World Economic Outlook

Financial Stress, Downturns, and Recoveries

October 2008

The World Economic Outlook (WEO) presents the IMF staff's analysis and projections of economic developments at the global level, in major country groups (classified by region, stage of development, etc.), and in many individual countries. It focuses on major economic policy issues as well as on the analysis of economic developments and prospects. It is usually prepared twice a year, as documentation for meetings of the International Monetary and Financial Committee, and forms the main instrument of the IMF's global surveillance activities.

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View the Full Text of the WEO (6.6 MB pdf file)


  Assumptions and Conventions
Executive Summary
Chapter 1. Global Prospects and Policies
Full Text  |   Video Briefing  |   Boxes  |   Figures

Global Economy under Stress

Financial System in Crisis

Deepening Housing Corrections

Overstretched Commodity Markets

Have Macroeconomic Policies Been Too Loose?

Prospects for a Turnaround

Policy Challenges for the Global Economy

Appendix 1.1 Assessing and Communicating Risks to the Global Outlook


Chapter 2. Country and Regional Perspectives
Full Text  |   Boxes  |   Figures

United States and Canada: Bending but Not Buckling

Western Europe: Struggling with Multiple Shocks

Advanced Asia: Responding to External Shocks

Emerging Asia: Balancing Risks to Growth and Price Stability

Latin America and the Caribbean: Navigating a More Perilous Environment

Emerging Europe: Prospects for a Soft Landing

Commonwealth of Independent States: Managing the Commodity Price Boom

Sub-Saharan Africa: A Test of Policy Frameworks

Middle East: Overheating Still A Concern


Chapter 3. Is Inflation Back? Commodity Prices and Inflation
Full Text  |   Summary  |   Video  |   Boxes  |   Figures

Surging Commodity Prices: Origins and Prospects

Commodity Price Shocks and Inflation

Monetary Policy Responses to Commodity Price Shocks

Summary and Conclusions

Appendix 3.1. Recent Commodity Market Developments

Appendix 3.2. Accounting for Food Price Increases, 2006–08

Appendix 3.3. Estimating Inflationary Effects of Commodity Price Shocks


Chapter 4. Financial Stress and Economic Downturns
Full Text  |   Summary  |   Video  |   Boxes  |   Figures

Identifying Episodes of Financial Stress

Financial Stress, Economic Slowdown, and Recession

Has Financial Innovation Affected the Interplay between Financial Stress and Economic Cycles

The Current Financial Crisis in Historical Context


Appendix 4.1. Data and Methodology


Chapter 5. Fiscal Policy as a Countercyclical Tool
Full Text  |   Summary  |   Video  |   Boxes  |   Figures

Understanding the Fiscal Policy Debate

How Has Discretionary Fiscal Policy Typically Responded?

Are Fiscal Policy Reactions Different in Emerging and Advanced Economies?

The Macroeconomic Effects of Discretionary Fiscal Policy

A Simulation-Based Perspective on Fiscal Stimulus

Conclusions and Policy Considerations

Appendix 5.1. Data and Empirical Methods


Chapter 6. Divergence of Current Account Balances across Emerging Economies
Full Text  |   Summary  |   Video  |   Boxes  |   Figures

