IMF World Economic Outlook (WEO) Update, January 2017: A Shifting Global Economic Landscape
World Economic Outlook, January 2017
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- Published: January 16, 2017
Summary of projections and headline figures
- Global output growth for 2016 is estimated at 3.1 percent.
- Global growth is projected at 3.4 percent for 2017 and 3.6 percent for 2018 (unchanged from the October 2016 WEO).
- Emerging market and developing economies (EMDEs) growth: 4.1 percent in 2016; projected 4.5 percent in 2017 and 4.8 percent in 2018.
- Advanced economies projected to grow by 1.9 percent in 2017 and 2.0 percent in 2018 (0.1 and 0.2 percentage points higher than the October forecast).
- United States projection assumes fiscal stimulus producing growth of 2.3 percent in 2017 and 2.5 percent in 2018, a cumulative increase in GDP of ½ percentage point relative to the October forecast.
- China growth for 2017 revised to 6.5 percent (0.3 percentage point above the October forecast).
- India growth forecasts trimmed: current (2016–17) fiscal year trimmed by one percentage point and next fiscal year by 0.4 percentage point.
- Oil prices: average price in U.S. dollars a barrel was $42.7 in 2016; assumed price based on futures markets (as of December 6, 2016) is $51.2 in 2017 and $53.1 in 2018.
- U.S. dollar: appreciated in real effective terms by over 6 percent since August.
- U.S. 10-year Treasury nominal yields: increased by close to one percentage point since August and 60 basis points since the U.S. election (as of January 3).
Developments in H2 2016 and near-term drivers
- Advanced economies exhibited a stronger-than-expected pickup, driven by reduced inventory drag and manufacturing recovery; the United States rebounded strongly and is approaching full employment.
- Divergent EMDE performance: China stronger than expected (policy stimulus); weaker-than-expected activity in Argentina, Brazil, Turkey; Russia slightly better reflecting firmer oil prices.
- Commodity prices: oil and base metals strengthened following producer agreement and demand/investment conditions.
- Inflation: headline inflation recovered in advanced economies with commodity bottoming; core inflation generally remained below targets. China’s producer price inflation turned positive.
- Financial conditions: long-term nominal and real interest rates rose substantially since August, particularly in the United Kingdom and United States. Euro area long-term yields rose more moderately (Germany ~35 basis points, Italy ~70 basis points).
- Exchange rates and capital flows: appreciation of some commodity exporters’ currencies; depreciation in several emerging market currencies (notably Turkish lira, Mexican peso); preliminary sharp nonresident portfolio outflows from emerging markets after the U.S. election.
Forecast revisions by region and notable country changes
- Aggregate 2016–18 projections unchanged from October WEO, but internal composition adjusted:
- Advanced economies: upward revisions for the United States, Germany, Japan, Spain, and the United Kingdom; downward revisions for Italy and Korea.
- EMDEs: near-term prospects marginally weaker overall; China revised up for 2017 to 6.5 percent; Nigeria revised up reflecting higher oil production.
- Downward revisions for 2017: India (current and next fiscal year), Indonesia, Thailand, Argentina, Brazil, Mexico, Saudi Arabia, Venezuela deterioration noted.
- EMDE growth estimated at 4.1 percent in 2016; projected 4.5 percent in 2017 (around 0.1 percentage point weaker than October) and 4.8 percent in 2018.
Balance of risks and scenarios
- Overall risk assessment: two-sided but skewed to the downside, especially over the medium term.
- Upside scenario:
- Policy stimulus in the United States and/or China larger than incorporated could accelerate global activity and lift trading partners’ growth (unless offset by protectionism).
- Higher investment if confidence in global demand recovery strengthens.
- Downside scenarios and notable risks:
- Shift toward inward-looking policies and protectionism, harming productivity, incomes, and market sentiment.
- Sharper tightening in global financial conditions interacting with balance sheet weaknesses in parts of the euro area and some EMDEs.
- High corporate debt, weak bank balance sheets, thin policy buffers in some EMDEs increasing vulnerability to capital flow reversals and sharp depreciations.
- Geopolitical tensions, civil conflict, refugee crises, terrorism, extended droughts, and epidemics (e.g., Zika) could deepen hardship and depress global confidence.
- A more severe slowdown in China given reliance on policy stimulus, rapid credit expansion, and persistent corporate debt problems.
Policy recommendations and priorities
- Advanced economies with negative output gaps and muted wage pressures:
- Monetary policy should remain accommodative, using unconventional tools as needed.
- Fiscal support is essential where space exists, calibrated to protect the vulnerable and lift medium-term growth prospects; if fiscal adjustment is necessary, pace and composition should minimize output drag.
- Advanced economies without substantially negative output gaps:
- Fiscal support should target safety nets and investments that raise longer-term potential (high-quality infrastructure, supply-friendly equitable tax reform).
- Well-anchored inflation expectations should permit gradual monetary normalization.
- Broad structural agenda:
- Complement accommodative macro policies with reforms to boost labor force participation, invest in skills, improve labor-market matching, liberalize entry into closed professions, and promote innovation and R&D to counteract waning potential growth.
- Emerging market and developing economies:
- Enhance financial resilience; adopt stronger risk management; contain balance sheet mismatches where large nonfinancial debt, unhedged foreign liabilities, or heavy reliance on short-term funding are present.
- Low-income countries: restore fiscal buffers while prioritizing efficient spending on capital and social needs, strengthen debt management, improve domestic revenue mobilization, and implement structural reforms including education.
- Commodity-dependent countries: allow exchange rate adjustment where feasible, tighten monetary policy to contain inflation rises, and pursue growth-friendly fiscal consolidation; diversify export bases over the longer term.
- Multilateral priorities:
- Strengthen global safety nets to protect economies with robust fundamentals but vulnerability to cross-border spillovers.
- Coordinate to share benefits of integration broadly: targeted assistance for those adversely affected by trade opening; crack down on tax evasion and avoidance; continue financial-sector resilience efforts (recapitalization, balance-sheet cleanup, banking resolution frameworks, address nonbank intermediary risks).
- Multilateral cooperation to meet 2015 Sustainable Development Goals, mitigate climate change, and prevent the spread of global epidemics.
Source: IMF World Economic Outlook Update, January 2017: A Shifting Global Economic Landscape
Content in this bundle
- World Economic Outlook Update, January 2017: A Shifting Global Economic Landscape, January 16, 2017
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References
- Blog on the Update by IMF Chief Economist Maurice Obstfeld
- Transcript of the Press Conference on the World Economic Outlook Update
- World Economic Outlook Reports
- World Economic Outlook Databases
- https://www.imf.org/en/about/infographics/world-economic-outlook-update-january-2017-infographic
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