Table 1. Overview of the World Economic Outlook
Projections |
(Percent change
unless noted otherwise) |
|
|
Year over Year |
|
|
|
|
|
|
|
Projections |
|
Difference from
April 2012 WEO Projections |
|
Q4 over Q4 |
|
|
|
|
|
Estimates |
Projections |
|
2010 |
2011 |
2012 |
2013 |
|
2012 |
2013 |
|
2011 |
2012 |
2013 |
|
World Output 1/ |
5.3 |
3.9 |
3.5 |
3.9 |
|
–0.1 |
–0.2 |
|
3.2 |
3.4 |
4.1 |
Advanced Economies |
3.2 |
1.6 |
1.4 |
1.9 |
|
0.0 |
–0.2 |
|
1.2 |
1.4 |
2.2 |
United States |
3.0 |
1.7 |
2.0 |
2.3 |
|
–0.1 |
–0.1 |
|
1.6 |
1.9 |
2.5 |
Euro Area |
1.9 |
1.5 |
–0.3 |
0.7 |
|
0.0 |
–0.2 |
|
0.7 |
–0.2 |
1.2 |
Germany |
3.6 |
3.1 |
1.0 |
1.4 |
|
0.4 |
–0.1 |
|
2.0 |
1.0 |
1.8 |
France |
1.7 |
1.7 |
0.3 |
0.8 |
|
–0.1 |
–0.2 |
|
1.2 |
0.4 |
1.1 |
Italy |
1.8 |
0.4 |
–1.9 |
–0.3 |
|
0.0 |
0.0 |
|
–0.5 |
–1.9 |
0.4 |
Spain |
–0.1 |
0.7 |
–1.5 |
–0.6 |
|
0.4 |
–0.7 |
|
0.3 |
–2.3 |
0.6 |
Japan |
4.4 |
–0.7 |
2.4 |
1.5 |
|
0.4 |
–0.2 |
|
–0.5 |
1.9 |
2.2 |
United Kingdom |
2.1 |
0.7 |
0.2 |
1.4 |
|
–0.6 |
–0.6 |
|
0.5 |
0.8 |
1.2 |
Canada |
3.2 |
2.4 |
2.1 |
2.2 |
|
0.1 |
0.0 |
|
2.2 |
2.1 |
2.1 |
Other Advanced Economies 2/ |
5.8 |
3.2 |
2.4 |
3.4 |
|
–0.2 |
–0.1 |
|
2.5 |
3.2 |
3.3 |
Newly Industrialized Asian
Economies |
8.5 |
4.0 |
2.7 |
4.2 |
|
–0.6 |
0.0 |
|
3.0 |
4.4 |
3.6 |
Emerging and Developing
Economies 3/ |
7.5 |
6.2 |
5.6 |
5.9 |
|
–0.1 |
–0.2 |
|
5.8 |
5.9 |
6.5 |
Central and Eastern Europe |
4.5 |
5.3 |
1.9 |
2.8 |
|
0.0 |
–0.1 |
|
3.8 |
1.5 |
3.6 |
Commonwealth of Independent States |
4.8 |
4.9 |
4.1 |
4.1 |
|
0.0 |
–0.1 |
|
4.4 |
3.1 |
4.5 |
Russia |
4.3 |
4.3 |
4.0 |
3.9 |
|
0.0 |
–0.1 |
|
4.6 |
2.7 |
4.8 |
Excluding Russia |
6.0 |
6.2 |
4.5 |
4.5 |
|
–0.1 |
–0.1 |
|
. . . |
. . . |
. . . |
Developing Asia |
9.7 |
7.8 |
7.1 |
7.5 |
|
–0.3 |
–0.4 |
|
7.2 |
7.7 |
7.6 |
China |
10.4 |
9.2 |
8.0 |
8.5 |
|
–0.2 |
–0.3 |
|
8.9 |
8.4 |
8.4 |
India |
10.8 |
7.1 |
6.1 |
6.5 |
|
–0.7 |
–0.7 |
|
6.2 |
6.4 |
6.4 |
ASEAN-5 4/ |
7.0 |
4.5 |
5.4 |
6.1 |
|
0.0 |
–0.1 |
|
2.6 |
7.5 |
6.4 |
Latin America and the Caribbean |
6.2 |
4.5 |
3.4 |
4.2 |
|
–0.3 |
0.1 |
|
3.6 |
3.5 |
5.1 |
Brazil |
7.5 |
2.7 |
2.5 |
4.6 |
|
–0.6 |
0.5 |
|
1.4 |
4.2 |
4.0 |
Mexico |
5.6 |
3.9 |
3.9 |
3.6 |
|
0.3 |
0.0 |
|
3.9 |
3.4 |
4.2 |
Middle East and North Africa |
5.0 |
3.5 |
5.5 |
3.7 |
|
1.3 |
0.0 |
|
. . . |
. . . |
. . . |
Sub-Saharan Africa |
5.3 |
5.2 |
5.4 |
5.3 |
|
–0.1 |
0.0 |
|
. . . |
. . . |
. . . |
South Africa |
2.9 |
3.1 |
2.6 |
3.3 |
|
–0.1 |
–0.1 |
|
2.6 |
2.8 |
3.7 |
Memorandum |
|
|
|
|
|
|
|
|
|
|
|
European Union |
2.0 |
1.6 |
0.0 |