Recent Current Account Patterns in Emerging Economies

What Factors Have Contributed to Recent Current Account Patterns

Sustainability of Current Account Imbalances

Conclusions and Policy Implications

Appendix 6.1. Variable Definitions and Data Source

Appendix 6.2. Econometric Approach


  Annex: IMF Executive Board Discussion of the Outlook, September 2008
Statistical Appendix
  What's New
  Data and Conventions
  Classification of Countries
  General Features and Composition of Groups in the World
    Economic Outlook
  List of Tables Part A
  Output (Tables A1–A4)
  Inflation (Tables A5–A7)
  Financial Policies (Table A8)
  Foreign Trade (Table A9)
  Current Account Transactions (Tables A10–A12)
  Balance of Payments and External Financing (Tables A13–
  Flow of Funds (Table A16)
  Medium–Term Baseline Scenario (Table A17)
  List of Tables Part B
  Output (Tables B1–B2)
  Inflation (Tables B3–B4)
  Financial Policies (Tables B5–B10)
  Foreign Trade (Tables B11–B13)
  Current Account Transactions (Tables B14–B17)
  Balance of Payments and External Financing (Tables B18–B20)
  External Debt and Debt Service (Tables B21–B25)
  Medium-Term Baseline Scenario (Table B26)
1.1 The Latest Bout of Financial Distress: How Does It Change the Marcroeconomic Outlook?
1.2 House Prices: Corrections and Consequences
1.3 Measuring Output Gaps
2.1 EMU: 10 Years On
3.1 Does Financial Investment Affect Commodity Price Behavior?
Chart Data 3.2 Fiscal Responses to Recent Commodity Price Increases: An Assessment
Chart Data 3.3 Monetary Policy Regimes and Commodity Prices
    4.1 Policies to Resolve Financial System Stress and Restore Sound Financial Intermediation
5.1 Differences in the Extent of Automatic Stabilizers and Their Relationship with Discretionary Fiscal Policy
    5.2 Why Is It So Hard to Determine the Effects of Fiscal Stimulus?
Chart Data 5.3 Have U.S. Tax Cuts Been "TTT"?
6.1 Current Account Determinants for Oil-Exporting Countries
6.2 Sovereign Wealth Funds: Implications for Global Financial Markets
Chart Data 6.3 Historical Perspective on Growth and the Current Account
    A1 Economic Policy Assumptions Underlying the Projections for Selected Economies
1.1 Overview of the World Economic Outlook Projections
2.1 Advanced Economies: Real GDP, Consumer Prices, and Unemployment
2.2 Advanced Economies: Current Account Positions
2.3 Selected Asian Economies: Real GDP, Consumer Prices, and Current Account Balance
2.4 Selected Western Hemisphere Economies: Real GDP, Consumer Prices, and Current Account Balance
2.5 Selected Emerging European Economies: Real GDP, Consumer Prices, and Current Account Balance
2.6 Commonwealth of Independent States (CIS): Real GDP, Consumer Prices, and Current Account Balance
2.7 Selected African Economies: Real GDP, Consumer Prices, and Current Account Balance
2.8 Selected Middle Eastern Economies: Real GDP, Consumer Prices, and Current Account Balance
3.1 Contributions of Common Factors to Commodity Price Fluctuations
3.2 Selected Indicators of Spillovers across Major Food Commodity Prices
3.3 Global Oil Demand and Production by Region
3.4 Elasticity Estimates Used for Price Calculations
4.1 Descriptive Statistics on Financial Stress Episodes
4.2 Descriptive Statistics on Financial Stress, Slowdowns, and Recessions
4.3 Cross-Section Regressions
4.4 Six Major Periods of Financial Stress and Economic Contractions
4.5 Data
4.6 Average Yearly Share of Total Bank Assets of Banks in Sample
5.1 Macroeconomic Indicators around Downturns, with and without a Fiscal Impulse: All Economies
5.2 Real GDP Growth and Fiscal Impulse under Various Initial Conditions: All Economies
5.3 Real GDP Growth and Fiscal Impulse by Composition: All Economies
5.4 Responses of Real GDP to Discretionary Fiscal Policy Changes
5.5 List of Countries and Downturn Episodes
5.6 Discretionary Fiscal Policy and Growth: Regression Results with Arellano-Bond Dynamic Panel Estimator Using Elasticity-Based Fiscal Impulse Measure
5.7 Discretionary Fiscal Policy and Growth: Regression Results with Arellano-Bond Dynamic Panel Estimator Using Regression-Based Fiscal Impulse Measure
6.1 Determinants of the Current Account Balance
6.2 Duration Regressions of Persistent and Large Current Account Deficits
6.3 Explaining Differentiated Effects in Emerging Europe
6.4 List of Persistently Large Current Account Imbalance Episodes
6.5 Duration Analysis and Domestic Financial Sector Liberalization
6.6 Duration Analysis and Risk of Abrupt and Non-Abrupt Endings
Chart Data 1.1 Global Indicators
Chart Data 1.2 Current and Forward-Looking Indicators
Chart Data 1.3 Global Inflation
Chart Data 1.4 External Developments in Selected Advanced Economies
Chart Data 1.5 External Developments in Emerging and Developing Economies
Chart Data 1.6 Developments in Mature Credit Markets
Chart Data 1.7 Mature Financial and Housing Market Indicators
Chart Data 1.8 Emerging Economy Financial Conditions
Chart Data 1.9 Measures of Monetary Policy and Liquidity in Selected Advanced Economies
Chart Data 1.10 Measures of the Output Gap and Capacity Pressures
Chart Data 1.11 Global Outlook
Chart Data 1.12 Risks to the Global Outlook
Chart Data 1.13 Impact of Financial Shock on the Global Economy
Chart Data 1.14 Current Account Balances and Net Foreign Assets
Chart Data 1.15 Median Forecast Errors during Global Recessions and at Other Times, 1991–2007
