World Economic Outlook (WEO) Update, July 2017: A Firming Recovery
World Economic Outlook, July 2017
Source details
- Canonical URL
- World Economic Outlook (WEO) Update, July 2017: A Firming Recovery
Other formats
Bibliographic details
- Published: July 24, 2017
Global overview and headline findings
- Global output projected to grow by 3.5 percent in 2017 and 3.6 percent in 2018.
- The global projections are unchanged from April but mask differing country-level contributions: U.S. growth projections are lower than in April, while Japan, the euro area, and China show upward revisions.
- Inflation in advanced economies remains subdued and generally below targets; inflation has been declining in several emerging economies, such as Brazil, India, and Russia.
- Risks are broadly balanced in the near term but skewed to the downside over the medium term (financial market correction, rising policy uncertainty, China credit growth risks, faster-than-anticipated global monetary policy tightening, inward-looking policies, geopolitical risks).
Cyclical momentum and financial conditions
- The cyclical recovery continues; first-quarter 2017 outturns exceeded April WEO forecasts in Brazil, China, Mexico, Canada, France, Germany, Italy, and Spain.
- High-frequency indicators (global trade, industrial production, PMIs) show continued strengthening, though trade and industrial production retreated from very strong late-2016/early-2017 paces.
- Oil prices receded; headline inflation softened as the 2016 commodity-price rebound effect faded. Core inflation broadly stable.
- Long-term bond yields in advanced economies rebounded in late June/early July after declines since March. The U.S. Federal Reserve raised short-term interest rates in June; markets expect a very gradual path of U.S. monetary policy normalization.
- As of end-June, the U.S. dollar depreciated by around 3½ percent in real effective terms since March; the euro strengthened by a similar amount. Capital flows to emerging economies were resilient with a notable pickup in non-resident portfolio inflows.
Regional and country projections (selected)
- World Output (Year-over-Year): 2015: 3.4; 2016: 3.2; 2017: 3.5; 2018: 3.6.
- Advanced economies: 2017 forecast 2.0 percent; 2018 forecast 1.9 percent (2018 forecast 0.1 percentage point below April WEO).
- United States: growth forecast revised down from 2.3 percent to 2.1 percent in 2017 and from 2.5 percent to 2.1 percent in 2018 (major factor: assumption of less expansionary fiscal policy).
- Euro area: growth projections revised up for 2017 (France, Germany, Italy, Spain) on stronger-than-expected Q4 2016 and Q1 2017 activity.
- Canada: 2017 revised up; first-quarter growth 3.7 percent.
- Japan: 2017 marginally revised up.
- Emerging and developing economies: projected 2017 growth 4.6 percent and 2018 growth 4.8 percent (reflects upward revisions of 0.2 percentage point for 2016 and 0.1 percentage point for 2017 relative to April).
- China: expected to remain at 6.7 percent in 2017 (same as 2016) and decline to 6.4 percent in 2018; 2017 forecast revised up by 0.1 percentage point; 2018 upward revision of 0.2 percentage point tied to expectation of delayed fiscal adjustment and continued high public investment, with attendant downside risks from rising debt.
- India: GDP 2016: 7.1 percent; growth forecast to pick up in 2017 and 2018, in line with April WEO.
- ASEAN-5: projected to remain robust at around 5 percent.
- Emerging and Developing Europe: pickup in 2017, driven by Turkey recovery and stronger external demand; Russia projected to recover gradually in 2017–18, in line with April.
- Latin America and the Caribbean: after 2016 contraction, gradual recovery in 2017–18; Brazil 2017 forecast revised up (strong Q1), but 2018 more subdued recovery and lower projected growth; Mexico 2017 revised up from 1.7 to 1.9 percent (2018 unchanged); Venezuela conditions deteriorated further.
- Middle East, North Africa, Afghanistan, and Pakistan: projected slowdown in 2017 (oil exporters) before recovery in 2018; 2016 outcome stronger due to higher growth in Iran. Recent oil-price decline, if sustained, could weigh on oil-exporter outlook.