1.0 |
|
0.0 |
–0.3 |
|
0.8 |
0.1 |
1.5 |
World Growth Based on Market
Exchange Rates |
4.2 |
2.8 |
2.7 |
3.2 |
|
0.0 |
–0.2 |
|
2.3 |
2.5 |
3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
World Trade Volume (goods
and services) |
12.8 |
5.9 |
3.8 |
5.1 |
|
–0.3 |
–0.5 |
|
. . . |
. . . |
. . . |
Imports |
|
|
|
|
|
|
|
|
|
|
|
Advanced Economies |
11.5 |
4.4 |
1.9 |
4.2 |
|
0.0 |
0.1 |
|
. . . |
. . . |
. . . |
Emerging and Developing
Economies |
15.3 |
8.8 |
7.8 |
7.0 |
|
–0.6 |
–1.1 |
|
. . . |
. . . |
. . . |
Exports |
|
|
|
|
|
|
|
|
|
|
|
Advanced Economies |
12.2 |
5.4 |
2.3 |
4.3 |
|
0.0 |
–0.3 |
|
. . . |
. . . |
. . . |
Emerging and Developing
Economies |
14.4 |
6.6 |
5.7 |
6.2 |
|
–0.9 |
–1.0 |
|
. . . |
. . . |
. . . |
Commodity Prices (U.S.
dollars) |
|
|
|
|
|
|
|
|
|
|
|
Oil 5/ |
27.9 |
31.6 |
–2.1 |
–7.5 |
|
–12.4 |
–3.4 |
|
20.8 |
–7.7 |
–2.1 |
Nonfuel (average based on world
commodity export weights) |
26.3 |
17.8 |
–12.0 |
–4.3 |
|
–1.7 |
–2.2 |
|
–6.4 |
–3.9 |
–2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Prices |
|
|
|
|
|
|
|
|
|
|
|
Advanced Economies |
1.5 |
2.7 |
2.0 |
1.6 |
|
0.1 |
–0.1 |
|
2.8 |
1.8 |
1.7 |
Emerging and Developing Economies
3/ |
6.1 |
7.2 |
6.3 |
5.6 |
|
0.1 |
0.0 |
|
6.5 |
5.8 |
3.9 |
London Interbank Offered
Rate (percent) 6/ |
|
|
|
|
|
|
|
|
|
|
|
On U.S. Dollar Deposits |
0.5 |
0.5 |
0.8 |
0.8 |
|
0.0 |
0.0 |
|
. . . |
. . . |
. . . |
On Euro Deposits |
0.8 |
1.4 |
0.7 |
0.6 |
|
–0.1 |
–0.2 |
|
. . . |
. . . |
. . . |
On Japanese Yen Deposits |
0.4 |
0.3 |
0.4 |
0.3 |
|
–0.2 |
0.2 |
|
. . . |
. . . |
. . . |
|
Note:
These forecasts incorporate information received
through Friday, July 6, 2012. Real effective
exchange rates are assumed to remain constant at the
levels prevailing during May 7–June 4, 2012. When
economies are not listed alphabetically, they are
ordered on the basis of economic size. The
aggregated quarterly data are seasonally adjusted. |
1/The
quarterly estimates and projections account for 90
percent of the world purchasing-power-parity
weights. |
2/Excludes the G7 and euro area countries. |
3/The
quarterly estimates and projections account for
approximately 80 percent of the emerging and
developing economies. |
4/Indonesia, Malaysia, Philippines, Thailand, and
Vietnam. |
5/Simple average of prices of U.K. Brent, Dubai, and
West Texas Intermediate crude oil. The average price
of oil in U.S. dollars a barrel was $104.01 in 2011;
the assumed price based on futures markets is
$101.80 in 2012 and $94.16 in 2013. |
6/Six-month rate for the United States and Japan.
