World Economic Outlook Is the Tide Rising? January 214 1
Global activity has strengthened. Further improvements expected. WEO Update in a nutshell Advanced economy growth has picked up Robust private demand in the U.S. Japan on the Abenomics wave Euro area is turning the corner from recession to recovery Growth spillovers to emerging market economies: exports have picked up Global growth is projected to strengthen in 214-1, broadly as expected Weak and uneven recovery; downside risks remain 2
Global activity has strengthened, especially in advanced economies. 2 World Trade Volumes, Industrial Production and Manufacturing PMI (3mma, annualized percent change) Manufacturing PMI (3mma, annualized percent change) Advanced Economies Emerging Market Economies 6 4 2 1 1 PMI (Δ, 3mma) IP CPB Trade Monitor -2-4 Jan. 212 Jul. 12 Jan. 13 Jul. 13 Dec. 13 Industrial Production (3mma, annualized percent change) 1 Advanced Economies Emerging Market Economies 1-21 211 212 213 Dec. 13 Jan. 212 Jul. 12 Jan. 13 Jul. 13 Sources: Markit Economics; Haver Analytics; Consensus Forecast; and IMF staff calculations. - Nov. 13 3
AE fiscal policy will be less tight in 214, except in Japan. Fiscal Impulse (Change in structural balance as percent of GDP) Euro area United States Japan October 213 WEO 3 2. 2 1. 1. -. Source: IMF staff estimates. 21 11 12 13 14 1 4-1 4
Tighter U.S. monetary conditions interacted with EM domestic weaknesses and led to somewhat tighter EM funding conditions. Net Capital Flows to Emerging Markets (billions of U.S. dollars; monthly flows) 3 Bond Equity 2 VXY 1/ 1 Interest Rate Spreads (basis points) United States BB Sovereign 2/ Corporate 3/ May 22, 213 16 14 12 1 8-1 6 4-2 -3 Greek crisis Irish crisis 1 st ECB LTROs June 29, 212 May 22, 213 21:H1 1:H2 11:H1 11:H2 12:H1 12:H2 13:H1 Jan. 14 Sources: Bloomberg, L.P.; EPFR Global/Haver Analytics; and IMF staff calculations. Note: ECB = European Central Bank; LTROs = longer-term refinancing operations. 22 4 6 8 1 12 Jan. 14 1/ JPMorgan emerging market volatility index. 2/ JPMorgan EMBI Global Index spread. 3/ JPMorgan CEMBI Broad Index spread. 2
With smaller capital inflows, exchange rates have been a shock absorber in many emerging market economies. Nominal Exchange Rates (U.S. dollars per national currency; percent change from May 22, 213 to January 17, 214) 1 - -1 Percent Change from Dec. 18, 213 to Jan. 17, 214-1 COL PER MYS CHN POL MEX RUS IND IDN BRA TUR THA PHL CHL Sources: Global Insight; IMF, International Financial Statistics. Note: COL = Colombia; PER = Peru; CHN = China; POL = Poland; MEX = Mexico; RUS = Russia; IND = India; IDN = Indonesia; BRA = Brazil; TUR = THA; PHL = Philippines; CHL = Chile. -2 6
In the BRICS, exports have picked up, but domestic demand has remained weak consistent with tighter financial conditions and other weaknesses. 4 Real Exports Growth (percent, y-o-y) Real Fixed Capital Formation Growth (percent, y-o-y) 4 3 3 2 2 1 1-1 Brazil China -2 India Russia South Africa -3 29 1 11 12 13 13: Q3 Sources: Haver Analytics; IMF staff calculations. -1-3 Brazil China India Russia -2 South Africa 29 1 11 12 13 13: Q3 7
No boost from commodity prices. But no bust either. Downside risks to prices of some commodities from supply response to high prices. 3 Commodity Prices (Index; 2 = 1) EM Terms of Trade (Index; 2 = 1) 14 2 Food Metal Emerging Market and Developing Economies Latin America and the Caribbean 13 2 Energy Brazil Mexico 12 1 11 1 1 9 1992 94 96 98 2 2 4 6 8 1 12 8 198 84 88 92 96 2 4 8 12 16 19 Source: IMF staff estimates. 8 Dec. 13
Growth in China is expected to stay around 7 percent. But contribution to global growth remains substantial. 2 China GDP Growth (percent) 2. China Contribution to Global GDP Growth (percent) 2 1 1. Contribution to Global Growth 1 PPP Share (Right scale) 1 1. 1.. - 1963 67 71 7 79 83 87 91 9 99 23 7 11 1 19 -. 1963 68 73 78 83 88 93 98 23 8 13 18 Source: IMF staff estimates 9 -
Global Activity is Projected to Strengthen WEO Real GDP Growth Projections (percent change from a year earlier) 214 (Jan. 214) 214 (Oct. 213) World U.S. Euro Area Japan Brazil Russia India China 3.7 2.8 1. 1.7 2.3 2..4 7. 3.6 2.6 1. 1.2 2. 3..1 7.7 21 (Jan. 214) 21 (Oct. 213) 3.9 3. 1.4 1. 2.8 2. 6.4 7.3 4. 3.4 1.4 1.1 3.2 3. 6.3 7.6 Source: IMF, World Economic Outlook. 1 8
Downside risks remain. Forecasts upgrades for 214 are recent, with much of the upward surprises reflecting inventory demand: Yet another false dawn? Evolution of Consensus Forecasts for Real GDP Growth in Advanced Economies (year-over-year percent change) 4 212 213 214 3 2 1 t-2 t-1 t Sources: Consensus Forecast; and IMF staff estimates. 11
Tapering risks: The U.S. 1-year term premium could surprise on the upside U.S. Term Premium on 1-year Zero Coupon Bond 4 3 2 1-1 9 92 94 96 98 2 4 6 8 1 12 Sources: Kim and Wright (2); and IMF staff calculations. 12-2 Jan. 14
Inflation is projected to stay below target. Risks of deflation and inflation expectations drifting down in advanced economies. Global aggregates: Headline Inflation (year-over-year percent change; dashed lines are the six-to-ten-year inflation expectations) Emerging Market and Developing Economies Euro area Japan United States 8 1 12 14 Sources: Consensus Forecast; and IMF staff estimates. 13 1 9 8 7 6 4 3 2 1-1 -2-3 1: Q4
Policies Euro area: banking union; structural & entitlement reforms; fiscal adjustment Japan: work on all 3 arrows of Abenomics US: address ST fiscal challenges; easy monetary policy; MT fiscal adjustment & entitlement reforms China: advance rebalancing and reform shadow banking India: improve fiscal policy and remove structural bottlenecks Brazil: raise domestic saving and foster private investment Russia: rebuild fiscal buffers and improve the investment climate EMDC: (i) exchange rate buffer; (ii) monetary policy to keep inflation well anchored; cut rates if room exists; (iii) fiscal policy to be geared to MT objectives; stimulate only if major slowdown threatens; (iv) preserve financial stability; (v) structural reforms 14 14
BRICS 1 Real GDP Growth (deviation from 1999-26 average; q-o-q annualized) Real Fixed Capital Formation Growth (percent, y-o-y) 4 1 3 2-1 -1-1 -2 Brazil China India Russia -2 South Africa -3 29 1 11 12 13 13: Q3 Sources: Haver Analytics; IMF staff calculations. -1-3 Brazil China India Russia -2 South Africa 29 1 11 12 13 13: Q3 1