World Economic Outlook

Chapter 1: Global Prospects and Policies

The forces shaping the global outlook—both those operating over the short and long term—point to subdued growth for 2016 and a gradual recovery thereafter but also to downside risks. These forces include new shocks, such as Brexit; ongoing realignments in China and among commodity exporters; slow-moving trends in demographics and productivity growth, as well as noneconomic factors, such as geopolitical uncertainties.

Chapter 2: Global Trade: What's behind the Slowdown?

Trade growth has slowed since 2012 relative both to its strong historical performance and to overall economic growth. This chapter finds that the overall weakness in economic activity, in particular in investment, has been the primary restraint on trade growth, accounting for up to three-fourths of the slowdown. However, other factors are also weighing on trade. The waning pace of trade liberalization and the recent uptick in protection-ism are holding back trade growth, even though their quantitative impact thus far has been limited. The decline in the growth of global value chains has also played an important part in the observed slowdown. The findings suggest that addressing the general weak-ness in economic activity, especially in investment, will stimulate trade, which in turn could help strengthen productivity and growth. In addition, given the subdued global growth outlook, further trade reforms that lower barriers, coupled with measures to mitigate the cost to those who shoulder the burden of adjustment, would boost the international exchange of goods and services and revive the virtuous cycle of trade and growth.

Chapter 3: Global Disinflation in an Era of Constrained Monetary Policy

Inflation has declined markedly in many economies over the past few years. This chapter finds that disinflation is broad based across countries, measures, and sectors—albeit larger for tradable goods than for services. The main drivers of recent disinflation are persistent economic slack and softening commodity prices. Most of the available measures of medium-term inflation expectations have not declined substantially so far. However, the sensitivity of expectations to inflation surprises—an indicator of the degree of anchoring of inflation expectations—has increased in countries where policy rates have approached their effective lower bounds. While the magnitude of this change in sensitivity is modest, it does suggest that the perceived ability of monetary policy to combat persistent disinflation may be diminishing in these economies.

Chapter 4: Spillovers from China’s Transition and from Migration

Spillovers are a key factor shaping the global outlook and the risks around it, and the growing clout of emerging markets means that they are playing an increasing role, including from noneconomic shocks. This chapter analyzes spillovers of: (i) China’s rebalancing towards more sustainable growth, and (ii) increasing migration flows. China’s transition has a direct negative impact on global demand through trade, an indirect impact through commodity prices, and an effect on asset prices. However, a well-managed transition will benefit the global economy in the long term, with more sustainable growth in China and a reduction of risks of a disruptive adjustment. China can help by accepting the slowdown and by clearly communicating its policy intentions. Countries experiencing negative spillovers can use policy buffers in the short term, but plan for adjustment and explore new opportunities to bolster trade. As for migration, it can provoke political backlash in recipient economies, but offers gains in terms of higher growth and relief from population aging. Labor market integration is key to harnessing the gains in terms of growth and migrants’ contributions to the fiscal accounts. Source countries may face negative growth effects, which can be mitigated by remittances, the benefits of diaspora networks, and policies addressing the effects of emigration of young and skilled population.

Statistical Appendix