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___________________________________________________________________________
2016/ISOM/SYM/003 Session I
Global Economic Outlook: Late 2016
Submitted by: IMF
Symposium on Priorities for APEC 2017Ha Noi, Viet Nam8 December 2016
International Monetary FundDecember 2016
Global Economic Outlook: Late 2016
Maurice ObstfeldEconomic Counsellor
A subdued, complex recovery, with new tensionsComplex set of economic forces continue to shape a subdued outlook• Ongoing realignments: China rebalancing, commodity exporter adjustment, asynchronous monetary
policy• Persistent drivers: Weak productivity growth, demographics, low demand, low natural real interest
rates • Absent vigorous policy, there is a risk of falling further into a low-growth, deflationary trap
But an overlay of political shocks becomes increasingly worrisome• Increasing tide of anti-trade, anti-immigration sentiment in the United States and Europe• Implications for APEC• Refugee crisis remains unresolved, displaced persons impose costs, especially in Middle East and
Africa
Raising growth and enhancing stability look increasingly critical• Overarching policy challenge: reinvigorate growth, ensure it is distributed more evenly, and make it
durable• Continue structural and tax reform, balance sheet repair, and improvements in the financial stability
framework• Global cooperation, including on climate, under attack, more essential than ever
1
Growth projections
WorldAdvanced
Economies U.S. U.K. Japan Euro Area Germany Canada
Other Advanced
Asia
2015 3.2 2.1 2.6 2.2 0.5 2.0 1.5 1.1 2.1
2016 3.1 1.6 1.6 1.8 0.5 1.7 1.7 1.2 2.2
Revision from Jul.
20160.0 -0.2 -0.6 0.1 0.2 0.1 0.1 -0.2 0.0
2017 3.4 1.8 2.2 1.1 0.6 1.5 1.4 1.9 2.5
Revision from Jul.
20160.0 0.0 -0.3 -0.2 0.5 0.1 0.2 -0.2 -0.1
Growth projections: Advanced economies(percent change from a year earlier)
Sources: IMF, World Economic Outlook October 2016; and IMF, World Economic Outlook July 2016 Update. 2
Contribution to growth(percentage points)
3Sources: IMF, World Economic Outlook October 2016; Haver Analytics; and IMF staff calculations.
50
70
90
110
130
150
170
190
210
230
250
-2
-1
0
1
2
3
4
5
6
00 02 04 06 08 10 12 14 16
Non-farm business: real output per labor hourEconomic policy uncertainty index (1985-2009=100; rhs)Linear (Non-farm business: real output per labor hour)
16Q3
U.S.: Slow recoveryLabor productivity and policy uncertainty(percent; year over year)
-2
-1
0
1
2
3
4
5
6
14Q2 14Q4 15Q2 15Q4 16Q2
Personal consump. exp. Non-residential invest.Residential invest. Change in inventoriesGov. consump. and invest. Net exportsReal GDP growth
World
Emerging Market and Developing Economies China India Brazil Russia
CommodityExporting Economies
Sub-Saharan
Africa
2015 3.2 4.0 6.9 7.6 -3.8 -3.7 0.8 3.4
2016 3.1 4.2 6.6 7.6 -3.3 -0.8 0.9 1.4
Revision fromJul. 2016 0.0 0.1 0.0 0.2 0.0 0.4 0.0 -0.2
2017 3.4 4.6 6.2 7.6 0.5 1.1 2.6 2.9
Revision from Jul. 2016 0.0 0.0 0.0 0.2 0.0 0.1 0.1 -0.4
Growth projections: Emerging markets and LIDCs(percent change from a year earlier)
Sources: IMF, World Economic Outlook October 2016; and IMF, World Economic Outlook July 2016 Update. 4
Real GDP growth; consumption and investment shares(percent)
Sources: IMF, World Economic Outlook; IMF, World Economic Outlook; and IMF staff calculations. 1/ Luxembourg and Hong Kong (SAR) not shown; these have corporate credit-to-GDP ratios and GDP per capita of (118.2, 413.6) and (40.1, 216.6), respectively.2/ Calculated as total social financing minus equity , LGFV and household loans.