Three-month rate for the euro area. |
Developments during the second quarter, however, have been worse (Figure
2:
CSV|PDF).
Relatedly, job creation has been hampered, with unemployment
remaining high in many advanced economies, especially among the
young in the euro area periphery.1
The euro area periphery has been at the epicenter of a
further escalation in financial market stress, triggered by
increased political and financial uncertainty in Greece, banking
sector problems in Spain, and doubts about governments' ability
to deliver on fiscal adjustment and reform as well as about the
extent of partner countries' willingness to help. Escalating
stress in periphery economies has manifested itself along lines
familiar from earlier episodes, including capital outflows, a
renewed surge in sovereign yields (Figure
3:
CSV|PDF),
adverse feedback loops between sovereign stresses and banking
sector funding problems, increases in Target 2 liabilities of
periphery central banks, further bank deleveraging, and
contraction in credit to the private sector. The stabilizing
effects of the ECB's LTROs in periphery financial markets have
thus eroded. On the real side, leading economic indicators
presage renewed contraction of activity in the euro area as a
whole in the second quarter.
Incoming data for the United States also suggest less robust
growth than forecast in April. While distortions to seasonal
adjustment and payback from the unusually mild winter explain
some of the softening, there also seems to be an underlying loss
of momentum. Negative spillovers from the euro area, limited so
far, have been partially offset by falling long-term yields due
to safe haven flows (see below).
Growth momentum has also slowed in various emerging market
economies, notably Brazil, China, and India. This partly
reflects a weaker external environment, but domestic demand has
also decelerated sharply in response to capacity constraints and
policy tightening over the past year. Many emerging market
economies have also been hit by increases in investor risk
aversion and perceived growth uncertainty, which have led not
only to equity price declines, but also to capital outflows and
currency depreciation. In global financial markets (Figure
4:
CSV|PDF),
prices of risky assets declined during much of the second
quarter, notably equity prices, while yields on safe haven bonds
(Germany, Japan, Switzerland, and the United States) retreated
to multidecade lows (see also the July 2012
Global Financial Stability Report Market Update). With
some of the capital flows into perceived safe assets occurring
within the euro area, the weakening of the euro has been
limited. However, sovereign debt markets in the euro area
periphery remain unsettled.
Commodity prices have also fallen. Among major commodities,
prices of crude oil declined the most in the second quarter—at
about $86 a barrel, they are some 25 percent below their
mid-March highs—given the combined effects of weaker global
demand prospects, easing concerns about Iran-related
geopolitical oil supply risks, and continued above-quota
production by the Organization of Petroleum Exporting Countries
(OPEC) members.
Global growth weak through 2012
The baseline projections in this WEO Update
incorporate weaker growth through much of the second half of
2012 in both advanced and key emerging market economies,
reflecting the setbacks to the global recovery discussed above.
The near-term forecasts are based on the usual assumption of
current policies, with two important qualifications:
- The projections assume that financial conditions in the
euro area periphery will gradually ease through 2013 from
the levels reached in June this year, predicated on the
assumption that policymakers will follow up on the positive
decisions agreed upon at the June EU leaders' summit and
will take action as needed if conditions deteriorate
further.
- The projections also assume that current legislation in
the United States, which implies a mandatory sharp reduction
in the federal budget deficit—the so-called fiscal
cliff—will be modified so as to avoid a large fiscal
contraction in the near term.
Overall, global growth is projected to moderate to 3.5
percent in 2012 and 3.9 percent in 2013, some 0.1 and 0.2
percentage point, respectively, lower than forecast in the
April 2012 WEO (Table 1). In view of a
stronger-than-expected first quarter outcome, weaker global
growth in the second half of 2012 will primarily affect annual
growth in 2013 through base effects.
Growth in advanced economies is projected to expand by 1.4
percent in 2012 and 1.9 percent in 2013, a downward revision of
0.2 percentage point for 2013 relative to the
April 2012 WEO. The downward revision mostly reflects weaker
activity in the euro area, especially in the periphery
economies, where the dampening effects from uncertainty and
tighter financial conditions will be strongest. Owing mainly to
negative spillovers, including from uncertainty, growth in most
other advanced economies will also be slightly weaker, although
lower oil prices will likely dampen these adverse effects.
