## World Economic Outlook Update, January 2018: Brighter Prospects, Optimistic Markets, Challenges Ahead

_World Economic Outlook, January 2018_

## Source details

**Canonical URL:** [World Economic Outlook Update, January 2018: Brighter Prospects, Optimistic Markets, Challenges Ahead](https://www.imf.org/en/publications/weo/issues/2018/01/11/world-economic-outlook-update-january-2018)

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## Bibliographic details
- Published: January 11, 2018

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### Global outlook and growth revisions
- Global output is estimated to have grown by 3.7 percent in 2017 (0.1 percentage point faster than projected in the fall and ½ percentage point higher than in 2016).
- Global growth forecasts for 2018 and 2019 have been revised up by 0.2 percentage point to 3.9 percent for both years.
- The upward revision reflects increased global growth momentum and the expected impact of the recently approved U.S. tax policy changes.
- The cyclical upswing since mid-2016: about 120 economies (accounting for three quarters of world GDP) saw a pickup in year-on-year growth in 2017 — the broadest synchronized global growth upsurge since 2010.

### United States: tax policy effects and forecasts
- The U.S. tax policy changes are expected to stimulate activity, with investment response to corporate income tax cuts driving the short-term impact.
- The effect on U.S. growth is estimated to be positive through 2020, cumulating to 1.2 percent through that year, with a range of uncertainty around this central scenario.
- Because some provisions are temporary, the package is projected to lower growth for a few years from 2022 onwards.
- U.S. real GDP is projected to be 1.2 percent higher by 2020 than in a projection without the tax policy changes.
- U.S. growth forecasts revised:
  - 2018: raised from 2.3 percent to 2.7 percent.
  - 2019: raised from 1.9 percent to 2.5 percent.
- The forecast assumes the decline in tax revenues will not be offset by spending cuts in the near term; stronger domestic demand is projected to increase imports and widen the current account deficit.

### Regional and sectoral highlights
- Advanced economies: upward revisions mean growth is now expected to exceed 2 percent in 2018 and 2019.
- Emerging and developing Asia: expected to grow at around 6.5 percent over 2018–19, broadly the same pace as in 2017; region accounts for over half of world growth.
- Emerging and developing Europe: 2017 growth now estimated to have exceeded 5 percent; activity in 2018 and 2019 projected to remain stronger than previously anticipated.
- Latin America and the Caribbean: growth of 1.9 percent in 2018 (as projected in the fall) and 2.6 percent in 2019 (a 0.2 percentage point upward revision).
- Middle East, North Africa, Afghanistan, and Pakistan: growth subdued at around 3½ percent in 2018 and 2019.
- Sub-Saharan Africa: growth from 2.7 percent in 2017 to 3.3 percent in 2018 and 3.5 percent in 2019; South Africa expected to remain below 1 percent in 2018–19.
- Commonwealth of Independent States: growth this year and next projected to remain above 2 percent.

### Commodities, inflation, and financial markets
- Crude oil:
  - Prices rose by about 20 percent between August 2017 and mid-December 2017, to over $60 per barrel, with some further increase as of early January 2018.
  - Markets expect prices to gradually decline over the next 4–5 years; as of mid-December, medium-term price futures stood at about $54 per barrel.
  - Table memo: The average price of oil in U.S. dollars a barrel was $52.7 in 2017; the assumed price based on futures markets (as of December 11, 2017) is $59.9 in 2018 and $56.4 in 2019.
- Inflation:
  - Increase in fuel prices raised headline inflation in advanced economies, but wage and core-price inflation remain weak.
  - Emerging market economies: headline and core inflation have ticked up slightly in recent months after declining earlier in 2017.
- Bond and equity markets:
  - Market expectations for the U.S. Federal Reserve policy path have shifted up since August, but still price in a gradual increase over 2018 and 2019.
  - Yield curves have tended to flatten as short-term rates have risen more than longer-term rates in several advanced economies.
  - Equity prices in advanced economies continued to rally; emerging market equity indices have risen further since August.
- Exchange rates (as of early January 2018):
  - U.S. dollar and euro: close to their August 2017 level in real effective terms.
  - Japanese yen: depreciated by 5 percent.
  - Sterling: appreciated by close to 4 percent.
  - Renminbi: appreciated by around 2 percent.
  - Malaysian ringgit: rebounded by about 7 percent.
  - South African rand: by close to 6 percent.
  - Mexican peso: depreciated by 7 percent.
  - Turkish lira: depreciated by 4.5 percent.
- Capital flows: capital flows to emerging economies remained resilient through Q3 2017, with continued strength in non-resident portfolio inflows.