China: Slowing down and rebalancing
0
2
4
6
8
10
12
14
16
30
35
40
45
50
55
60
07 08 09 10 11 12 13 14 15 16P
Real GDP growth (yoy; rhs) Nominal consumptionNominal investment Real consumptionReal investment
5
Corporate credit: High level relative to peers 1/(selected economies; 2014)
South Africa
Ireland
Turkey
Sweden
SingaporeSwitzerland
KoreaFinland
Poland
Greece
India
Norway
Indones ia
Mexico
Hungary
Japan
Thailand
Euro area
Netherlands
Brazil
Russ ia
Italy
United States
Germany
Denmark
Argentina
Australia
Spain
United Kingdom
Malays ia
0
20
40
60
80
100
120
140
160
180
200
0 20 40 60 80 100
Cre
dit
to n
on-f
inan
cial
cor
pora
tes
(per
cent
of
GD
P)
GDP per capita (USD thousand)
China ‘07
China ‘16 2/
China ‘14
Recent market adjustments
Source: IMF, Global Data Source; IMF, World Economic Outlook; and IMF staff calculations.1/ Other EM countries are 44 emerging markets.
Expectations of US fiscal expansion have appreciated the US dollar,…
6
80
85
90
95
100
105
110
115
120
125
130United States United Kingdom Euro area Japan China Other EMs 1/
Jan. 14
Nov. 16
Jan. 20, 2016: Oil selloffJun. 23, 2016: Mkt close pre-BrexitNov. 8, 2016: U.S. election
Appr
ecia
tion
Nominal effective exchange rate swings, 2014-16(index; Jan. 1, 2014=100)
Sources: Bloomberg, L.P.; and IMF staff calculations.1/ Latest figures as of Dec. 2, 2016. OPEC announced its new OPEC-14 production target of 32.5mb/d on Nov. 30, 2016
…strengthened the recovery of some commodity prices,…
7
-10
-6
-2
2
6
10
14
18
22
26
30
Corn Soy Brent Oil Natural Gas
Gold Silver Tin Aluminum Nickel Lead Zinc Copper Iron Ore
Agricultural Energy Metals
Nov 8 - Nov 29 Nov 30 - Latest Nov 7 - Latest
Change in commodity prices after US presidential elections 1/(Percent)
EM sovereign spreads 1/(bps)
… and increased AE yields and EM sovereign spreads
Source: Arslanalp and Tsuda (2014, updated); and Bloomberg, L.P.Note: 1/ Brexit and US election dates correspond to June 23, 2016 and November 8,2016 respectively; 2/ The coverage of sovereign debt is central government.
0
200
400
600
800
13 14 15 16
EMBIG Asia EMBIG LatamEMBIG Europe
US
Ele
ctio
n
Bre
xit
12 /2
Foreign holdings of EM local currency gov. debt securities 2/(percent of total)
8
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
13 14 15 16
U.S. Euro Area Japan
12/4
Bre
xit
vote
US
Ele
ctio
n
Sovereign 10y yields-Advanced economies 1/(percent)
0 10 20 30 40 50
Indonesia
Malaysia
Mexico
Peru
Russia
Thailand
Philippines
India
China2016Q2 2007Q2
2016 Q2 Average
Explaining the trade slowdown
-7
-6
-5
-4
-3
-2
-1
0
From import IAD regression
Unpredicted
Predicted by own & partners' import demand
-1.8
-1.6
-1.4
-1.2
-1
-0.8
-0.6
-0.4
-0.2
0
Unpredicted
Global value chain participationTrade policies
From product level regression
Difference in average real import growth between 2003-07 and 2012-15(percentage points)
Distribution of average real import growth across different goods 1/(percent)
Trade: What are the drivers of the slowdown? Contributions to slowdown in real goods import growth 2/(percent)
Source: Chapter 2, October 2016, IMF, World Economic Outlook.1/ The figure is plotting the real average growth rate of world imports, at the Harmonized System (HS) 2-digit level. The data are based on import volume indices constructed from quantity and value trade data at HS 6-digit level for 52 economies. See Boz and Cerutti (forthcoming) for methodological details. 2/ Baseline based on an import demand model linking real import growth to growth in import intensity-adjusted demand (IAD) and relative prices. See WEO Chapter 2, Annexes 2.3 and 2.5.
