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World Economic Outlook
Transitions and Tensions
October 2013
| Assumptions and Conventions | |||
| Further Information and Data | |||
| Preface | |||
| Foreword | |||
| Executive Summary |
©2013 International Monetary Fund
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Global growth is in low gear, and the drivers of activity are changing. These dynamics raise new policy challenges. Advanced economies are growing again but must continue financial sector repair, pursue fiscal consolidation, and spur job growth. Emerging market economies face the dual challenges of slowing growth and tighter global financial conditions. This issue of the World Economic Outlook examines the potential spillovers from these transitions and the appropriate policy responses. Chapter 3 explores how output comovements are influenced by policy and financial shocks, growth surprises, and other linkages. Chapter 4 assesses why certain emerging market economies were able to avoid the classical boom-and-bust cycle in the face of volatile capital flows during the global financial crisis.
| Growth Dynamics Further Diverge | |||
| External Sector Developments | |||
| Policy Challenges | |||
| Rebalancing Global Demand | |||
| Special Feature: Commodity Market Review | |||
| Boxes | |||
| 1.SF.1. | Booms and the Current Account: Cross-Country Experience | ||
| 1.SF.2. | Oil Price Drivers and the Narrowing WTI-Brent Spread | ||
| 1.1 | Taper Talks: What to Expect when the United States Is Tightening | ||
| 1.2 | What Explains the Slowdowns in the BRICS? | ||
| 1.3 | External Rebalancing in the Euro Area | ||
| 1.4 | Abenomics: Risks after Early Success? | ||
| Tables | |||
| 1.1 | Overview of the World Economic Outlook Projections | ||
| 1.SF.1 | First-Round Trade Balance Impact from Changes in Commodity Prices | ||
| 1.SF.2 | Temporary Oil Price Shock Impact on GDF and Current Accounts: Scenarios 1, 2, and 3 | ||
| 1.1.1 | Real GDP Growth | ||
| 1.2.1 | The Slowdown of Real and Potential Growth in the BRICS | ||
| 1.2.2 | Five-Year-Ahead Forecast Growth and Average Growth from 1998 to 2013 in the BRICS | ||
| Figures | |||
| Chart | Data | 1.1 | Global Growth |
| Chart | Data | 1.2 | Global Activity Indicators |
| Chart | Data | 1.3 | GDP Growth Forecasts |
| Chart | Data | 1.4 | Monetary Conditions in Advanced Economies |
| Chart | Data | 1.5 | Fiscal Policies |
| Chart | Data | 1.6 | Global Inflation |
| Chart | 1.7 | Overheating Indicators for the G20 Economies | |
| Chart | Data | 1.8 | Financial Market Conditions |
| Chart | Data | 1.9 | Capital Flows |
| Chart | Data | 1.10 | Exchange Rates and Reserves |
| Chart | Data | 1.11 | Financial Conditions in Emerging Markets since May 2013 |
| Chart | Data | 1.12 | Capacity and Credit in Emerging Market Economies |
| Chart | Data | 1.13 | Real GDP Projections Past and Current |
| Chart | Data | 1.14 | Global Trade and Imbalances |
| Chart | Data | 1.15 | Risks to the Global Outlook |
| Chart | Data | 1.16 | Recession and Deflation Risks |
| Chart | Data | 1.17 | Plausible Downside Scenario |
| Chart | Data | 1.18 | Rebalancing Scenario |
| Chart | Data | 1.SF.1 | IMF Commodity Price Indices |
| Chart | Data | 1.SF.2 | Commodity Prices and Emerging Markets Economic Activity |
| Chart | Data | 1.SF.3 | Trade Balance Impacts of Energy and Metal Price Declines |
| Chart | Data | 1.SF.4 | Illustrative Impact of Chinese Demand Slowdown on Commodity Exporters |
| Chart | Data | 1.SF.5 | Balance of Risks |
| Chart | Data | 1.SF.6 | U.S. Oil and Gas Production Projections |
