IMF World Economic Outlook (WEO) Update -- Restoring Confidence without Harming Recovery, July 2010
World Economic Outlook, July 7, 2010
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- Published: July 7, 2010
- Series: World Economic Outlook
Global outlook and recent revisions
- World growth is projected at about 4½ percent in 2010 and 4¼ percent in 2011.
- Relative to the April 2010 WEO, this represents an upward revision of about ½ percentage point in 2010; the forecast for 2011 is unchanged.
- Advanced economies: output is expected to expand by 2½ percent in 2010 (a small upward revision of ¼ percentage point); Q4-over-Q4 forecast broadly unchanged at 2¼ percent.
- Emerging and developing economies: annual output growth expected to edge down to 6½ percent in 2011 (broadly unchanged from April 2010 WEO); Q4-over-Q4 growth for 2011 projected at 6¾ percent (a downward revision of ½ percentage point).
- Table 1 highlights (percent change, unless otherwise noted): World Output estimates: 2008 = 3.0; 2009 = –0.6; 2010 = 4.6; 2011 = 4.3. Advanced Economies estimates: 2008 = 0.5; 2009 = –3.2; 2010 = 2.6; 2011 = 2.4.
Financial turbulence, risks, and spillovers
- Renewed financial turbulence in May–June 2010 heightened downside risks, centered on fiscal sustainability concerns in Greece and other vulnerable euro area economies.
- Sovereign risk concerns spilled over to European banking sectors, causing funding pressure, interbank market stress, and sharp movements in currency, equity, and commodity markets.
- Potential channels for real-economy spillovers: curtailed bank credit supply, increased funding costs, lower consumer and business confidence, and fiscal consolidation dampening domestic demand.
- Assumptions in baseline: euro area financial conditions stabilize gradually (use of the new European Stabilization Mechanism as needed and coordinated policies to rebuild bank confidence); additional fiscal consolidation of about ½ percent of GDP reduces euro area growth in 2011 by about ¼ percentage point relative to April 2010 WEO; euro depreciation partially offsets tighter financing conditions.
- Downside scenario (GPM simulation): assumes shocks to financial conditions and domestic demand in the euro area as large as in 2008 plus significant contagion, including in the United States; in this scenario, world growth in 2011 is reduced by about 1½ percentage points relative to the baseline.
Regional highlights — Asia and Pacific (Box 1)
- Asia’s GDP growth forecasts revised upward for 2010 from about 7 percent to about 7½ percent; 2011 expected to settle to about 6¾ percent.
- Country projections and near-term expectations:
- China: 2010 = 10½ percent; 2011 = about 9½ percent.
- India: 2010 = about 9½ percent; 2011 = 8½ percent.
- NIEs and ASEAN: 2010 = about 6½ percent; 2011 = 4¾ percent (NIEs) and 5½ percent (ASEAN).
- Japan: 2010 = about 2½ percent; 2011 = about 1¾ percent.
- Australia and New Zealand: 2010 = about 3 percent; 2011 = 3½ and 3¼ percent, respectively.
- Risks: limited direct financial linkages to vulnerable euro area economies, but significant trade exposure; potential contagion via bank funding, corporate financing, capital outflows, and equity valuation declines.
- Policy capacity: Asian central banks and fiscal authorities have room to redeploy instruments or delay stimulus withdrawal if needed; example cited: Bank of Japan U.S. dollar liquidity swap facility reestablishment in May 2010.
Inflation and commodity price projections
- Baseline petroleum price projection revised to $75.3 a barrel for 2010 and $77.5 a barrel for 2011 (from $80 and $83 in April 2010 WEO).
- Average price of oil in U.S. dollars a barrel was $61.78 in 2009.
- Nonfuel commodity price index projections broadly unchanged.
- Inflation expectations:
- Advanced economies: headline inflation expected around 1¼-1½ percent in 2010 and 2011; risks of deflation remain in some advanced economies.
- Emerging and developing economies: inflation expected to edge up to 6¼ percent in 2010 before subsiding to 5 percent in 2011.
Policy priorities and recommendations
- Overarching challenge: restore financial market confidence without choking the recovery.
- Euro area immediate priorities (financial sphere):
- Make the new European Stabilization Mechanism fully operational.
- Resolve uncertainty about bank exposures (including to sovereign debt).
- Ensure European banks have adequate capital buffers.
- Continue liquidity support.
- Fiscal policy:
- Urgent need for ambitious, credible medium- and long-term consolidation plans (legislation creating binding multiyear targets, reforms to pension entitlements and public health care systems, permanent reductions in non-entitlement spending, tax structure improvements, and stronger fiscal institutions).
- Near-term adjustment should depend on country circumstances; most advanced economies do not need to tighten before 2011 but should not add further stimulus.
- Current fiscal consolidation plans for 2011 envisage an average change in the structural balance of 1¼ percentage points of GDP and are broadly appropriate.
- Economies facing sovereign funding pressures must undertake immediate consolidation with upfront measures.
- Fast-growing advanced and emerging economies can start tightening now; in economies with excessive external surpluses, priority may be monetary tightening and exchange rate appreciation rather than fiscal tightening.
- Monetary and exchange rate policy:
- Maintain highly accommodative monetary conditions in many advanced economies given subdued inflation pressures; monetary policy should be the first line of defense if downside risks materialize.
- Emerging market monetary policy must be responsive in both directions; consider nominal effective exchange rate appreciation in economies with excessive external surpluses and supporting measures (reserve buildup, macroprudential measures, controls on capital flows where appropriate).
- Financial sector reform:
- Accelerate bank recapitalization, consolidation, resolution, restructuring, and regulatory reform.
- Increase transparency about bank exposures and non-public financial institutions; publish stress test results and implement credible plans to strengthen capital levels.
- Develop credible and consistent timetables for regulatory reform; avoid unilateral measures that could have unintended consequences.
- Structural reforms and global demand rebalancing:
- Support transition toward domestic demand in surplus economies through social safety net reform, improved service-sector productivity, and greater exchange rate flexibility where appropriate.
- In deficit economies, pursue fiscal consolidation and financial sector reform.
- Prioritize structural reforms in product and labor markets and tax reforms that encourage investment to raise potential growth and support successful fiscal adjustment.
IMF World Economic Outlook Update — Restoring Confidence without Harming Recovery, July 2010
Content in this bundle
- Figure 1. Global GDP Growth
- Figure 2. Recent Economic Indicators
- fig_3
- Fig 4
- Figure 5. Downside Scenario: Additional Worsening in Financial Stress
- Figure 6. Fiscal Adjustment in 2011
- Figure 7. Capital Flows to Emerging Markets
- 0710a
- 世界经济展望最新预测，2010年7月——在不损害复苏的同时重建信心
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- 世界経済見通し改訂見通し: 回復を妨げることなく信認の回復を目指す; 2010年7月8日
- IMF World Economic Outlook
- Microsoft Word - Asia table for Box 1.docx
- Microsoft Word - Document1
- Microsoft Word
- Microsoft Word - Fig_3.doc
- Microsoft Word - Fig04.docx
- Microsoft Word - Fig05.docx
- Microsoft Word - Fig06.docx
- Microsoft Word - Fig07.docx
- Перспективы развития мировой экономики, Бюллетень ПРМЭ, июль 2010 года
- 0710s
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