World Economic Outlook Update, January 2019: A Weakening Global Expansion
World Economic Outlook, January 2019
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- Published: January 11, 2019
Overview
- The global expansion has weakened: global growth for 2018 is estimated at 3.7 percent (unchanged from the October 2018 WEO).
- The global economy is projected to grow at 3.5 percent in 2019 and 3.6 percent in 2020, each 0.2 and 0.1 percentage point below October 2018 projections, respectively.
- The further downward revision since October reflects carryover from softer momentum in the second half of 2018 (notably in Germany and Italy), weakening financial market sentiment, and a deeper-than-anticipated contraction in Turkey.
Growth Projections (global and major aggregates)
- World Output: 2018 = 3.7 percent; 2019 = 3.5 percent; 2020 = 3.6 percent.
- Advanced Economies: 2018 = 2.3 percent; 2019 = 2.0 percent; 2020 = 1.7 percent.
- Emerging Market and Developing Economies: 2018 = 4.6 percent; 2019 = 4.5 percent; 2020 = 4.9 percent.
- Emerging and Developing Asia: 2018 = 6.5 percent; 2019 = 6.3 percent; 2020 = 6.4 percent.
- China (table figures): 2017 = 6.9; 2018 = 6.6; 2019 = 6.2 (percent change, year over year as presented in table).
- United States (text): 2018 = 2.9 percent; 2019 = 2.5 percent; 2020 = 1.8 percent.
- Japan (text): 2019 = 1.1 percent; 2020 = 0.5 percent.
- Euro area (text): 2018 = 1.8 percent; 2019 = 1.6 percent; 2020 = 1.7 percent.
- United Kingdom baseline: about 1.5 percent growth in 2019–20 (substantial uncertainty; baseline assumes a Brexit deal and gradual transition).
- Emerging and developing Europe: 2018 = 3.8 percent; 2019 = 0.7 percent; 2020 = 2.4 percent (revision driven by a large projected contraction in Turkey).
- Latin America and the Caribbean: 2018 = 1.1 percent; 2019 = 2.0 percent; 2020 = 2.5 percent.
- Sub-Saharan Africa: 2018 = 2.9 percent; 2019 = 3.5 percent; 2020 = 3.6 percent.
- Commonwealth of Independent States: projected to expand by about 2¼ percent in 2019–20.
Financial conditions, commodities, and inflation
- Crude oil prices were around $55 a barrel as of early January, with markets expecting prices to remain broadly at that level over the next 4–5 years.
- The baseline assumes average oil prices just below $60 per barrel in 2019 and 2020 (table: average price in 2018 = $68.58; assumed price = $58.95 in 2019 and $58.74 in 2020).
- Metals and agricultural commodity prices have softened since August; metals prices are expected to decrease 7.4 percent year-over-year in 2019 and remain roughly unchanged in 2020.
- Consumer price inflation has generally remained contained in advanced economies but has inched up in the United States; inflationary pressures in many emerging market economies are easing with the drop in oil prices, partially offset in some cases by currency depreciation pass-through.
- Financial conditions in advanced economies tightened since the fall: equity valuations pared back; sovereign yields have dropped for US Treasuries, German bunds, and UK gilts; Italian sovereign spreads remain elevated at 270 basis points as of January 7.
- The US Federal Reserve raised the target range for the federal funds rate to 2.25–2.50 percent in December and signaled a more gradual pace of rate hikes in 2019 and 2020.
- The European Central Bank ended net asset purchases in December but confirmed policy would remain amply accommodative, with no increase in policy rates until at least summer 2019 and full reinvestment continuing well past the first rate hike.
- Emerging market financial conditions tightened modestly with differentiation across countries; several emerging market central banks (Chile, Indonesia, Mexico, Philippines, Russia, South Africa, Thailand) raised policy rates since the fall, while China and India maintained policy rates on hold and acted to ease domestic funding conditions.
Risks to the outlook
- The balance of risks is skewed to the downside.
- Key risk drivers:
- Escalation of trade tensions beyond those incorporated in the baseline (including the US-China dispute and other ongoing trade frictions).
- A deterioration in financial market sentiment that could trigger a generalized risk-off episode, amplified by high public and private debt levels.
