WORLD ECONOMIC OUTLOOK · Asia continues to be the main growth engine of the world 12 34.1 13.8 8.9...

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

Bond yields--Advanced Economies (percentage points)

Source: IMF staff calculations. Note: Latest data available are for September 29, 2017.

Financial markets buoyant since the spring — Bond yields declining and equity indices rising globally

3

Equity prices- Emerging Markets (percentage points)

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8 Nov 8, 2016-March 2017

-10

-5

0

5

10

15

20

25March 2017-Sep.2017 Sep. 2017-Latest

4

-40

-30

-20

-10

0

10

20

30

40

50

60

Aug 15 Dec 15 Apr 16 Aug 16 Dec 16 Apr 17 Aug 17

Africa & Middle East Emerging Europe Latin America Emerging Asia

Sources: National Sources; Bloomberg Finance L.P.; and Institute of International Finance.

Total Portfolio Flows(Billions of U.S. dollars)

EM Capital flows have been strong

Total portfolio capital flows (billions of dollars)

Advanced Economies (percent)

Real effective exchange rates—Weaker dollar, stronger euro

5

Emerging Market and Developing Economies (percent)

-10

-8

-6

-4

-2

0

2

4

6

8

USA EA JPN

GB

R

SWE

CH

E

KO

R

TWN

SGP

CA

N

NO

R

AU

S

NZL

Nov 8, 2016-March 2017

-12

-8

-4

0

4

8

12

16

ZAF

CH

N

IND

IDN

MYS

PH

L

THA

HU

N

PO

L

RU

S

TUR

BR

A

CH

L

CO

L

MEX

PER

March 2017-Aug. 2017 Aug. 2017-Latest

Source: IMF staff calculations. Note: Latest data available are for October 6, 2017.

Source: IMF staff calculations.

Commodity prices—Soft in 1H 2017 but some pick-up more recently

6

0

20

40

60

80

100

120

140

160

180

2011 12 13 14 15 16 17 18

Food Metal APSP

Real Commodity Price Indices (deflated using U.S. consumer price index; index, 2014 = 100)

Manufacturing PMI (three-month moving average; deviations from 50)

Sources: Haver Analytics; and IMF staff estimates.

Confidence and PMIs have picked up further

7

Consumer Confidence (index; 2010 = 100)

-3

-2

-1

0

1

2

3

4

5

6

7

2012 13 14 15 16

Advanced economiesEmerging market economies

Aug.

17

90

95

100

105

110

115

120

125

130

222012 13 14 15 16

Advanced economies

Emerging market economies

World

Sep.

17

The Outlook

Forces shaping the global outlook

Advanced economies

• Cyclical rebound

• Varying degrees of post-crisis repair

• Demographic headwinds

Emerging market and developing economies

• Rebalancing in China

• Adjustment to lower commodity prices

• Geopolitical and political factors

• Demographic trends

9

• Weak productivity growth

Ongoing forces…

…overlaid on…

• Weak productivity growth

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

Growth projections: Advanced economies (percent change from a year earlier)

Sources: IMF, World Economic Outlook April 2017 Update; and IMF, World Economic Outlook October 2017. 10

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

Growth projections: Emerging markets and LIDCs (percent change from a year earlier)

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

12

34.1

13.8

8.9

6.5

2.26.2

15.4 12.8

0

10

20

30

40

50

60

70

Asia Africa Middle East &Central Asia

Europe WesternHemisphere

Contribution to Global Growth by Region(Percent, 2017)

Sources: IMF World Economic Outlook and IMF staff estimates.

Note: Regional categories based on IMF classification.

China

India

Other

63.3

ASEAN

China: Progress visible in rebalancing the economy

13

0

3

6

9

12

30

35

40

45

50

55

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Investment and Saving(In percent of GDP)

National saving

Investment

Current account (RHS)

35

40

45

50

55

2000 2002 2004 2006 2008 2010 2012 2014 2016

GDP by Production(In percent of nominal GDP)

Industry

Services

China: Short-term output boost but at cost of rising risks

14

100

150

200

250

300

2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Non-Financial Sector Debt: High and Rising (Percent of GDP)

Projections

Sources: Haver Analytics; and IMF staff estimates.