| Chart | Data | 1.SF.7 | Medium-Term Impact of U.S. Energy Boom |
| Chart | Data | 1.SF.8 | Natural Gas and Oil Prices in the United States and Germany |
| Chart | Data | 1.SF.1.1 | Giant Oil and Gas Discoveries and the Current Account |
| Chart | Data | 1.SF.2.1 | WTI–Brent Price Differentials |
| Chart | Data | 1.SF.2.2 | Brent SVAR Historical Decomposition |
| Chart | Data | 1.SF.2.3 | WTI–Brent Differential: Historical Decomposition |
| Chart | Data | 1.1.1 | U.S. Growth and Financial Indicators |
| Chart | Data | 1.1.2 | Global Economic and Financial Conditions during U.S. Monetary Policy Tightening |
| Chart | Data | 1.1.3 | Gross Capital Inflows to Emerging Markets |
| Chart | Data | 1.2.1 | Real GDP Growth |
| Chart | Data | 1.2.2 | Composition of 2011–13 Growth Changes |
| Chart | Data | 1.2.3 | World Export Growth, the U.S. Real Interest Rate, and Commodity Prices |
| Chart | Data | 1.3.1 | Developments in External Balance |
| Chart | Data | 1.3.2 | Cumulative Unit Labor Cost Adjustment |
| Chart | Data | 1.3.3 | Export Performance and External Adjustment |
| Chart | Data | 1.4.1 | Inflation Expectations |
| Chart | Data | 1.4.2 | Effect of Abenomics under Various Scenarios |
| The United States and Canada: A Modest Recovery | |||
| Europe: Supporting the Fledgling Recovery | |||
| Asia: A Lower Growth Trajectory | |||
| Latin America and the Caribbean: Growth Is Subdued | |||
| Commonwealth of Independent States: Slower Growth amid Weak External and Internal Demand | |||
| Middle East, North Africa, Afghanistan, and Pakistan: Growth Hinges on Improvements in Oil Production and Confidence | |||
| Sub-Saharan Africa: Continued Dynamism | |||
| 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 | ||
| Figures | |||
| Chart | Data | 2.1 | The Effects of a Plausible Downside Scenario |
| Chart | Data | 2.2 | United States and Canada: 2013 GDP Growth Forecasts |
| Chart | Data | 2.3 | United States and Canada: A Modest Recovery |
| Chart | Data | 2.4 | Europe: 2013 GDP Growth Forecasts |
| Chart | Data | 2.5 | Advanced Europe: Abating Tail Risks, but Prolonged Stagnation |
| Chart | Data | 2.6 | Emerging Europe: Growth Continues despite Increased Financial Volatility |
| Chart | Data | 2.7 | Asia: 2013 GDP Growth Forecasts |
| Chart | Data | 2.8 | Asia: A Lower Growth Trajectory |
| Chart | Data | 2.9 | Latin America and the Caribbean: 2013 GDP Growth Forecasts |
| Chart | Data | 2.10 | Latin America: Growth Is Subdued |
| Chart | Data | 2.11 | Commonwealth of Independent States: 2013 GDP Growth Forecasts |
| Chart | Data | 2.12 | Commonwealth of Independent States: Slower Growth amid Weak External and Internal Demand |
| Chart | Data | 2.13 | Middle East, North Africa, Afghanistan, and Pakistan: 2013 GDP Growth Forecasts |
| Chart | Data | 2.14 | Middle East, North Africa, Afghanistan, and Pakistan: Growth Hinges on Improvements in Oil Production and Confidence |
| Chart | Data | 2.15 | Sub-Saharan Africa: 2013 GDP Growth Forecasts |
| Chart | Data | 2.16 | Sub-Saharan Africa: Continued Dynamism |
This chapter explores how output comovements have evolved in recent years and how they are influenced by various shocks and linkages. It assesses the possible output spillovers from those shocks that most concern policymakers, including policy shocks, such as unexpected monetary or fiscal tightening; financial shocks, such as a systemic banking crisis or renewed financial turmoil; and growth surprises (which could be driven by either real or financial shocks) in advanced economies or in large emerging markets.
