World Economic Outlook Recovery Strengthens, Remains Uneven April 214 1
April 214 WEO: Key Messages Global growth strengthened in 213H2, will accelerate further in 214-1 Advanced economies are providing impetus for the acceleration Gaining traction; less fiscal drag, monetary conditions still accommodative Emerging market and developing economies (EMDEs) to strengthen only modestly Greater demand for exports from AEs, offset by tighter financial conditions Acute risks have decreased, but risks have not disappeared Geopolitical risks, including Ukraine/Russia Low inflation/deflation esp. in euro area Risk to EMDEs from changing external environment (more investor differentiation) 2
Global activity has strengthened, led by advanced economies. 2 1 World Trade Volumes, Industrial Production and Manufacturing PMI (3mma, annualized percent change) PMI (Δ, 3mma) IP Manufacturing PMI (index; above = expansion) Advanced Economies Emerging Market Economies 4 3 1 CPB Trade Monitor 2 1 49 48-21 211 212 213 Feb.14 Jan. 212 Jul. 12 Jan. 13 Jul. 13 Feb.14 3 Sources: CPB Netherlands Bureau for Economic Policy Analysis; Haver Analytics; Markit Economics; and IMF staff calculations. 47
Looking forward, advanced economy fiscal policy will be less tight in 214 and 21, except in Japan. Fiscal Impulse (Change in structural balance as percent of GDP) Euro area United States Japan 2. 2. 1. 1... -. -1. Source: IMF staff estimates. 21 11 12 13 14 1 4-1. 4
Monetary accommodation will continue; US policy rates are expected to start rising in 21. Policy Rate Expectations (percent; months on x-axis; dashed lines are from the October 213 WEO) 2. United States 2 Europe United Kingdom 1. 1. t 6 Months t+12 18 Months t+24 3 Months t+36 Sources: Bloomberg, L.P.; and IMF staff calculations.
For EMs, exports will be supported by stronger demand from AEs 4 3 2 1-1 -2-3 -4 AE Domestic Demand and EM Exports (percent change from year earlier) Domestic demand in AEs Exports of EMs (RHS) 1/ - 2 1 2 3 4 6 7 8 9 1 11 12 13 14 1 1 1 - -1-1 Sources: IMF, World Economic Outlook; and IMF staff estimates. 1/ Excludes China. 6
but this will be offset by tighter financing conditions. 16 Ten-Year Government Bond Yields (change since Jan. 1, 213 in bps) Advanced Economies 1/ Equity Prices (Index, Jan. 1, 213 = 1) Advanced Economies 1/ 14 14 12 Emerging Market Economies 2/ Emerging Market Economies 2/ 13 1 12 8 6 4 11 1 2 9-2 8-4 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 Sources: Bloomberg, L.P.; and IMF staff calculations. 1/ Average for Germany, Japan and United States. 2/ Average for 14 emerging market economies. Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 7 7
Global growth is expected to strengthen WEO Real GDP Growth Projections (percent change from a year earlier) World U.S. Euro Area Japan Brazil Russia India China 214 (Apr. 214) 3.6 2.8 1.2 1.4 1.8 1.3.4 7. Revision from Jan. 214 -.1..1 -.3 -. -.6.. 21 (Jan. 214) 3.9 3. 1. 1. 2.7 2.3 6.4 7.3 Revision from Jan. 214 -.1..1. -.2 -.2.. Source: IMF, World Economic Outlook. 8 8
but it will be uneven. Sources: IMF, World Economic Outlook; and IMF staff calculations. 9
In the US, consumer demand has been supported by higher housing and stock prices, and by improving labor market conditions. 1 1 House and Equity Prices (year-over-year percent change) S&P (index; Jan. 2 = 1) U.S. FHFA HPI (left scale) 18 16 14 12 1 U.S. Labor Market (percent) Labor Force Participation Rate Unemployment Rate (left scale) 67 66 12 8 6 1 8 6 64-6 4 63-1 4 2 2 62-1 26 7 8 9 1 11 12 13 Jan. 14 28 9 1 11 12 13 Source: Bloomberg, L.P.; Bureau of Labor Statistics; Federal Housing Finance Agency; Haver Analytics; and IMF staff calculations. Note: FHFA HPI = Federal housing Finance Agency Housing Price index. Feb.14 1 61
US activity has also been helped by falling household debt and supportive credit conditions. Contrast this to the euro area 14 Household Debt-to-Income Ratio (percent) Nonfinancial Firm and Household Credit Growth (year-over-year percent change) 12 13 Euro area 1 12 United States 8 11 1 9 8 Euro area 1/ United States 6 4 2-2 7 2 1 2 3 4 6 7 8 9 1 11 12 13 Sources: Haver Analytics; and IMF staff calculations. 1/ Euro area includes subsector employers (including own-account workers). 13. Q4 26 7 8 9 1 11 12 13 11 13. Q4-4
where growth has picked up, but high debt (public and private) and financial fragmentation continue to weigh on stressed economies. 2 GDP Growth and Output Gaps (percent) SME Real Corporate Lending Rates 1/ (percent) 7 1 Germany Italy 6 Spain -1 4-2 3-3 213 GDP Growth 2-4 214 GDP Growth Output gap 1 - Euro area Germany France Italy Spain Sources: European Central Bank (ECB); Haver Analytics; and IMF staff estimates. 1/ Monetary and financial institutions lending to corporations under 1 million, 1 years. 27 8 9 1 11 12 13 Jan. 14 12