2

3

4

5

6

7

8

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Increasing Downside Risks in Growth Outlook(In percent, year-on-year growth)

Sources: CEIC Data Company Ltd.; and IMF staff estimates and projections.

Projection range

ProactiveBaseline

Proactive without

fiscal support

India: Growth is expected to recover gradually

15

2

3

4

5

6

7

8

9

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Sources: Central Statistics Office, Haver Analytics, IMF Staff Projection.

October 2017 WEO

July 2017 WEO

Real GDP Growth (percent; market prices)

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

17

-6

-4

-2

0

2

4

6

8

10

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021

World

Advanced economies

Emerging market anddeveloping economies

Real GDP Growth (percent change from a year ago)

1999-07 Avg

2

3

4

5

6

7

2013 14 15 16

Core consumer price index inflation

Advanced Economies (three-month moving average; annualized percent change)

Source: IMF staff calculations.

Headline inflation has softened; core inflation remains subdued

18

Emerging Market and Developing Economies (three-month moving average; annualized percent change)

-2

-1

0

1

2

3

2013 14 15 16

Consumer price inflation

Aug. 17

Aug. 17

Risks and Policies

Near-term risks to global financial stability have declined

20

Global Financial Stability Map

The compensation for market and interest rate risk has fallen to historically low levels

21

Market Plus Term Premiums for Emerging Market and Developed Market Investment-Grade and High-Yield Bonds (Percent)

Key stability challenge: rebalancing of central bank and private sector portfolios

22 5

Central Bank Balance Sheets (Central Bank Outstanding Assets, Trillions of US dollars)

Policy Rate Expectations (Forward OIS Rates; Percent)

0

2

4

6

8

10

12

14

16

2005

2008

2011

2014

2017

Japan

Euro Area

United States

Aggregate

Japan

1.66

0.20

-0.02

0.95

-0.50

-0.25

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

Cu

rren

t

20

17

20

18

20

19

20

20

United States

United Kingdom

Japan

Euro Area UK

Potential for spillovers to Emerging Markets

23

Model Estimates: Cumulative Contributions to Emerging Market Portfolio Flows (Billions of dollars)

Overall, risks to outlook still skewed to the downside

• Financial tensions

o Financial stability risks in China

o A potential tightening of global financial conditions

o Risks of capital flow reversals

o Challenges facing euro area banks

o Financial deregulation

• Threats to global economic integration

• Persistently low inflation in advanced economies

• Non-economic factors

24

Prospects for Word GDP Growth (Percent change)

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

• Boost potential output and strengthen safety nets

• Credible strategies needed to put debt on a sustainable path

Emerging market and developing economies

• Support for rebalancing and tame credit growth in China

• Adjustment to lower commodity revenues in exporters

• Contain financial risks in vulnerable EMDEs

• Structural reforms to boost potential output

25

Implications for India

-2

-1

0

1

2

3

4

5

6

7

USA

EGY

FRA

TUR

DEU PO

L

ITA

ESP

JPN

CH

N

IND

THA

PA

K

KO

R

2015 2016

2017-18 (Apr. 2017 WEO commodity prices) 2017-18 (Oct. 2017 WEO commodity prices)

India: External conditions will be mixed

27

Terms-of-Trade Windfall Gains (percent of GDP)

Source: IMF staff calculations.

India: External conditions will be mixed

28

-2

-1

0

1

2

3

4

5

6

7

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

WEO: Oct 2017

Real GDP Growth of India’s Export Partners (in percent)

Sources: WEO database, April 2017

Average (2000-07)

Prepared to deal with potential global financial volatility?

29

External Financial Requirements (Percent of GDP)

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

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