The World Economy: Moving Sideways
IMF Blog, October 4, 2016
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- Authors: Maurice Obstfeld
- Published: October 4, 2016
Global outlook and recent performance
- Global output growth projected at 3.1 percent in 2016 and 3.4 percent in 2017.
- The new World Economic Outlook sees:
- A slowdown for the group of advanced economies in 2016.
- An offsetting pickup for emerging and developing economies in 2016.
- Prospects for 2017 unchanged for both country groupings.
- Taken as a whole, the world economy has "moved sideways" with no noticeable deceleration over the last quarter.
- Within-country-group heterogeneity:
- U.S. growth has disappointed in 2016.
- Europe and Japan show smaller upside surprises.
- Emerging Asia has performed better.
- Sub-Saharan Africa has been dragged down by big commodity exporters, while a number of smaller countries have benefited from lower commodity prices.
Longer-term trends and constraints on growth
- Compared to the 1998–2007 averages, long-term potential growth is now projected to be lower in all regions.
- Current growth rates are lower still in much of the world, notably in emerging market and developing economies.
- Contributing factors to lower potential and realized growth:
- Demographic trends.
- Unsustainable earlier-period developments: initial productivity burst from the information and communications technology revolution, China’s growth surge, and a global financial up-cycle that culminated in a severe worldwide crisis.
- Persisting crisis legacies: high debt overhangs, non-performing loans on banks’ books, deflationary pressures, low investment, and eroded human capital.
- Feedback effects:
- Negative output gaps remain widespread.
- Investor and consumer caution over income growth prospects can depress realized growth further.
- Policy imbalance:
- Policy response so far has relied excessively on central banks.
- Markets fear that policy has no room to counter the next big negative economic shock.
Political and social consequences
- Slow and incomplete recovery has been especially damaging where income distribution skewed toward highest earners.
- Political movements in some richer countries blame globalization and seek to wall off economies rather than engage cooperatively; Brexit is cited as an example.
- Political repercussions are likely to depress global growth further.
Risks to the baseline projections
- Projections remain tilted to the downside.
- Upside recovery in 2017 and beyond could be derailed by several, possibly interacting developments:
- A bumpy transition in China.
- A sharp further fall in commodity prices.
- A tightening in global financial conditions.
- A sharp hike in trade barriers.
- Geopolitical tensions could flare up, adding to humanitarian crises in the Middle East and Africa and further complicating policymaking.
Policy strategy: comprehensive, consistent, and coordinated
- The recommended strategy is three-pronged (as explained in a Staff Discussion Note):
- Deploy structural and fiscal policy in support of monetary policy.
- Use monetary policy to maximize the expansionary effects of structural reforms and active fiscal policy.
- Ensure policies are consistent and well-communicated to stabilize expectations.
- Coordination among countries can confer beneficial spillovers (e.g., the 2014 Brisbane Action Plan on structural measures).
- If widely adopted, this approach can:
- Raise growth now.
- Defend against a negative global shock and limit damage to fiscal positions if implemented on a larger scale.
Structural policy priorities
- A renewed commitment to lowering trade barriers is especially important, in contrast to current trends.
- Additional structural priorities:
- Develop labor-market resilience.
- Lower barriers to entry in product and service markets.
- Ease adjustment for those most vulnerable to dislocations from technology, trade, and structural reforms.
- Coordinated action by policymakers can send the clearest message and have the biggest effect.
Source: Maurice Obstfeld, "The World Economy: Moving Sideways", October 4, 2016.
Content in this bundle
- 全球经济：增长未见改善, 作者：莫里斯•奥伯斯法尔德, iMFdirect, 2016年10月4日
- 世界経済：横ばい, モーリス・オブストフェルド, iMFdirect, 2016年10月4日
- Мировая экономика: следуя боковому тренду, Морис Обстфельд, 4 октября 2016 года