- A “no-deal” withdrawal of the United Kingdom from the European Union.
- A greater-than-envisaged slowdown in China, with spillovers to trading partners and commodity prices.
- Specific amplification channels:
- Higher tariff barriers would raise costs for imported intermediate and capital goods, raise consumer prices, lower business investment, disrupt supply chains, slow productivity growth, and depress corporate profitability and market sentiment.
- Protracted elevated Italian yields would stress Italian banks and worsen debt dynamics.
- China-related shocks can trigger abrupt sell-offs in financial and commodity markets, affecting commodity exporters and emerging markets.
Forecast assumptions
- Baseline incorporates US tariffs announced through September 2018 and retaliatory measures:
- US tariffs include: tariffs on solar panels, washing machines, aluminum, and steel announced in the first half of 2018; a 25 percent tariff on $50 billion of imports from China; a 10 percent tariff on an additional $200 billion of imports from China, with the latter rising to 25 percent after the 90-day “truce” ends on March 1, 2019.
- For China, the forecast incorporates tariffs ranging from 5 to 10 percent on $60 billion of imports from the United States.
- Assumed real effective exchange rates remain constant at the levels prevailing during October 29-November 26, 2018.
Policy priorities and recommendations
- Multilateral cooperation:
- Resolve trade disagreements cooperatively and quickly; avoid raising tariff and non-tariff barriers.
- Cooperate on financial regulatory reforms, international taxation, reducing corruption, and strengthening the global financial safety net.
- Mitigate and adapt to climate change to reduce the risk of severe humanitarian and economic effects.
- Domestic policies:
- Advanced economies: boost productivity, raise labor force participation (particularly of women and youth), ensure adequate social insurance, anchor inflation expectations with monetary policy, and build fiscal buffers where needed.
- Emerging market and developing economies: strengthen macroprudential frameworks to address private debt and balance-sheet mismatches; use exchange rate flexibility to buffer shocks; where inflation expectations are well anchored, allow monetary policy to support domestic activity; ensure fiscal sustainability and improve targeting of subsidies and recurrent expenditures to preserve capital outlays and social spending.
- Low-income developing countries: diversify production structures (especially commodity-dependent economies) and pursue policies that support progress toward the UN Sustainable Development Goals.
Key statistics and exact figures cited
- Global growth: 2018 = 3.7 percent; 2019 = 3.5 percent; 2020 = 3.6 percent.
- Advanced economies growth: 2018 = 2.3 percent; 2019 = 2.0 percent; 2020 = 1.7 percent.
- Emerging market and developing economies growth: 2018 = 4.6 percent; 2019 = 4.5 percent; 2020 = 4.9 percent.
- United States GDP growth: 2018 = 2.9 percent; 2019 = 2.5 percent; 2020 = 1.8 percent.
- Japan GDP growth: 2019 = 1.1 percent; 2020 = 0.5 percent.
- Euro area GDP growth: 2018 = 1.8 percent; 2019 = 1.6 percent; 2020 = 1.7 percent.
- China (table figures): 2017 = 6.9; 2018 = 6.6; 2019 = 6.2 (percent change, year over year).
- Oil price references:
- As of early January: around $55 a barrel.
- Average price in 2018: $68.58 (table).
- Assumed price, based on futures markets (as of November 27, 2018): $58.95 in 2019 and $58.74 in 2020 (table).
- Baseline projection: average oil prices just below $60 per barrel in 2019 and 2020 (text).
- Metals prices: expected to decrease 7.4 percent year-over-year in 2019.
- Federal funds rate (US target range): 2.25–2.50 percent (December action).
- Italian sovereign spreads: 270 basis points as of January 7.
- Emerging and developing Asia growth: 2018 = 6.5 percent; 2019 = 6.3 percent; 2020 = 6.4 percent.
- Sub-Saharan Africa growth: 2018 = 2.9 percent; 2019 = 3.5 percent; 2020 = 3.6 percent.
Source: World Economic Outlook Update, January 2019: A Weakening Global Expansion (January 2019).
Content in this bundle
- World Economic Outlook Update, January 2019: A Weakening Global Expansion; January 21, 2019