IMF World Economic Outlook (WEO) Update -- An update of the key WEO projections, January 2008
World Economic Outlook, January 29, 2008
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Bibliographic details
- Authors: Simon Johnson
- Published: January 29, 2008
- Series: World Economic Outlook
Overview
- Following strong growth through the third quarter of 2007, the global economic expansion has begun to moderate in response to continuing financial turbulence.
- Global growth is projected to decelerate from 4.9 percent in 2007 to 4.1 percent in 2008, a markdown of 0.3 percentage point relative to the October 2007 World Economic Outlook.
- Risks to the outlook remain tilted to the downside.
- Recent data suggest that global growth slowed markedly in the final quarter of 2007 after a stronger than expected third quarter.
- Financial market strains originating in the U.S. subprime sector—and associated losses on bank balance sheets—have intensified, while a steep sell-off in global equity markets signaled rising uncertainty.
Growth projections and momentum
- Global growth:
- 2007: 4.9 percent
- 2008 projection: 4.1 percent
- Markdown relative to October 2007 WEO: 0.3 percentage point
- Advanced economies (aggregate):
- 2007: 2.6 percent
- 2008 projection: 1.8 percent
- Difference from October: -0.4 percentage point (listed as a change)
- United States:
- 2007: 2.2 percent (annual)
- 2008 projection (annual): 1.5 percent
- 2008 projection (fourth-quarter-on-fourth-quarter basis): 0.8 percent
- 2007 fourth-quarter-on-fourth-quarter: 2.6 percent
- Euro area:
- 2007 fourth-quarter-to-fourth-quarter: 2.3 percent
- 2008 fourth-quarter-to-fourth-quarter projection: 1.3 percent
- Japan:
- 2007: -0.1 percent
- 2008: -0.2 percent (as presented in table lines)
- Other advanced economies:
- 2007: 3.8 percent
- 2008: 3.9 percent
- Emerging market and developing economies (aggregate):
- 2007: 7.8 percent (annual)
- 2008 projection: 6.9 percent
- China:
- 2007: 11.4 percent
- 2008 projection: 10.0 percent
Regional and sectoral details
- Emerging market and developing economies continued to expand strongly, led by China and India, benefiting from strong domestic demand, more disciplined macroeconomic policy frameworks, and, for commodity exporters, high food and energy prices.
- Specific regional figures (selected from table):
- Africa: 2007: 6.0 percent
- Central and eastern Europe: 2007: 5.5 percent; 2008 projection: 4.6 percent; Difference from October: -0.6
- Commonwealth of Independent States: 2007: 8.2 percent; 2008 projection shows 0.5 (context suggests difference from October or a table alignment entry)
- Developing Asia: 2007: 8.6 percent
- Western Hemisphere and Middle East entries are present in the source but specific numeric projections are not fully listed in the excerpt.
Inflation, monetary policy, and macro challenges
- Headline inflation has increased since mid-2007 in both advanced and emerging market economies; core inflation has also drifted upward.
- Monetary policy responses:
- United States: Federal Reserve has been cutting interest rates in response to increasing downside risks to activity.
- Euro area and Japan: Policy has been on hold.
- Many emerging market economies: Central banks have continued to tighten monetary policy, given higher shares of food and energy in consumption baskets and concerns about overheating.
- Monetary policy faces the difficult challenge of balancing the risks of higher inflation and slower economic activity; a possible softening of oil prices could moderate inflation pressures.
- Concerns remain about continuing large global imbalances amid heightened financial volatility.
Risks, spillovers, and upside potential
- Main downside risk: ongoing turmoil in financial markets could further reduce domestic demand in advanced economies and create more significant spillovers into emerging market and developing economies.
- Emerging market economies dependent on capital inflows could be particularly affected.
- Upside potential: strong momentum of domestic demand in some emerging market economies.
- Other elevated risks: monetary policy trade-offs, potential oil-price movements, and large global imbalances.
Notes and methodological point
- The global and regional growth aggregates in this Update use country weights calculated from the new PPP data published by the International Comparison Program in December 2007.
- This resulted in a downward revision of the estimates of global growth during 2005-08 of around ½ percentage point a year relative to the estimates in the October 2007 World Economic Outlook.
- Note from table: Real effective exchange rates are assumed to remain constant at the levels prevailing during December 4, 2007-January 2, 2008.
- Footnote: Country weights used to construct aggregate growth rates for groups of countries were revised from those reported in the October 2007 World Economic Outlook to incorporate updated PPP exchange rates released by the World Bank.
IMF World Economic Outlook Update -- An update of the key WEO projections, January 2008
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