IMF World Economic Outlook (WEO): Too Slow for Too Long, April 2016

World Economic Outlook, April 12, 2016

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Baseline projection for global growth in 2016: 3.2 percent.
Revision: a 0.2 percentage point downward revision relative to the January 2016 World Economic Outlook Update.
Outlook: recovery is projected to strengthen in 2017 and beyond, driven primarily by emerging market and developing economies, as conditions in stressed economies start gradually to normalize.
Risk assessment: uncertainty has increased and risks of weaker growth scenarios are becoming more tangible; the fragile conjuncture increases the urgency of a broad-based policy response to raise growth and manage vulnerabilities.

Major macroeconomic realignments affecting prospects differentially across countries and regions:
- slowdown and rebalancing in China;
- further decline in commodity prices, especially for oil, with sizable redistributive consequences across sectors and countries;
- related slowdown in investment and trade;
- declining capital flows to emerging market and developing economies.
Non-economic factors contributing to uncertainty: geopolitical tensions and political discord.
Overall assessment: these realignments and factors are consistent with a subdued outlook for the world economy, while risks of much weaker global growth have risen.
Chapter components and analytical elements include:
- Full Text, Recent Developments and Prospects, The Forecast, A Pronounced Increase in Downside Risks, Policy Priorities.
- Special Feature: Commodity Market Developments and Forecasts, with a Focus on the Energy Transition in an Era of Low Fossil Fuel Prices.

Net capital flows to emerging market economies have slowed since 2010, affecting all regions.
Drivers of the slowdown:
- both weaker inflows and stronger outflows contributed;
- much of the decline in inflows can be explained by the narrowing differential in growth prospects between emerging market and advanced economies.
Comparative historical context:
- the slowdown in net capital inflows has been comparable in breadth and size to the major slowdowns of the 1980s and 1990s.
- the incidence of external debt crises in the ongoing episode has so far been much lower.
Policy- and structural-related mitigants:
- improved policy frameworks have contributed greatly to fewer crises;
- more flexible exchange rate regimes have facilitated orderly currency depreciations that mitigated effects of the global capital flow cycle;
- higher levels of foreign asset holdings by emerging market economies, in particular higher levels of foreign reserves;
- lower shares of external liabilities denominated in foreign currency (less of the so-called original sin).
Chapter structure and annexes cover methodology, regional breakdowns, asset-type decomposition, reserve assets, exchange rates, and interaction with U.S. monetary policy.

Main conclusions:
- product and labor market reforms raise output and employment in the medium term;
- complementary macroeconomic policies are needed to maximize short-term payoffs given current economic slack in most advanced economies.
Heterogeneity of reform impacts:
- product market reforms deliver gains in the short term;
- impact of labor market reforms varies across types of reforms and depends on overall economic conditions.
Policy-specific findings:
- reductions in labor tax wedges and increases in public spending on active labor market policies have larger effects during periods of slack, partly because they usually entail some degree of fiscal stimulus;
- reforms to employment protection arrangements and unemployment benefit systems have positive effects in good times but can become contractionary in periods of slack.
Policy implication: the need for careful prioritization and sequencing of reforms.
Analytical components include model-based analysis, empirical analysis, country case studies, political economy drivers, and estimates of potential productivity gains from trade and FDI liberalization.

Extensive figures and tables: Global Activity Indicators; Global Inflation; Commodity and Oil Markets; Emerging Market Economies: Capital Flows; Advanced Economies: Monetary and Financial Market Conditions; Fiscal Policies; Risks to the Global Outlook; Recession and Deflation Risks.
Scenario analysis and boxes include:
- The Estimated Impact of Lower Oil Prices;
- Responding to Secular Stagnation Forces;
- Decomposition of the Change in Oil Prices: 2014 WEO versus April 2016 WEO;
- Oil Scenario; Secular Stagnation and Reform.
Statistical appendices and country-level tables covering Real GDP, Consumer Prices, Current Account Balance, Unemployment, Fiscal and Financial Indicators, External Debt, and Medium-Term Baseline Scenarios.

IMF World Economic Outlook (WEO): Too Slow for Too Long, April 2016