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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
For more information visit www.imf.org