Growth in emerging and developing economies will moderate to
5.6 percent in 2012 before picking up to 5.9 percent in 2013, a
downward revision of 0.1 and 0.2 percentage point in 2012 and
2013, respectively, relative to the
April 2012 WEO. In the near term, activity in many emerging
market economies is expected to be supported by the policy
easing that began in late 2011 or early 2012 and, in net fuel
importers, by lower oil prices, depending on the extent of the
pass-through to domestic retail prices (which is often
incomplete).
Growth is projected to remain relatively weaker than in 2011
in regions connected more closely with the euro area (Central
and Eastern Europe in particular). In contrast with the broad
trends, growth in the Middle East and North Africa will be
stronger in 2012–13 relative to last year, as key oil exporters
continue to boost oil production and domestic demand while
activity in Libya is rebounding rapidly after the unrest in
2011. Similarly, growth in sub-Saharan Africa is expected to
remain robust in 2012–13, helped by the region's relative
insulation from external financial shocks, and revisions to the
growth outlook since the
April 2012 WEO are modest.
Global consumer price inflation is projected to ease as
demand softens and commodity prices recede. Overall, headline
inflation is expected to slip from 4½ percent in the last
quarter of 2011 to 3–3½ percent in 2012–13.
The global recovery remains at risk
Downside risks to this weaker global outlook continue to loom
large. The most immediate risk is still that delayed or
insufficient policy action will further escalate the euro area
crisis. In this regard, agreements reached at the EU leaders'
summit are steps in the right direction. But further steps are
needed, notwithstanding high implementation hurdles, as
underscored by the very recent deterioration in sovereign debt
markets. The situation in the euro area crisis economies will
likely remain precarious until all policy action needed for a
resolution of the crisis has been taken (see below). Other
downside risks relate to fiscal policy in other advanced
economies:
- In the short term, the main risk relates to the
possibility of excessive fiscal tightening in the United
States, given recent political gridlock. In the extreme, if
policymakers fail to reach consensus on extending some
temporary tax cuts and reversing deep automatic spending
cuts, the U.S. structural fiscal deficit could decline by
more than 4 percentage points of GDP in 2013. U.S. growth
would then stall next year, with significant spillovers to
the rest of the world. Moreover, delays in raising the
federal debt ceiling could increase risks of financial
market disruptions and a loss in consumer and business
confidence.
- Another risk arises from insufficient progress in
developing credible plans for medium-term fiscal
consolidation in the United States and Japan—the flight to
safety in global bond markets currently mitigates this risk.
In the absence of policy action, medium-term public debt
ratios would continue to move along unsustainable
trajectories. As the global recovery advances, a lack of
progress could trigger sharply higher sovereign borrowing
costs in the United States and Japan as well as turbulence
in the global bond and currency markets.
Downside risks to growth in emerging market and developing
economies seem primarily related to external factors in the near
term. The slowdown in emerging market growth since mid-2011 has
been partly the result of policy tightening in response to signs
of overheating. But policies have been eased since, and this
easing should gain traction in the second half of 2012.
Nevertheless, concerns remain that potential growth in
emerging market economies might be lower than expected. Growth
in these economies has been above historical trends over the
past decade or so, supported in part by financial deepening and
rapid credit growth, which may well have generated overly
optimistic expectations about potential growth. As a result,
growth in emerging market economies could be lower than expected
over the medium term, with a correspondingly smaller
contribution to global growth. Also of concern are risks to
financial stability after years of rapid credit growth in the
current environment of weaker global growth, elevated risk
aversion, and some signs of domestic strain. Among low-income
countries, those dependent on aid face risks of
lower-than-expected budget support from advanced economies,
while commodity exporters are vulnerable to further erosion of
commodity prices. In the medium term, there are tail risks of a
hard landing in China, where investment spending could slow more
sharply given overcapacity in a number of sectors.
On the positive side, oil price risks have abated in recent
months, reflecting the interaction of changes in prospective
market conditions and perceived geopolitical risks. Supply
conditions have improved due to increased production in Saudi
Arabia and other key exporters, while demand prospects have
weakened and are subject to downside risks. With geopolitical
risks to oil supply widely perceived to have declined, risks to
oil price projections appear more evenly balanced now, while
those around prices of non-oil commodities tilt downward.
