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World Economic Outlook
Recovery Strengthens, Remains Uneven
April 2014
| Assumptions and Conventions | |||
| Further Information and Data | |||
| Preface | |||
| Foreword | |||
| Executive Summary |
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Global activity has broadly strengthened and is expected to improve further in 2014–15, according to the April 2014 WEO, with much of the impetus for growth coming from advanced economies. Although downside risks have diminished overall, lower-than-expected inflation poses risks for advanced economies, there is increased financial volatility in emerging market economies, and increases in the cost of capital will likely dampen investment and weigh on growth. Advanced economy policymakers need to avoid a premature withdrawal of monetary accommodation. Emerging market economy policymakers must adopt measures to changing fundamentals, facilitate external adjustment, further monetary policy tightening, and carry out structural reforms.
The report includes a chapter that analyzes the causes of worldwide decreases in real interest rates since the 1980s and concludes that global rates can be expected to rise in the medium term, but only moderately. Another chapter examines factors behind the fluctuations in emerging market economies’ growth and concludes that strong growth in China played a key role in buffering the effects of the global financial crisis in these economies.
| The Demand and Activity Perspective | |||
| The External Sector Perspective | |||
| Downside Risks | |||
| Policies | |||
| Special Feature: Commodity Prices and Forecasts | |||
| References | |||
| Boxes | |||
| 1.1 | Credit Supply and Economic Growth | ||
| 1.2 | Is China’s Spending Pattern Shifting (away from Commodities)? | ||
| 1.3 | Anchoring Inflation Expectations When Inflation Is Undershooting | ||
| 1.4 | Exchange Rate Regimes and Crisis Susceptibility in Emerging Markets | ||
| Tables | |||
| 1.1 | Overview of the World Economic Outlook Projections | ||
| 1.SF.1 | Root-Mean-Squared Errors across Forecast Horizons h (Relative to the Random Walk Model) | ||
| 1.3.1 | Consensus Consumer Price Index Inflation Expectations | ||
| Figures | |||
| Chart | Data | 1.1 | Global Activity Indicators |
| Chart | Data | 1.2 | GDP Growth Forecasts |
| Chart | Data | 1.3 | Monetary Conditions in Advanced Economies |
| Chart | Data | 1.4 | Fiscal Policies |
| Chart | Data | 1.5 | Global Inflation |
| Chart | Data | 1.6 | Capacity, Unemployment, and Output Trend |
| Chart | 1.7 | Overheating Indicators for the Group of Twenty Economies | |
| Chart | Data | 1.8 | Financial Market Conditions in Advanced Economies |
| Chart | Data | 1.9 | Financial Conditions and Capital Flows in Emerging Market Economies |
| Chart | Data | 1.10 | Monetary Policies and Credit in Emerging Market Economies |
| Chart | Data | 1.11 | Exchange Rates and Reserves |
| Chart | Data | 1.12 | External Sector |
| Chart | Data | 1.13 | Risks to the Global Outlook |
| Chart | Data | 1.14 | Recession and Deflation Risks |
| Chart | Data | 1.15 | Slower Growth in Emerging Market Economies and a Faster Recovery in the United States |
| Chart | Data | 1.SF.1 | Commodity Market Developments |
| Chart | Data | 1.SF.2 | Brent Forecast Errors and Futures |
| Chart | Data | 1.SF.3 | Vector Autoregression and Combination Forecasts |
| Chart | Data | 1.SF.4 | Rolling Root-Mean-Squared Errors: Recursive Estimation |
