Global Economy Gaining Momentum—For Now
IMF Blog, April 18, 2017
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- Authors: Maurice Obstfeld
- Published: April 18, 2017
Overview
- Momentum in the global economy has been building since the middle of last year, allowing reaffirmation of earlier forecasts of higher global growth this year and next.
- The April World Economic Outlook projects the world economy to grow at a pace of 3.5 percent in 2017, up from 3.1 percent last year, and 3.6 percent in 2018.
- The improvement for 2017 is marginally higher than the last update, coming primarily from good economic news for Europe and Asia, and a continuing expectation for higher growth this year in the United States.
- Acceleration will be broad based across advanced, emerging, and low-income economies, building on gains seen in both manufacturing and trade.
Key findings and regional notes
- Broad-based acceleration across advanced, emerging, and low-income economies.
- Manufacturing and trade are contributing to the gains in momentum.
- Commodity prices have firmed since early 2016, but remain at low levels.
- Many commodity exporters remain challenged, notably in the Middle East, Africa, and Latin America.
- Several low-income countries face threats of mass starvation from a combination of adverse weather conditions and civil unrest.
- In Sub-Saharan Africa, income growth could fall slightly short of population growth, but not by nearly as much as last year.
Risks, uncertainties, and scenarios
- Upside possibilities:
- Further rises in consumer and business confidence in advanced economies (confidence indicators already at relatively elevated levels).
- Downside headwinds:
- Trend productivity growth remains subdued across the world economy.
- Macroeconomic policy uncertainties in the two largest economies:
- The U.S. Federal Reserve has embarked on monetary normalization and may soon begin to scale back the size of its balance sheet.
- Faster U.S. recovery could put upward pressure on the dollar; interest-rate hikes are not yet imminent for the Bank of Japan and the European Central Bank.
- U.S. fiscal policy seems likely to turn more expansionary over the next couple of years; if slack in the U.S. economy is small, this could result in inflation and a faster than expected pace of interest rate rises, reinforcing dollar strength and possibly causing difficulties for emerging and some developing economies—especially those with dollar pegs or extensive dollar-denominated liabilities.
- China’s rebalancing shows a declining current account surplus and an increased GDP share of services, yet growth remains reliant on domestic credit growth so rapid that it may cause financial stability problems down the road, with potential spillovers to other countries.
- Political threats from growing domestic movements skeptical of international economic integration:
- A broad withdrawal from multilateralism could produce widespread protectionism or a competitive race to the bottom in financial oversight, leaving all countries worse off.
Policy recommendations
- No universal policy prescription fits all countries; policies should reflect diverse conjunctural stages.
- Monetary policy:
- Monetary accommodation should continue where inflation remains stubbornly below target levels.
- Fiscal policy:
- Growth-friendly fiscal measures can support demand where needed, especially where there is fiscal space; such measures can also contribute to expanding supply and reducing external imbalances.
- Structural reforms:
- All countries have opportunities for structural reforms that raise potential output and resilience to shocks; specific reform priorities differ across economies.
- Trade and adjustment policies:
- Avoiding damage from protectionist measures requires renewed multilateral commitment to support trade, paired with national initiatives to help workers adversely affected by structural economic transformations, including those due to trade and rapid technology change.
- Policies that support trade and aid adjustment can also raise potential output.
- Investment in workforces and measures to aid adjustment are necessary to maintain political support for trade.
International cooperation
- International growth and stability rely on multilateral collaboration across problems that spill over national borders, including financial oversight, tax avoidance, climate, disease, refugee policy, and famine relief.
- Historically, inclusive cooperative approaches to interdependence have worked best.
- National policymakers must do the hard work to ensure that the gains from harnessing interdependence are broadly shared.
Source: Maurice Obstfeld, April 18, 2017 — "Global Economy Gaining Momentum—For Now" (April 2017 World Economic Outlook referenced).
Content in this bundle
- 全球经济增长势头在加强——目前看来; IMF博客; 2017年4月14日
- 差し当たり、勢い増す世界経済; モーリス・オブストフェルド IMFブログ, 2017年4月14日掲載
- Мировая экономика набирает обороты — на сегодняшний момент; Морис Обстфельд; 14 апреля 2017 года
- Staff Discussion Note