In Japan depreciation has supported exports, and BoJ asset purchases have raised inflation expectations. Japan: Financial Markets (index; Dec. 3, 212 = 1) Japan: Inflation Expectations (percent) 18 17 16 11 1 BoJ adopts 2 percent target yr Breakeven Consensus 1/ Actual core CPI 2/ 2.8 2.4 2. 1 14 13 12 11 1 Nikkei 22 Yen/USD (RHS) (+ = Yen depreciation) 1 9 9 8 1.6 1.2.8.4. -.4 -.8 9 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 8 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14-1.2 Mar-14 Sources: IMF, World Economic Outlook; and Bloomberg, L.P. 1/ -year ahead inflation forecast. 2/ Excludes food and energy. 13
But growth has still been driven mainly by public spending, with private domestic demand (esp. investment) still weak. Pre- and Post-Abenomics (index; 212Q4=1) 11 18 16 14 12 1 98 Pre-Abenomics 1/ Abenomics 2/ GDP Public Spending Private Consumption Corporate investment Exports 96 12Q4 13Q3 12Q4 13Q3 12Q4 13Q3 12Q4 13Q3 12Q4 13Q3 Source: IMF, World Economic Outlook. 1/ October 212 WEO. Prior to the 1 percent REER yen depreciation. 2/ IMF staff estimates. 14
Growth in China is expected to moderate, but its contribution to global growth remains substantial. 2 China GDP Growth (percent) 2. China Contribution to Global GDP Growth (percent) 2 Average of GDP Growth 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 Source: IMF staff estimates -. 1 -
No boost for commodity exporters, but no bust either. Downside risks to some commodity prices from supply response to high prices. 26 Commodity Prices (Index; 2 = 1) EM Terms of Trade (Index; 2 = 1) 14 24 22 Emerging Market and Developing Economies Latin America and the Caribbean 13 2 18 16 Brazil Mexico 12 11 14 12 1 Food Metal Energy 1 9 8 2 6 7 8 9 1 11 12 13 14 1 8 198 84 88 92 96 2 4 8 12 16 19 Source: IMF staff estimates. 16 1. Q4
Acute risks have decreased, but risks have not disappeared. Geopolitical risks, including Ukraine/Russia Advanced economy risks Risks to activity from low inflation/deflation, esp. in euro area Euro area reform fatigue Risks relating to US monetary policy normalization Some upside risks from rising confidence and pent-up investment demand Emerging market risks Further growth disappointments (lower potential; changing environment) Lower growth in China due to policy tightening 17
Euro area deflation risks are non-trivial 4 Inflation Fan Chart 1/ (percent) Low inflation/deflation affects output via: 3 2 1-1 Higher real interest rates (-) Higher real private/public debt (-) -2-3 12Q1 12Q4 13Q3 14Q2 1Q1 1Q4 Source: IMF staff estimates. 1/ Dashes indicate Global Projection Model (GPM) forecast. Bands indicate 9 percent and percent confidence intervals. 18
Many EM currencies have depreciated, some more than others Nominal Exchange Rates (U.S. dollars per national currency; percent change from May 22, 213 to March 31, 214) 1 - -1 Percent Change from Dec. 18, 213 to Mar. 31, 214-1 COL PER MYS CHN POL MEX RUS IND IDN BRA TUR THA PHL CHL ZAF 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 19
not because countries have suddenly become more vulnerable, but because investors have become more sensitive. All EMs Key EMs Under Pressure 1/ 2 28 21 213 4 2 28 21 213 4 1 3 1 3 1 2 1 2 1 1 - CA Balance (percent of GDP) Fiscal Balance (percent of GDP) Inflation (percent) Reserves (percent of GDP, RHS) -1 - CA Balance (percent of GDP) Fiscal Balance (percent of GDP) Inflation (percent) Reserves (percent of GDP, RHS) -1 Sources: IMF, World Economic Outlook; IMF, International Financial Statistics; and staff calculations. 1/ Brazil, Indonesia, India, Turkey, and South Africa. 2
Policies Advanced economies: avoid premature withdrawal of monetary accommodation Euro area: financial repair/reform, including banking union; structural reforms Japan: structural reforms; medium-term fiscal adjustment US: monetary policy communications; medium-term fiscal adjustment China: rebalancing growth; ensure financial stability India: tackle high inflation, remove structural bottlenecks Brazil: tackle high inflation, raise domestic saving, foster private investment Russia: guard against inflation, adverse shocks; improve the investment climate Emerging and developing countries: (i) exchange rate flexibility as a shock absorber; (ii) keep inflation well anchored; (iii) fiscal policy should be geared to medium-term objectives; (iv) need structural reforms to raise medium-term growth 21 21