### Risks and scenarios
- Near-term risks broadly balanced; medium-term risks skewed to the downside.
- Upside scenario: cyclical rebound proves stronger if pickup in activity and easier financial conditions reinforce each other.
- Downside scenarios and triggers:
  - Financial market correction due to rich asset valuations and very compressed term premiums.
  - Faster-than-expected increase in advanced economy core inflation and interest rates.
  - Tighter global financing terms affecting economies with high gross debt refinancing needs and unhedged dollar liabilities.
  - More modest-than-expected U.S. investment response to tax changes, weakening spillovers to trading partners.
  - Buildup of financial vulnerabilities if easy financial conditions persist, incl. increased exposure to lower-rated borrowers and rapid growth of non‑financial corporate debt in some emerging markets.
  - Inward-looking policies, increases in trade barriers, geopolitical tensions, political uncertainty, extreme weather events, and migration pressures.

### Policy priorities and recommendations
- Shared priorities across economies:
  - Implement structural reforms to boost potential output and make growth more inclusive.
  - Ensure financial resilience through proactive financial regulation and, where needed, balance sheet repair and stronger fiscal buffers.
- Advanced economies:
  - Adopt a cautious, data-dependent monetary policy normalization where output is close to potential and wage/price pressures are muted.
  - Fiscal policy should focus on medium-term objectives: public investment to boost potential output, raise labor force participation, ensure public debt sustainability, and reduce excessive external imbalances.
  - Where fiscal consolidation is needed, calibrate pace to avoid sharp drags on growth and orient spending to health, education, and protecting the vulnerable.
- Emerging market economies:
  - Use improved monetary policy frameworks to lower core inflation and support demand if activity weakens.
  - Gradually rebuild fiscal buffers, especially in commodity-dependent economies; avoid deferring reforms and adjustments.
  - Employ exchange rate flexibility to prevent sustained relative-price misalignments and limit buildup of financial and external imbalances.
- Low-income countries:
  - Support near-term activity while diversifying economies and lifting potential output to sustain progress toward Sustainable Development Goals.
  - Build buffers to enhance resilience; tackle high and rising debt levels.
  - Focus policy on broadening the tax base, mobilizing revenue, improving debt management, reducing poorly targeted subsidies, and channeling spending into infrastructure, health, and education.
  - Strengthen macroprudential frameworks and increase exchange rate flexibility where appropriate.
- Multilateral cooperation priorities:
  - Continue financial regulatory reform; avoid competitive races to the bottom in taxes, labor, and environmental standards.
  - Modernize rules-based multilateral trade framework; strengthen the global financial safety net.
  - Preserve correspondent banking relationships; curb cross-border money laundering, organized crime, and terrorism.
  - Mitigate and adapt to climate change.

### Key statistics from the projections table (selected)
- World Output (percent change):
  - 2016: 3.2
  - 2017: 3.7
  - 2018: 3.9
  - 2019: 3.9
  - Difference from October 2017 WEO Projections: 0.2
- Emerging and Developing Asia: 6.4 (2016) to 6.5 (2017) and about 6.6–6.8 (projections).
- India (fiscal year basis): 7.1 (2016), 7.4 (2017), 7.8 and 7.9 (projections).
- World trade volume (goods and services): recent entries include 4.6, 4.1, 4.3, 4.2 (selected series).
- Commodity prices (U.S. dollars) — oil:
  - 2016 change: –15.7
  - 2017 change: 23.1
  - Table memo: oil price average $52.7 in 2017; assumed $59.9 in 2018; $56.4 in 2019.

*World Economic Outlook Update, January 2018: Brighter Prospects, Optimistic Markets, Challenges Ahead*

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## References

- [Blog: The Current Economic Sweet Spot Is Not the “New Normal”](https://blogs.imf.org/2018/01/22/the-current-economic-sweet-spot-is-not-the-new-normal/)
- [Opening Remarks by Christine Lagarde](http://www.imf.org/en/News/Articles/2018/01/22/sp012218-opening-remarks-for-the-world-economic-outlook-update-press-conference)
- [https://www.imf.org/en/about/infographics/world-economic-outlook-update-january-2018-infographic](https://www.imf.org/en/about/infographics/world-economic-outlook-update-january-2018-infographic)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/publications/weo/issues/2018/01/11/world-economic-outlook-update-january-2018_