0
5
10
15
20
-5 0 5 10 15 20
2003-07
0
5
10
15
20
-10 0 10 20
2012-15
9
Less than -12 ppt-12 to -7 ppt-7 and -4 ppt-4 to 0 pptMore than 0No data
0
5
10
15
20
25
30
35
40
45
80 85 90 95 00 05 10 15
Establishment of WTO
Start of Uruguay Round
10Source: Source: Chapter 2, October 2016, IMF, World Economic Outlook; IMF staff calculations.
Trade policies: The pace of tariff reduction has slowed, …Tariffs in advanced economies(percent; simple average)
Tariffs in emerging markets and developing economies(percent; simple average)
0
5
10
15
20
25
30
35
40
45
80 85 90 95 00 05 10 15
Start of Uruguay Round
Establishment of WTO
0
10
20
30
40
50
60
70
95 00 05 10
Advanced economies
Vietnam
Emerging market and developing economies ex. China
World level(percent of products)
Sources: Bown (2015); Chapter 2, October 2016, IMF, World Economic Outlook; World Bank Temporary Trade Barriers Database; IMF, World Economic Outlook; and IMF staff calculations.
…there are signs of increasing temporary trade barriers, and participation in global value chains has plateaued
11
0.0
0.5
1.0
1.5
2.0
2.5
3.0
90 95 00 05 10 15
Temporary trade barriers Antidumping
Safeguards Countervailing duties
Evolution of global value chain participation(percent)
Evolution of public attitude to trade: Think trade is good 1/ (percent of responses)
12
Sources: Gallup Poll; PEW Research; and IMF staff calculations.1/ Percent that responded "Very Good" or "Somewhat Good" to question "What do you think about the growing trade and business ties with other countries - do you think it is a very good thing, somewhat good, some what bad or a very bad thing for our country?"
Globally, trade perceptions are mixed
50
55
60
65
70
75
80
85
90
95
2002 2007 2008 2009 2010 2014
25pct: Emerging and developing 75pct: Emerging and developing
Median: Emerging and developing 25pct: Other advanced
75pct: Other advanced Median: Other advanced
United States
Perceptions of trade’s impact on jobs and wages(Spring 2014; percent of responses)
FRA
DEUGRC
ISR
ITA
JPN
KORESP GBR
USA
ARG
BGDBRA
CHL
CHN
COL
EGY
SLVGHA
IND
IDN
JOR
KEN LBNMYS
MEX
NIC
NGA
PAK
PSEPERPHL POL
RUS
SEN
ZAF
TZA
THA
TUN
TUR
UGAUKR
VEN
VNM
0
10
20
30
40
50
60
70
80
90
100
0 20 40 60 80 100
% R
espo
nd T
rade
Cre
ates
Job
s
% Respond Trade Increase Wages
Postive Perception: Trade on Jobs and Wages(PEW GAS Spring 2014)
Policy conclusions
Many challenges ahead
Implement comprehensive policies within strong policy frameworks• Fiscal policy should be growth-friendly and inclusive within a medium-term framework• Exchange rate flexibility is a buffer, but beware inflation and currency mismatch• Strengthen supervision and macroprudential frameworks• Structural reforms—well-sequenced and combined with supportive macroeconomic policies—are
essential
What spillovers can we expect from US fiscal and monetary policies? • Further appreciation of US dollar?• Faster increase in global interest rates?• Growing U.S. trade deficit—and trade policy pressures, as in 1980s?
Reinvigorate coordinated efforts across countries• Refocus trade discussion toward net integration benefits and policies to mitigate side effects• Promote further regional economic integration• Address cooperatively other public-good problems (e.g., corporate taxation, financial stability, extreme
weather)13