Chart Data 1.16 Histograms of Forecast Errors, 1991–2007
Chart Data 1.17 Probability of Global Recessions
Chart Data 1.18 Illustrative GPM-Based 90 Percent Confidence Intervals
Chart Data 2.1 United States: Strains on Households
Chart Data 2.2 Western Europe: Slowing Demand and High Inflation
Chart Data 2.3 Japan: How Well Would the Economy Weather a Terms-of-Trade Shock?
Chart Data 2.4 Emerging Asia: Remaining Inflation Concerns
Chart Data 2.5 Latin America: Inflation Returns
Chart Data 2.6 Emerging Europe: Are Credit Booms Cooling Off?
Chart Data 2.7 Commonwealth of Independent States (CIS): Managing the Commodity Price Boom
Chart Data 2.8 Sub-Saharan Africa: The Mixed Blessing of High Commodity Prices
Chart Data 2.9 Middle East: Managing Inflation Pressures
Chart Data 3.1 Commodity Prices in Historical Context
Chart Data 3.2 Marginal Change in Energy Intensity, Commodity Inventories, and OPEC Spare Capacity .......
Chart Data 3.3 Grain and Oil Demand, Production, and Inventories in Comparison
Chart Data 3.4 Oil Supply Developments
Chart Data 3.5 Price Trends of Major Foods
Chart Data 3.6 Duration and Amplitude of Food and Crude Oil Price Cycles
Chart Data 3.7 Inflation around the World
Chart Data 3.8 Changes in International and Domestic Commodity Prices and Headline Inflation
Chart Data 3.9 The Relative Importance of Food and Energy
Chart Data 3.10 Monetary and Exchange Rate Policies
Chart Data 3.11 Commodity Price Pass-Through
Chart Data 3.12 Changes in Expected Inflation in Response to Changes in Actual Inflation
Chart Data 3.13 Activity, Interest Rates, and Inflation
Chart Data 3.14 Stylized Advanced Economy with Adverse and Favorable Supply Shocks
Chart Data 3.15 Stylized More-Vulnerable Emerging Market Economy with Adverse and Favorable Supply Shocks
Chart Data 3.16 Potential Costs of Delaying Interest Rate Hikes
Chart Data 3.17 Commodity and Petroleum Prices
Chart Data 3.18 World Oil Market Balances and Oil Futures Price
Chart Data 3.19 Developments in Food and Metal Markets
Chart Data 4.1 Financial Stress and Output Loss
Chart Data 4.2 Financial Stress Index
Chart Data 4.3 Financial Stress and Shocks
Chart Data 4.4 Contribution of Banking, Securities, and Foreign Exchange to Current Financial Stress Episode
Chart Data 4.5 Lag between Financial Stress and Downturns
Chart Data 4.6 Selected Macrovariables around Economic Downturns with and without Financial Stress
Chart Data 4.7 Banking-Related Financial Stress, Slowdowns, and Recessions
Chart Data 4.8 Cost of Capital and Bank Asset Growth around Banking Financial Stress Episodes
Chart Data 4.9 Selected Macrovariables around Financial Stress Episodes
Chart Data 4.10 Initial Conditions of Financial Stress Episodes
Chart Data 4.11 Financial Stress and Economic Downturns: Controlling for Four Main Shocks
Chart Data 4.12 The Procyclicality of Leverage in Investment and Commercial Banks
Chart Data 4.13 Procyclical Leverage and Arm's-Length Financial Systems
Chart Data 4.14 Arm's-Length Financial Systems, GDP Growth, and Bank Leverage
Chart Data 4.15 The Current Financial Stress Episode in the United States and Euro Area in Historical Context
Chart Data 5.1 How Often and Quickly Has Fiscal Stimulus Been Used in G7 Economies?
Chart Data 5.2 How Strong Was the Fiscal Policy Response in G7 Economies?
Chart Data 5.3 How Have Fiscal Policy Responses Varied across Advanced Economies?
Chart Data 5.4 Is There a Bias toward Easing during Downturns in G7 Economies?
Chart Data 5.5 Did G7 Economies Respond to Erroneously Perceived Downturns?
Chart Data 5.6 Composition of Fiscal Stimulus during Downturns for Advanced and Emerging Economies
Chart Data 5.7 Fiscal Policy Responses in Downturns and Upturns
Chart Data 5.8 Macroeconomic Indicators after Downturns, with and without a Fiscal Stimulus
Chart Data 5.9 Changes in Real GDP Growth and Fiscal Policies under Various Initial Conditions
Chart Data 5.10 Effect of Fiscal Expansion in a Large Economy
Chart Data 5.11 Fiscal Expansion in a Large Economy Compared with a Small Open Economy with Monetary Accommodation
Chart Data 5.12 Effect of Fiscal Expansion in a Small Economy with Market-Risk-Premium Reaction
Chart Data 6.1 Patterns of Divergence in Current Account Balance
Chart Data 6.2 External Balances by Component
Chart Data 6.3 Current Account Balance, Saving, and Investment
Chart Data 6.4 Saving and Investment by Components
Chart Data 6.5 Growth Takeoffs
Chart Data 6.6 Current Account Reversals around Crises
Chart Data 6.7 Current Account Balance and Real GDP per Capita Growth
Chart Data 6.8 Patterns of Financial Development
Chart Data 6.9 Explaining the Current Account Balances of Emerging Asia and Emerging Europe
Chart Data 6.10 Explaining Current Account Balances: Results by Subregion
Chart Data 6.11 Deviation from Predicted Real Effective Exchange Rates
Chart Data 6.12 Residual Current Account Balance, Deviation of Real Effective Exchange Rate from Predicted Level and Stock of Reserves
Chart Data 6.13 Persistently Large Current Account Deficit and Surplus Episodes, 1960-2007
Chart Data 6.14 Duration of Large, Persistent Current Account Deficits, 1960-2007
Chart Data 6.15 Survival Functions of Deficit Episodes
Chart Data 6.16 Predicted Duration and Actual Length of Ongoing Deficit Episodes
Chart Data 6.17 Corporate Profitability and Productivity Growth