forecasts trimmed by one percentage point for the current (2016–17) and 0.4 percentage point for the next fiscal year, primarily due to the temporary negative consumption shock from the currency note withdrawal and exchange initiative.  
  - Other emerging Asia: down in Indonesia (weaker private investment) and Thailand (slowdown in consumption and tourism).  
  - Latin America: downgraded reflecting weaker-than-expected outturns in Argentina and Brazil, tighter financial conditions and U.S.-related uncertainty in Mexico, and continued deterioration in Venezuela.  
  - Middle East: Saudi Arabia growth expected weaker in 2017 due to oil production cuts under OPEC agreement; civil strife weighing heavily on other countries.

### Risks to the outlook
- Downside skew over the medium term, with two-sided risks:  
  - Potential shift toward inward-looking policies and protectionism, widening global imbalances, sharp exchange rate movements, and increased restrictions on trade and migration that would hurt productivity, incomes, and market sentiment.  
  - In advanced economies with impaired balance sheets, prolonged weak private demand and insufficient reforms (including bank balance sheet repair) could cause permanently lower growth and inflation with negative debt-dynamics implications.  
  - Vulnerabilities in some large EMDEs due to high corporate debt, declining profitability, weak bank balance sheets, unhedged foreign liabilities, and reliance on short-term borrowing—raising exposure to tighter global financial conditions, capital flow reversals, and sharp depreciations.  
  - Low-income economies with eroded fiscal buffers face heightened vulnerability to external shocks.  
  - Geopolitical risks and noneconomic factors (civil war, domestic conflict, refugee crises, terrorism, prolonged droughts, disease outbreaks) could exacerbate hardship and depress global market sentiment.  
- Upside risks: stronger-than-assumed policy stimulus in the United States and/or China could accelerate global activity and positive spillovers to trading partners, subject to protectionist responses; higher investment if confidence in global demand recovery strengthens.

### Policy priorities and recommendations
- Advanced economies with negative output gaps and muted wage pressures:
  - Keep monetary policy accommodative, using unconventional strategies as needed.  
  - Deploy fiscal support calibrated to available space and oriented toward protecting the vulnerable and lifting medium-term growth prospects; if fiscal adjustment cannot be postponed, calibrate pace and composition to minimize output drag.  
- Advanced economies without substantially negative output gaps:
  - Target fiscal support to strengthen safety nets (including refugee integration where relevant) and raise longer-term potential output via high-quality infrastructure and supply-friendly, equitable tax reform.  
  - Allow for gradual monetary policy normalization consistent with well-anchored inflation expectations.  
- Structural reforms (broadly):
  - Reinforce macro policies with reforms to boost labor force participation, invest in skills, improve labor-market matching, liberalize entry into closed professions, increase dynamism and innovation, and promote business investment including R&D.  
- Emerging market and developing economies:
  - Enhance financial resilience to reduce vulnerability to tighter global conditions, sharp currency moves, and capital flow reversals.  
  - Economies with large/rising nonfinancial debt, unhedged foreign liabilities, or short-term funding for long-term investments should strengthen risk management and contain balance sheet mismatches.  
- Low-income countries:
  - Restore fiscal buffers while continuing efficient spending on critical capital needs and social outlays, strengthen debt management, improve domestic revenue mobilization, and implement structural reforms (including education) to support diversification and higher productivity.  
- Commodity-dependent countries:
  - Use recent market firming for relief but urgently reestablish macro stability: allow exchange rate adjustment where possible, tighten monetary policy as needed to tackle inflation, and ensure fiscal consolidation is as growth-friendly as possible—especially important for countries with pegs where exchange rates cannot act as shock absorbers; pursue export diversification over the longer term.  
- Multilateral actions:
  - Continued multilateral effort is required to minimize risks to financial stability and sustain global living standard improvements. Well-targeted initiatives should help those adversely affected by trade opening to find jobs in expanding sectors and share long-term benefits of economic integration more broadly.