| Chart | Data | 1.1.1 | Cumulative Responses of GDP to a 10 Percentage Point Tightening of Lending Standards |
| Chart | Data | 1.1.2 | Credit Supply Shocks |
| Chart | Data | 1.1.3 | Contribution of Credit Supply Shocks to GDP |
| Chart | Data | 1.2.1 | China: Real GDP Growth and Commodity Prices |
| Chart | Data | 1.2.2 | Growth Rate of Global Commodity Consumption |
| Chart | Data | 1.2.3 | Actual and Predicted Per Capita Commodity Consumption |
| Chart | Data | 1.2.4 | Spending Patterns |
| Chart | Data | 1.3.1 | Inflation Expectations in Euro Area, United States, Japan, and Norway |
| Chart | Data | 1.4.1 | Distribution of Exchange Rate Regimes in Emerging Markets, 1980–2011 |
| Chart | Data | 1.4.2 | Predicted Crisis Probability in Emerging Markets, 1980–2011 |
| Chart | Data | 1.4.3 | Probability of Banking or Currency Crisis |
| The United States and Canada: Firming Momentum | |||
| Europe | |||
| Asia: Steady Recovery | |||
| Latin America and the Caribbean: Subdued Growth | |||
| Commonwealth of Independent States: Subdued Prospects | |||
| The Middle East and North Africa: Turning the Corner? | |||
| Sub-Saharan Africa: Accelerating Growth | |||
| Spillover Feature: Should Advanced Economies Worry about Growth Shocks in Emerging Market Economies? | |||
| References | |||
| Tables | |||
| 2.1 | Selected Advanced Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment | ||
| 2.2 | Selected European Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment | ||
| 2.3 | Selected Asian Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment | ||
| 2.4 | Selected Western Hemisphere Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment | ||
| 2.5 | Commonwealth of Independent States: Real GDP, Consumer Prices, Current Account Balance, and Unemployment | ||
| 2.6 | Selected Middle East and North African Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment | ||
| 2.7 | Selected Sub-Saharan African Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment | ||
| 2.SF.1 | Exports to Emerging Market Economies, 1995 versus 28 | ||
| Figures | |||
| Chart | Data | 2.1 | 2014 GDP Growth Forecasts and the Effects of a Plausible Downside Scenario |
| Chart | Data | 2.2 | United States and Canada: Recovery Firming Up |
| Chart | Data | 2.3 | Advanced Europe: From Recession to Recovery |
| Chart | Data | 2.4 | Emerging and Developing Europe: Recovery Strengthening, but with Vulnerabilities |
| Chart | Data | 2.5 | Asia: Steady Recovery |
| Chart | Data | 2.6 | Latin America and the Caribbean: Subdued Growth |
| Chart | Data | 2.7 | Commonwealth of Independent States: Subdued Prospects |
| Chart | Data | 2.8 | Middle East, North Africa, Afghanistan, and Pakistan: Turning a Corner? |
| Chart | Data | 2.9 | Sub-Saharan Africa: Accelerating Growth |
| Chart | Data | 2.SF.1 | Real Trade Linkages between Advanced Economies and Emerging Market Economies |
| Chart | Data | 2.SF.2 | Financial Exposure of Advanced Economies to Emerging Market Economies |
| Chart | Data | 2.SF.3 | Event Studies around Downturn Episodes in Emerging Market Economies |
| Chart | Data | 2.SF.4 | Peak Effect of a Growth Shock to Emerging Market Economies on Advanced Economies' Output Growth |
| Chart | Data | 2.SF.5 | Model Simulations of Potential Growth Spillover Effects from Emerging Market Economies on Advanced Economies |
This chapter analyzes the causes of worldwide decreases in real interest rates since the 1980s.
