World Economic Outlook Reports

World Economic Outlook, October 2017
Seeking Sustainable Growth:
Short-Term Recovery, Long-Term Challenges

October 2017

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Introduction

The global upswing in economic activity is strengthening, with global growth projected to rise to 3.6 percent in 2017 and 3.7 percent in 2018. Broad-based upward revisions in the euro area, Japan, emerging Asia, emerging Europe, and Russia more than offset downward revisions for the United States and the United Kingdom. But the recovery is not complete: while the baseline outlook is strengthening, growth remains weak in many countries, and inflation is below target in most advanced economies. Commodity exporters, especially of fuel, are particularly hard hit as their adjustment to a sharp stepdown in foreign earnings continues. And while short-term risks are broadly balanced, medium-term risks are still tilted to the downside. For policymakers, the welcome cyclical pickup in global activity provides an ideal window of opportunity to tackle key challenges—namely to boost potential output while ensuring its benefits are broadly shared, and to build resilience against downside risks.

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Chapter 1: Global Prospects and Policies

The earlier projected increase in growth is strengthening. Notable pickups in investment, trade, and industrial production, coupled with stronger business and consumer confidence, are supporting the recovery. With early 2017 growth generally stronger than expected, upward revisions to projections are broad based, including for the euro area, Japan, China, emerging Europe, and Russia, more than offsetting downward revisions for the United States, the United Kingdom, and India. After disappointing global growth over the past few years, this recent pickup provides an ideal window of opportunity for policymakers to undertake critical reforms to stave off downside risks, raise potential output, and improve living standards more broadly.

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Chapter 2: Recent Wage Dynamics in Advanced Economics: Drivers and Implications

Nominal wage growth in most advanced economies remains markedly lower than it was before the Great Recession of 2008–09. This chapter finds that the bulk of the wage slowdown can be explained by labor market slack, inflation expectations, and trend productivity growth. While involuntary part-time employment may have helped support labor force participation and facilitated stronger engagement with the workplace, it also appears to have weakened wage growth. This is the case even in economies where measured slack appears low. 

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Chapter 3: The Effects of Weather Shocks on Economic Activity: How Can Low-Income Countries Cope?

Global temperatures have increased at an unprecedented pace over the past 40 years, and significant further warming could occur, depending on our ability to restrain greenhouse gas emissions. This chapter finds that increases in temperature have uneven macroeconomic effects, with adverse consequences concentrated in countries with relatively hot climates, such as most low-income countries. In these countries, a rise in temperature lowers per capita output, in both the short and medium term. Sound domestic policies and development alongside investment in adaptation strategies could help to some extent, but given the constraints faced by low-income countries, the international community must play a key role in supporting these countries’ efforts to cope with climate change.

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Chapter 4: Cross-Border Impacts of Fiscal Policy: Still Relevant?

Positive cross-country spillovers from collective fiscal action by the world’s largest economies helped speed the recovery from the global financial crisis nearly a decade ago. But fiscal spillovers still matter today and depend on circumstances in both the countries that generate and receive fiscal shocks. This chapter’s new research shows that fiscal spillovers tend to be low when a shock originates from a country without output gaps. But the impact intensifies when a source or recipient country is in recession and/or benefiting from accommodative monetary policy, suggesting that spillovers are large when domestic multipliers are also large. 

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Statistical Appendix

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