*Source: WEO Update, January 2017.*

### Section 2

### 0117 - Section 2

### Policy priorities and multilateral action
- Economic fairness requires multilateral and national efforts to crack down on tax evasion and prevent tax avoidance practices.
- Strengthening the resilience of the financial system should continue, including by:
  - recapitalizing institutions and cleaning up balance sheets where necessary,
  - ensuring effective national and international banking resolution frameworks,
  - addressing emerging risks from nonbank intermediaries.
- A stronger global safety net can protect economies with robust fundamentals that may nevertheless be vulnerable to cross-border contagion and spillovers.
- Multilateral cooperation is indispensable to address longer-term global challenges, such as:
  - meeting the 2015 Sustainable Development Goals,
  - mitigating and coping with climate change,
  - preventing the spread of global epidemics.

### Key projections and indicators (from Table 1: Overview of the World Economic Outlook Projections)
- Note: Real effective exchange rates are assumed to remain constant at the levels prevailing during November 4-December 2, 2016. Economies are listed on the basis of economic size. The aggregated quarterly data are seasonally adjusted.
- World Output (year-over-year projections and Q4 estimates are presented in the table).
- World Growth Based on Market Exchange Rates: 2.6, 2.4, 2.8, 3.0, 0.0, 0.1, 2.5, 2.9, 2.9 (values as shown in the table).
- World Trade Volume (goods and services): 2.7, 1.9, 3.8, 4.1, 0.0, –0.1 (values as shown in the table).
- Commodity Prices (U.S. dollars)
  - Oil: the average price of oil in U.S. dollars a barrel was $42.7 in 2016; the assumed price based on futures markets (as of December 6, 2016) is $51.2  in 2017 and $53.1 in 2018.
  - Nonfuel (average based on world commodity export weights): –17.4, –2.7, 2.1, –0.9, 1.2, –0.2, 6.6, 0.2, –1.4 (values as shown in the table).
- Consumer Prices
  - Advanced Economies: 0.3, 0.7, 1.7, 1.9, 0.0, 0.0, 1.0, 1.8, 2.0 (values as shown in the table).
  - Emerging Market and Developing Economies (excludes Argentina and Venezuela): 4.7, 4.5, 4.5, 4.4, 0.1, 0.2, 3.9, 4.0, 3.9 (values as shown in the table).
- London Interbank Offered Rate (percent)
  - On U.S. Dollar Deposits (six month): 0.5, 1.0, 1.7, 2.8, 0.4, 0.7 (values as shown in the table).
  - On Euro Deposits (three month): –0.0, –0.3, –0.3, –0.2, 0.1, 0.2 (values as shown in the table).
  - On Japanese Yen Deposits (six month): 0.1, 0.0, 0.0, 0.0, 0.1, 0.1 (values as shown in the table).

### Country and regional notes included in the section
- Advanced Economies and Emerging Market and Developing Economies are reported with quarterly estimates and projections that account for approximately 90 percent and 80 percent, respectively, of annual output at purchasing-power-parity weights (footnote 2).
- Japan's historical national accounts figures reflect a comprehensive revision by the national authorities, released in December 2016, including the switch from the System of National Accounts 1993 to the System of National Accounts 2008 and updating the benchmark year from 2005 to 2011 (footnote 3).
- For India, data and forecasts are presented on a fiscal year basis and GDP from 2011 onward is based on GDP at market prices with FY2011/12 as a base year (footnote 5).
- ASEAN-5 comprises Indonesia, Malaysia, Philippines, Thailand, Vietnam (footnote 6).
- At the time of finalizing the forecasts for Saudi Arabia, a revised quarterly GDP series consistent with the new annual GDP data had not been published; hence, Q4-over-Q4 data are not shown (footnote 7).
- World Trade Volume growth is a simple average of growth rates for export and import volumes (goods and services) (footnote 8).
- Oil price series is a simple average of prices of U.K. Brent, Dubai Fateh, and West Texas Intermediate crude oil (footnote 9).
- Emerging Market and Developing Economies consumer price series excludes Argentina and Venezuela (footnote 10).

*Source: Table 1. Overview of the World Economic Outlook Projections, WEO Update, January 2017 (section content and table excerpts).*

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_Source: https://www.imf.org/-/media/files/publications/weo/2017/january/0117.pdf_