| Stylized Facts: Measuring Real Rates and the Cost of Capital | |||
| Determinants of Real Rates: A Saving-Investment Framework | |||
| Which Factors Contributed to the Decline in Real Interest Rates? | |||
| Should We Expect a Large Reversal in Real Rates? | |||
| Summary and Policy Conclusions | |||
| References | |||
| Appendices | |||
| 3.1 | Model-Based Inflation and Dividend Growth Expectations | ||
| 3.2 | Investment Profitability | ||
| 3.3 | Fiscal Indicator | ||
| 3.3 | The Effect of Financial Crises on Investment and Saving | ||
| 3.5 | Sensitivity of Saving and Investment to Real Rates | ||
| 3.6 | Saving and Growth with Consumption Habit | ||
| 3.7 | Sample of Countries Used in Tables and Figures | ||
| Box | |||
| 3.1 | Saving and Economic Growth | ||
| Figures | |||
| Chart | Data | 3.1 | Ten-Year Interest Rate on Government Bonds and Inflation |
| Chart | Data | 3.2 | Real Interest Rate Comparison |
| Chart | Data | 3.3 | Real Interest Rates, Real Returns on Equity, and Cost of Capital |
| Chart | Data | 3.4 | Common Factors in Real Interest Rates |
| Chart | Data | 3.5 | Real Interest Rate and Shifts in Demand for and Supply of Funds |
| Chart | Data | 3.6 | Investment-to-GDP Ratios |
| Chart | Data | 3.7 | Investment Shifts in Advanced Economies |
| Chart | Data | 3.8 | Saving Shifts in Emerging Markets |
| Chart | Data | 3.9 | Effect of Fiscal Policy on Real Interest Rates |
| Chart | Data | 3.10 | Effect of U.S. Monetary Policy Shocks on Real Interest Rates |
| Chart | Data | 3.11 | Real Long-Term Interest Rates and Real Returns on Equity |
| Chart | Data | 3.12 | Portfolio Shifts and Relative Demand for Bonds versus Equity |
| Chart | Data | 3.13 | Portfolio Shifts and Relative Riskiness of Bonds versus Equity, 1980–2013 |
| Chart | Data | 3.14 | Effect of Financial Crises on Saving- and Investment-to-GDP Ratios |
| Chart | Data | 3.15 | Implications of Lower Real Interest Rates for Debt Sustainability |
| Chart | Data | 3.16 | Investment Shifts in Advanced Economies |
| Chart | Data | 3.17 | Global Long-Term Real Interest Rates |
| Chart | Data | 3.18 | Convergence of Real Interest Rates in the Euro Area |
| Chart | Data | 3.1.1 | Saving Rate and Accelerations (Decelerations) in GDP |
| Chart | Data | 3.1.2 | Total Saving: Actual versus Conditional Forecasts |
The chapter examines factors behind the fluctuations in emerging market economies' growth, including the role of China.
| Effects of External Factors on Emerging Market Growth | |||
| Global Chain or Global China? Quantifying China’s Impact | |||
| Growth Effects: The Long and the Short of It | |||
| Shifting Gears: Have Emerging Markets’ Growth Dynamics Changed since the Global Financial Crisis? | |||
| Policy Implications and Conclusions | |||
| References | |||
| Appendices | |||
| 4.1 | Data Definitions, Sources, and Descriptions | ||
| 4.2 | Estimation Approach and Robustness Checks | ||
| Box | |||
| 4.1 | The Impact of External Conditions on Medium-Term Growth in Emerging Market Economies | ||
| Tables | |||
| 4.1 | Impulse Responses to Shocks within the External Block: Baseline Model | ||
| 4.2 | Impulse Responses to Shocks within the External Block: Modified Baseline Model with China Real GDP Growth | ||
| 4.3 | Share of Output Variance Due to External Factors | ||
| 4.4 | Data Sources | ||
| 4.5 | Sample of Emerging Market Economies and International Organization for Standardization Country Codes | ||
| 4.6 | Correlations of Domestic Real GDP Growth with Key Variables, 1998–2013 | ||
| 4.1.1 | Growth Regressions for Emerging Markets, 1997–2011 | ||
| 4.1.2 | Growth Regressions for Emerging Markets: Brazil, China, India, Russia, and South Africa versus Other Emerging Market Partner Growth, 1997–2011 | ||
| 4.1.3 | Growth Regressions for Emerging Markets | ||
| Figures | |||
| Chart | Data | 4.1 | Growth Developments in Advanced and Emerging Market and Developing Economies |
| Chart | Data | 4.2 | Average Country Rankings, 2000–12 |
| Chart | Data | 4.3 | Impulse Responses of Domestic Real GDP Growth to External Demand Shocks |
| Chart | Data | 4.4 | Impulse Responses to External Financing Shock |
| Chart | Data | 4.5 | Impulse Responses to U.S. High-Yield Spread Shock |