| Output Comovements: Conceptual Framework and Stylized Facts | |||
| The Role of Common Shocks and Financial and Trade Linkages | |||
| Spillovers of Country-Specific Shocks to Other Countries and the Role of Financial and Trade Linkages | |||
| Summary and Implications for the Outlook | |||
| Conclusions | |||
| Appendix | |||
| 3.1 | Data Definitions, Sources, and Country Groupings | ||
| 3.2 | Multiperiod Comovement Regressions | ||
| 3.3 | Growth Regressions | ||
| Boxes | |||
| 3.1 | Output Synchronicity in the Middle East, North Africa, Afghanistan, and Pakistan and in the Caucasus and Central Asia | ||
| 3.2 | Spillovers from Changes in U.S. Monetary Policy | ||
| References | |||
| Figures | |||
| Chart | Data | 3.1 | The Evolution of Output Comovements, 2004–12 |
| Chart | Data | 3.2 | Output Comovements: 1978–2012 |
| Chart | Data | 3.3 | Output Comovements: Back to Precrisis Levels? |
| Chart | Data | 3.4 | What’s Behind “Common Shocks”? |
| Chart | Data | 3.5 | Growth Surprises in the United States, Euro Area, and China and their Impact on Growth in Other Countries |
| Chart | Data | 3.6 | Peak Impact of Growth Disappointments on Other Regions |
| Chart | Data | 3.7 | Cross-Border Impact of Financial Shocks |
| Chart | Data | 3.8 | Impact of U.S. and Euro Area Financial Shocks |
| Chart | Data | 3.9 | Cross-Border Impact of Policy Shocks |
| Chart | Data | 3.10 | Peak Impact of Fiscal Policy Shocks on Other Regions |
| Chart | Data | 3.11 | Cross-Border Impact of Monetary Policy Shocks on Industrial Production |
| Chart | Data | 3.12 | Peak Impact of Monetary Policy Shocks on Other Regions |
| Chart | Data | 3.13 | Impact of U.S. Credit Supply Shocks |
| Chart | Data | 3.14 | Comparison of Various Output Comovement Measures |
| Chart | Data | 3.15.a | Growth Surprise Shocks |
| Chart | Data | 3.15.b | Financial Shocks |
| Chart | Data | 3.15.c | Policy Shocks |
| Chart | Data | 3.16.a | Cross-Border Impact of Growth Surprises in the United States, Euro Area, and China on Growth in Other Countries |
| Chart | Data | 3.16.b | b Cross-Border Impact of Growth Surprises in the United States and Euro Area on Growth in Other Countries |
| Chart | Data | 3.16.c | Cross-Border Impact of Fiscal Policy Shocks on Growth in Other Countries |
| Chart | Data | 3.16.d | Cross-Border Impact of Monetary Policy Shocks on Growth in Other Countries |
| Chart | Data | 3.17 | Cross-Border Output Impact of Tax- versus Spending-Based Shocks |
| Chart | Data | 3.1.1 | Output Comovements between MCD Groups and External Partners |
| Chart | Data | 3.1.2 | Output Comovements in Middle East and Central Asia Country Groups |
| Chart | Data | 3.2.1 | Impact of Monetary Policy Shocks |
| Chart | Data | 3.1.1 | Monthly Percent Increase on Short-Term Rates |
| Chart | Data | 3.2.3 | Response to Federal Funds Rate Shocks |
| Chart | Data | 3.2.4 | Exchange Rate Response to Federal Funds Rate Surprises |
| Chart | Data | 3.2.5 | Monetary Policy Autonomy |
Historically, surges in capital inflows to emerging market economies tended to lead to domestic booms and current account deficits and, when the flows reversed, painful adjustments and sometimes financial crisis. The global financial crisis, however, marked a change from the past. While some countries experienced the classical boom-and-bust cycle in response to volatile international capital flows, many did not. Instead, domestic residents stepped in to replace foreign capital by drawing down their own foreign assets. Chapter 4 examines whether it is possible to use policy to encourage such behavior.
| Financial Adjustment and Resilience | |||
| How Are the More Resilient Economies Different? | |||
| Case Studies | |||
| Overall Analysis | |||
| Conclusions | |||
| Box | |||
| 4.1 | Simulating Vulnerability to International Capital Market Conditions | ||
| Figures | |||
| Chart | Data | 4.1 | Gross Capital Inflows |
| Chart | Data | 4.2 | Account, GDP, Consumption, and Unemployment |
| Chart | Data | 4.3 | Policies and Institutions |
| Chart | Data | 4.4 | External Financial Integration |
| Chart | Data | 4.5 | Economic Structure and Reserves |
| Chart | Data | 4.6 | Chile |
| Chart | Data | 4.7 | Malaysia |
| Chart | Data | 4.8 | The Czech Republic |
| Chart | Data | 4.1.1 | Responses to Changes in International Capital Market Conditions |
| 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, 2012 | |||
| 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 | |||
| Table F. Key Data Documentation | |||
| Box A1. Economic Policy Assumptions Underlying the Projections for Selected Economies | |||
| List of Tables 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–A14) Flow of Funds (Table A15) Medium-Term Baseline Scenario (Table A16) |
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| 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 per Capita GDP | ||
| 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 | |||
