WORLD ECONOMIC OUTLOOK October 2017 Andreas Bauer Sr Resident Representative @imf_delhi
World Economic Outlook The big picture Global activity picked up further in 2017H1 the outlook is now for higher annual growth in 2017 and 2018 Inflation remains subdued Risks skewed to the downside, especially in the medium term Policy priorities: macroeconomic management needs vary; common goal is to boost potential growth 1
Global Setting
Financial markets buoyant since the spring Bond yields declining and equity indices rising globally Bond yields--advanced Economies (percentage points) Equity prices- Emerging Markets (percentage points) 0.8 Nov 8, 2016-March 2017 0.6 0.4 0.2 0.0-0.2-0.4 March 2017-Sep.2017 25 20 15 10 5 0-5 -10 Sep. 2017-Latest Source: IMF staff calculations. Note: Latest data available are for September 29, 2017. 3
EM Capital flows have been strong Total portfolio capital flows Total Portfolio Flows (billions of dollars) (Billions of U.S. dollars) 60 Africa & Middle East Emerging Europe Latin America Emerging Asia 50 40 30 20 10 0-10 -20-30 -40 Aug 15 Dec 15 Apr 16 Aug 16 Dec 16 Apr 17 Aug 17 4 Sources: National Sources; Bloomberg Finance L.P.; and Institute of International Finance.
USA EA JPN GBR SWE CHE KOR TWN SGP CAN NOR AUS NZL ZAF CHN IND IDN MYS PHL THA HUN POL RUS TUR BRA CHL COL MEX PER Real effective exchange rates Weaker dollar, stronger euro Advanced Economies (percent) Emerging Market and Developing Economies (percent) 8 6 4 2 0-2 -4-6 -8-10 Nov 8, 2016-March 2017 March 2017-Aug. 2017 16 12 8 4 0-4 -8-12 Aug. 2017-Latest Source: IMF staff calculations. Note: Latest data available are for October 6, 2017. 5
Commodity prices Soft in 1H 2017 but some pick-up more recently Real Commodity Price Indices (deflated using U.S. consumer price index; index, 2014 = 100) 180 160 Food Metal APSP 140 120 100 80 60 40 20 Source: IMF staff calculations. 0 2011 12 13 14 15 16 17 18 6
Confidence and PMIs have picked up further Manufacturing PMI (three-month moving average; deviations from 50) Consumer Confidence (index; 2010 = 100) 7 6 5 4 Advanced economies Emerging market economies 130 125 120 Advanced economies Emerging market economies World 3 115 2 110 1 105 0-1 100-2 95-3 2012 13 14 15 16 Sources: Haver Analytics; and IMF staff estimates. Aug. 17 90 222012 13 14 15 16 Sep. 17 7
The Outlook
Forces shaping the global outlook Advanced economies Emerging market and developing economies Ongoing forces Cyclical rebound Varying degrees of post-crisis repair Rebalancing in China Adjustment to lower commodity prices Geopolitical and political factors overlaid on Demographic headwinds Weak productivity growth Demographic trends Weak productivity growth 9
Growth projections: Advanced economies (percent change from a year earlier) World Advanced Economies U.S. U.K. Japan Euro Area Germany Canada Other Advanced Asia 2016 3.2 1.7 1.5 1.8 1.0 1.8 1.9 1.5 2.4 2017 3.6 2.2 2.2 1.7 1.5 2.1 2.0 3.0 2.6 Revision from Jul. 2017 0.1 0.2 0.1 0.0 0.2 0.2 0.2 0.5 0.1 2018 3.7 2.0 2.3 1.5 0.7 1.9 1.8 2.1 2.7 Revision from Jul. 2017 0.1 0.1 0.2 0.0 0.1 0.2 0.2 0.2 0.0 Sources: IMF, World Economic Outlook April 2017 Update; and IMF, World Economic Outlook October 2017. 10
Growth projections: Emerging markets and LIDCs (percent change from a year earlier) World Emerging Market and Developing Economies China India Brazil Russia Commodity Exporting Economies Low Income Developing Countries 2016 3.2 4.3 6.7 7.1 3.6 0.2 1.5 3.6 2017 3.6 4.6 6.8 6.7 0.7 1.8 2.3 4.6 Revision from Jul. 2017 0.1 0.0 0.1 0.5 0.4 0.4 0.1 0.0 2018 3.7 4.9 6.5 7.4 1.5 1.6 2.9 5.2 Revision from Jul. 2017 0.1 0.1 0.1 0.3 0.2 0.2 0.1 0.0 Sources: IMF, World Economic Outlook April 2017 Update; and IMF, World Economic Outlook October 2017 11
Asia continues to be the main growth engine of the world Contribution to Global Growth by Region (Percent, 2017) 70 63.3 60 6.5 50 8.9 Other ASEAN 40 30 13.8 India 20 10 0 34.1 China 2.2 6.2 Asia Africa Middle East & Central Asia Sources: IMF World Economic Outlook and IMF staff estimates. Note: Regional categories based on IMF classification. 15.4 Europe 12.8 Western Hemisphere 12
China: Progress visible in rebalancing the economy Investment and Saving (In percent of GDP) 55 12 GDP by Production (In percent of nominal GDP) 55 National saving Services 50 9 50 45 Investment 6 45 40 Current account (RHS) 35 3 40 Industry 30 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0 35 2000 2002 2004 2006 2008 2010 2012 2014 2016 13