| Chart | Data | 4.6 | Correlations between Growth Responses to External Shocks and Country-Specific Characteristics |
| Chart | Data | 4.7 | Impulse Responses of Domestic Real GDP Growth to Terms-of-Trade Growth Shock |
| Chart | Data | 4.8 | Historical Decompositions of Real GDP Growth into Internal and External Factors |
| Chart | Data | 4.9 | Impulse Responses to Real GDP Growth Shock in China |
| Chart | Data | 4.10 | Historical Decomposition of Real GDP Growth with China as an Explicit External Factor |
| Chart | Data | 4.11 | Emerging Markets’ Output and Growth Performance after Global Recessions |
| Chart | Data | 4.12 | Out-of-Sample Growth Forecasts Conditional on External Factors, by Country |
| Chart | Data | 4.13 | Conditional Forecast and Actual Growth since the Global Financial Crisis, by Country |
| Chart | Data | 4.14 | Domestic Real GDP Growth across Emerging Markets versus United States and China |
| Chart | Data | 4.15 | Average Growth for Regional Groups of Emerging Market Economies |
| Chart | Data | 4.16 | Impact of Prior Choice on Average Impulse Responses |
| Chart | Data | 4.17 | Average Impulse Responses to Shocks from Alternative U.S. Monetary Policy Variables |
| Chart | Data | 4.18 | Domestic Real GDP Growth Response to U.S. Federal Funds Rate and 10-Year U.S. Treasury Bond Rate under Alternative Specifications |
| Chart | Data | 4.19 | Average Impulse Responses to Alternative Measures of U.S. Monetary Policy Shock |
| Chart | Data | 4.20 | Alternative Monetary Policy Shocks |
| Chart | Data | 4.21 | Impulse Response of Domestic Real GDP Growth to External Financing Shocks |
| Chart | Data | 4.22 | Average Impulse Responses of Domestic Real GDP Growth to Shocks under Alternative Vector Autoregression Specifications |
| Chart | Data | 4.23 | Brazil: Comparison of Responses under the Baseline Model with Responses from Model with Sample Beginning in the First Quarter of 1995 |
| Chart | Data | 4.24 | Comparison of Impulse Responses from Panel Vector Autoregression with Responses from the Baseline Model |
| Chart | Data | 4.1.1 | Export Partner Growth Elasticity |
| Chart | Data | 4.1.2 | Export Partner Growth |
| Text (Download PDF) | |||
| 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, 2013 | |||
| Table B. Advanced Economies by Subgroup | |||
| Table C. European Union | |||
| Table D. Emerging 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. 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 Balances on Current Account | ||
| A11. | Advanced Economies: Balance on Current Account | ||
| A12. | Emerging Market and Developing Economies: Balance on Current Account | ||
| A13. | Emerging Market and Developing Economies: Net Financial Flows | ||
| A14. | Emerging Market and Developing Economies: Private Financial Flows | ||
| A15. | Summary of Sources and Uses of World Savings | ||
| A16. | 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 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. | Advanced Economies: Current Account Transactions | ||
| B16. | Emerging Market and Developing Economies: Balances on Current Account | ||
| B17. | Emerging Market and Developing Economies by Region: Current Account Transactions | ||
| B18. | Emerging Market and Developing Economies by Analytical Criteria: Current Account Transactions | ||
| B19. | Summary of Balance of Payments, Financial Flows, and External Financing | ||
| B20. | Emerging Market and Developing Economies by Region: Balance of Payments and External Financing | ||
| B21. | Emerging Market and Developing Economies by Analytical Criteria: Balance of Payments and External Financing | ||
| B22. | Summary of External Debt and Debt Service | ||
| B23. | Emerging Market and Developing Economies by Region: External Debt by Maturity and Type of Creditor | ||
| B24. | Emerging Market and Developing Economies by Analytical Criteria: External Debt by Maturity and Type of Creditor | ||
| B25. | . Emerging Market and Developing Economies: Ratio of External Debt to GDP | ||
| B26. | Emerging Market and Developing Economies: Debt-Service Ratios | ||
| B27. | Emerging Market and Developing Economies, Medium-Term Baseline Scenario: Selected Economic Indicators | ||
| World Economic Outlook, Selected Topics | |||