Crisis management remains the top priority
The utmost priority is to resolve the crisis in the euro
area. The recent agreements, if implemented in full, will help
to break the adverse links between sovereigns and banks and
create a banking union. In particular, once the agreed-upon
single supervisory mechanism for euro area banks is established,
the European Stability Mechanism (ESM) would be able to
recapitalize banks directly. Moreover, ESM assistance will not
carry seniority status for Spain—an important step to support
market confidence. In addition, the leaders re-affirmed a
willingness to consider secondary purchases of sovereign bonds
by the European Financial Stability Facility (EFSF) and the ESM.
But these measures must be complemented by more progress on
banking and fiscal union. In addition, the periphery countries
need to remain on track with their policy reform commitments,
for which they need a supportive financial and growth
environment that must be facilitated by the ECB and other euro-area-level
facilities. These tasks require policy measures in several
areas:
- A credible commitment toward a robust and complete
monetary union. By setting in motion a process toward a
unified supervisory framework, the European summit put in
place the first building block of a banking union. But other
necessary elements, including a pan-European deposit
insurance guarantee scheme and bank resolution mechanism
with common backstops, need to be added. In the shorter
term, timely implementation will be essential, including
through the ratification of the ESM by all members. In
addition, these steps would usefully be complemented by
plans for fiscal integration, as anticipated in the report
of the “Four Presidents” submitted to the summit.
- The viability of the monetary union must also be
supported by wide-ranging structural reforms throughout the
euro area to raise growth and resolve intra-area current
account imbalances.
- Demand support and crisis management are essential in
the short term to cushion the impact of the region's
adjustment efforts and maintain orderly market conditions
(as assumed in the baseline projections).
- There is room for monetary policy in the euro area to
ease further. In addition, the ECB should ensure that its
monetary support is transmitted effectively across the
region and should continue to provide ample liquidity
support to banks under sufficiently lenient conditions. This
might require nonstandard measures, such as reactivation of
the Securities Market Programme, additional LTROs with lower
collateral requirements, or the introduction of QE-style
asset purchases.
- Fiscal consolidation plans in the euro area must be
implemented. In general, attention should be paid to meeting
structural fiscal targets, rather than nominal targets that
will likely be affected by economic conditions. Automatic
stabilizers should thus be allowed to operate fully in
economies not subject to market pressure. Considering the
large downside risks, economies with limited fiscal
vulnerability should stand ready to implement fiscal
contingency measures if such risks materialize.
In other major advanced economies, monetary policy also needs
to respond effectively, including with further unconventional
measures, to a much weaker near-term environment that will
dampen price pressures. In view of somewhat weaker global
growth, automatic stabilizers should be allowed to operate
fully, while fiscal consolidation plans might need to be
recalibrated if large downside risks materialize (see the July
2012
Fiscal Monitor Update). In the United States, it will
be critical to reach transparent, bipartisan agreements to avoid
a fiscal cliff in the near term and to raise the federal debt
ceiling well ahead of the deadline (which will most likely be
early in 2013). At the same time, both the United States and
Japan need more credible plans to put medium-term government
debt on a downward track. In Japan, a full Diet approval—after
passage in the Lower House—of a gradual increase in the
consumption tax rate is essential to maintain confidence in the
authorities' resolve to put public debt on a sustainable
trajectory.
In emerging and developing economies, policymakers should
stand ready to adjust policies, given spillovers from weaker
advanced economy prospects and slowing export growth and
volatile capital flows. That said, the need for and the nature
of the desirable policy response vary considerably across
emerging market economies because of differences in their
cyclical positions. In some, recent growth declines have
primarily reflected normalization to trend, and policies must
thus avoid rekindling overheating pressures, with due
consideration of risks that potential growth could be lower than
expected. However, in economies where inflation and credit
pressures have already eased credibly or where inflation
expectations remain firmly anchored, further cuts in policy
rates could be considered to help alleviate weakening economic
conditions. In economies where inflation and credit pressures
have not eased significantly, targeted measures could be
considered should bank liquidity or funding pressures arise in
the context of the current unsettled global financial
environment. Economies with sustainable public finances and
market financing at sustainable rates should allow automatic
stabilizers to play fully, while those with large fiscal and
external surpluses could consider fiscal support. Finally, with
growth slowing and after many years of rapid credit growth,
enhanced risk-based prudential regulation and supervision and
macroprudential measures that address financial risks should
take top priority.