- Sub-Saharan Africa: outlook challenging; growth projected to rise in 2017 and 2018 but per capita growth barely returns to positive for the region in 2017; about a third of countries would still have negative per capita growth. Slight upward revision for 2017 due to an upgraded South Africa forecast (bumper crop, increased mining output), but South Africa forecast marked down for 2018.
Risks: key channels and potential triggers
- Policy uncertainty: protracted policy uncertainty could harm confidence, deter private investment, and weaken growth (U.S. regulatory and fiscal policies, post-Brexit negotiations, geopolitical risks).
- Financial tensions: unchecked excessive credit growth in China could cause abrupt slowdown with spillovers; faster-than-expected U.S. monetary normalization could tighten global financial conditions, trigger capital flow reversals to emerging markets, and U.S. dollar appreciation; weak euro-area bank balance sheets and higher long-term rates could worsen public debt dynamics; rollback of post-crisis financial regulation could lower buffers and supervisory effectiveness.
- Inward-looking policies: failure to lift potential growth and make growth inclusive could fuel protectionism, disrupt global supply chains, lower global productivity, and raise prices for tradable goods, harming low-income households.
- Noneconomic shocks: geopolitical tensions, domestic political discord, weak governance, and corruption can weigh directly on activity and confidence.
- Interconnectedness: risks are mutually reinforcing (e.g., inward policies linked to geopolitical tensions and higher risk aversion; monetary tightening or protectionism could reignite capital outflows).
Policy recommendations and priorities
- Differing stances appropriate given divergent cyclical conditions: advanced economies with lacking demand and low inflation should continue monetary and (where feasible) fiscal support; elsewhere monetary policy should normalize gradually; fiscal policy should support supply-side reforms.
- Fiscal consolidation where needed should use growth-friendly measures.
- Emerging market economies should allow exchange rates to buffer shocks where possible.
- Strengthen private sector balance sheet repair and ensure sustainability of public debt to build resilience.
- Reduce excess current account imbalances across surplus and deficit countries.
- Promote well-sequenced and tailored structural reforms to boost productivity and investment, narrow gender labor force participation gaps, and support workers hurt by technological or trade shifts.
- Low-income commodity exporters need sizable adjustment to correct macro imbalances; diversified low-income countries should enhance resilience by strengthening fiscal positions and foreign reserves while growth is strong.
- Preserve and modernize a well-functioning multilateral framework and a rule-based, open world trading system; pursue domestic policies to facilitate adjustment.
- International cooperation to adapt multilateral systems, improve rules, address valid country concerns, and maintain evenhandedness to avoid broad withdrawal from multilateralism or a race to the bottom in financial/regulatory oversight.
Selected key statistics and assumptions
- World Output (Year-over-Year): 2015: 3.4; 2016: 3.2; 2017: 3.5; 2018: 3.6.
- Advanced economies: 2017: 2.0 percent; 2018: 1.9 percent.
- Emerging Market and Developing Economies: 2016: 4.3; 2017: 4.6; 2018: 4.8.
- China: 2016: 6.9; 2017: 6.7; 2018: 6.4.
- India (fiscal year basis): 2016: 7.1; projected pickup in 2017 and 2018.
- Canada: Q1 2017 growth 3.7 percent.
- United States: 2017 forecast revised from 2.3 to 2.1 percent; 2018 from 2.5 to 2.1 percent.
- Oil: average price in U.S. dollars a barrel was $42.8 in 2016; assumed price based on futures markets (as of June 1, 2017) is $51.9 in 2017 and $52.0 in 2018.
- Real effective exchange rates assumed constant at levels prevailing during May 3–May 31, 2017 for projections.
- Note on table coverage: quarterly estimates/projections account for approximately 90 percent of annual world output at purchasing-power-parity weights (world) and approximately 80 percent for Emerging Market and Developing Economies.
Source: World Economic Outlook (WEO) Update, July 2017.
Content in this bundle
- WEO Update: A Firming Recovery