China: Short-term output boost but at cost of rising risks Non-Financial Sector Debt: High and Rising (Percent of GDP) 300 Increasing Downside Risks in Growth Outlook (In percent, year-on-year growth) 8 7 Baseline Proactive 250 200 6 5 Proactive without fiscal support Projection range 150 Projections 4 3 100 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Sources: Haver Analytics; and IMF staff estimates. 2 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Sources: CEIC Data Company Ltd.; and IMF staff estimates and projections. 14
India: Growth is expected to recover gradually 9 Real GDP Growth (percent; market prices) 8 7 6 July 2017 WEO October 2017 WEO 5 4 3 2 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Sources: Central Statistics Office, Haver Analytics, IMF Staff Projection. 15
Global recovery falls short in a few areas Medium term growth prospects in advanced economies and commodity-exporting emerging market and developing economies fall short of past averages In more than 25% of emerging and developing economies, real per capita GDP is not projected to converge toward AE levels in 2017-22 Underlying inflation remains below target in advanced economies 16
Medium term growth prospects are relatively muted 10 8 6 Real GDP Growth (percent change from a year ago) 4 1999-07 Avg 2 0-2 -4-6 World Advanced economies Emerging market and developing economies 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 17
Headline inflation has softened; core inflation remains subdued 3 Advanced Economies (three-month moving average; annualized percent change) Consumer price inflation 7 Emerging Market and Developing Economies (three-month moving average; annualized percent change) Core consumer price index inflation 2 6 1 5 0 4-1 3-2 2013 14 15 16 Aug. 17 2 2013 14 15 16 Aug. 17 Source: IMF staff calculations. 18
Risks and Policies
Near-term risks to global financial stability have declined Global Financial Stability Map 20
The compensation for market and interest rate risk has fallen to historically low levels Market Plus Term Premiums for Emerging Market and Developed Market Investment-Grade and High-Yield Bonds (Percent) 21
2005 2008 2011 2014 2017 Current 2017 2018 2019 2020 Key stability challenge: rebalancing of central bank and private sector portfolios 16 14 12 Central Bank Balance Sheets (Central Bank Outstanding Assets, Trillions of US dollars) Aggregate Japan 1.75 1.50 1.25 Policy Rate Expectations (Forward OIS Rates; Percent) United States 1.66 10 8 6 4 Japan Euro Area UK 1.00 0.75 0.50 0.25 0.00 United Kingdom Euro Area 0.95 0.20 2 United States -0.25 Japan -0.02 0-0.50 22 5
Potential for spillovers to Emerging Markets Model Estimates: Cumulative Contributions to Emerging Market Portfolio Flows (Billions of dollars) 23
Overall, risks to outlook still skewed to the downside Financial tensions Prospects for Word GDP Growth (Percent change) o o o o o Financial stability risks in China A potential tightening of global financial conditions Risks of capital flow reversals Challenges facing euro area banks Financial deregulation Threats to global economic integration Persistently low inflation in advanced economies Non-economic factors 24
Policies: Window of opportunity to undertake structural reforms to bolster potential outlook and reduce risks Advanced economies Cyclical support desirable where demand and inflation are weak Emerging market and developing economies Support for rebalancing and tame credit growth in China Boost potential output and strengthen safety nets Adjustment to lower commodity revenues in exporters Credible strategies needed to put Contain financial risks in vulnerable EMDEs debt on a sustainable path Structural reforms to boost potential output 25
Implications for India
USA EGY FRA TUR DEU POL ITA ESP JPN CHN IND THA PAK KOR India: External conditions will be mixed Terms-of-Trade Windfall Gains (percent of GDP) 2015 2016 2017-18 (Apr. 2017 WEO commodity prices) 2017-18 (Oct. 2017 WEO commodity prices) 7 6 5 4 3 2 1 0-1 -2 Source: IMF staff calculations. 27
India: External conditions will be mixed Real GDP Growth of India s Export Partners (in percent) 7 6 WEO: Oct 2017 5 Average (2000-07) 4 3 2 1 0-1 -2 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Sources: WEO database, April 2017 28
Prepared to deal with potential global financial volatility? External Financial Requirements (Percent of GDP) 29
India Ultimately, domestic policies and reforms will be key! Terms of trade will provide some drag in 2017 but should be broadly stable thereafter Financial conditions less buoyant going forward but generally supportive, although with high volatility risks Export demand to strengthen in 2017 and (less) in 2018, but subsequently expected to lose steam Implication: With external demand, terms of trade, and financial conditions only providing limited support, domestic policies and reforms will be key for India s medium-term growth outlook! 30
Thank you For more information visit www.imf.org