Russian
World
Economic Outlook Update
A Policy-Driven, Multispeed Recovery
January 26,
2010
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The global recovery is off to a stronger start than
anticipated earlier but is proceeding at different speeds in the various
regions (Table
1 and
Figure 1, view:
Data Figure 1). Following the deepest global downturn in recent history,
economic growth solidified and broadened to advanced economies in the second
half of 2009. In 2010, world output is expected to rise by 4 percent. This
represents an upward revision of ¾ percentage point from the October 2009
World Economic Outlook. In most advanced economies, the recovery is expected
to remain sluggish by past standards, whereas in many emerging and
developing economies, activity is expected to be relatively vigorous,
largely driven by buoyant internal demand. Policies need to foster a
rebalancing of global demand, remaining supportive where recoveries are not
yet well sustained.
Real activity is rebounding, supported by extraordinary
policy stimulus
Global production and trade bounced back in the second
half of 2009 (Figure
2, view:
Data Figure 2). Confidence rebounded strongly on both the financial and
real fronts, as extraordinary policy support forestalled another Great
Depression. In advanced economies, the beginning of a turn in the inventory
cycle and the unexpected strength in U.S. consumption contributed to
positive developments. Final domestic demand was very strong in key emerging
and developing economies, although the turn in the inventory cycle and the
normalization of global trade also played an important role.
Driving the global rebound was the extraordinary amount of
policy stimulus. Monetary policy has been highly expansionary, with interest
rates down to record lows in most advanced and in many emerging economies,
while central bank balance sheets expanded to unprecedented levels in key
advanced economies. Fiscal policy has also provided major stimulus in
response to the deep downturn. Meanwhile, public support of the financial
sector has been crucial in breaking the negative feedback loop between the
financial and real sectors. At the same time, there are still few
indications that autonomous (not-policy-induced) private demand is taking
hold, at least in advanced economies.
Table 1.1. Overview of the World Economic
Outlook Projections
(Percent change, unless otherwise noted)
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Year over Year |
|
Q4 over
Q4 |
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|
Projections |
|
Difference from
October 2009 WEO Projections |
|
Estimates |
|
Projections |
|
2008 |
2009 |
2010 |
2011 |
|
2010 |
2011 |
|
2009 |
|
2010 |
2011 |
|
World output1 |
3.0 |
-0.8 |
3.9 |
4.3 |
|
0.8 |
0.1 |
|
1.3 |
|
3.9 |
4.3 |
Advanced economies |
0.5 |
-3.2 |
2.1 |
2.4 |
|
0.8 |
-0.1 |
|
-0.7 |
|
2.1 |
2.5 |
United States |
0.4 |
-2.5 |
2.7 |
2.4 |
|
1.2 |
-0.4 |
|
-0.3 |
|
2.6 |
2.4 |
Euro area |
0.6 |
-3.9 |
1.0 |
1.6 |
|
0.7 |
0.3 |
|
-1.8 |
|
1.1 |
1.8 |
Germany |
1.2 |
-4.8 |
1.5 |
1.9 |
|
1.2 |
0.4 |
|
-1.9 |
|
1.0 |
2.5 |
France |
0.3 |
-2.3 |
1.4 |
1.7 |
|
0.5 |
-0.1 |
|
-0.5 |
|
1.6 |
1.6 |
Italy |
-1.0 |
-4.8 |
1.0 |
1.3 |
|
0.8 |
0.6 |
|
-2.4 |
|
1.3 |
1.1 |
Spain |
0.9 |
-3.6 |
-0.6 |
0.9 |
|
0.1 |
0.0 |
|
-3.1 |
|
0.1 |
1.2 |
Japan |
-1.2 |
-5.3 |
1.7 |
2.2 |
|
0.0 |
-0.2 |
|
-1.8 |
|
1.8 |
2.5 |
United Kingdom |
0.5 |
-4.8 |
1.3 |
2.7 |
|
0.4 |
0.2 |
|
-2.8 |
|
1.9 |
3.1 |
Canada |
0.4 |
-2.6 |
2.6 |
3.6 |
|
0.5 |
0.0 |
|
-1.6 |
|
3.6 |
3.5 |
Other advanced economies |
1.7 |
-1.3 |
3.3 |
3.6 |
|
0.7 |
-0.1 |
|
3.0 |
|
2.7 |
4.0 |
Newly industrialized
Asian economies |
1.7 |
-1.2 |
4.8 |
4.7 |
|
1.2 |
0.0 |
|
5.8 |
|
3.1 |
5.4 |
|
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Emerging and developing
economies2 |
6.1 |
2.1 |
6.0 |
6.3 |
|
0.9 |
0.2 |
|
4.3 |
|
6.4 |
6.9 |
Africa |
5.2 |
1.9 |
4.3 |
5.3 |
|
0.3 |
0.1 |
|
... |
|
... |
... |
Sub-Sahara |
5.6 |
1.6 |
4.3 |
5.5 |
|
0.2 |
0.0 |
|
... |
|
... |
... |
Central and eastern
Europe |
3.1 |
-4.3 |
2.0 |
3.7 |
|
0.2 |
-0.1 |
|
1.2 |
|
-0.2 |
5.9 |
Commonwealth of
Independent States |
5.5 |
-7.5 |
3.8 |
4.0 |
|
1.7 |
0.4 |
|
... |
|
... |
... |
Russia |
5.6 |
-9.0 |
3.6 |
3.4 |
|
2.1 |
0.4 |
|
-6.2 |
|
2.4 |
4.3 |
Excluding Russia |
5.3 |
-3.9 |
4.3 |
5.1 |
|
0.7 |
0.1 |
|
... |
|
... |
... |
Developing Asia |
7.9 |
6.5 |
8.4 |
8.4 |
|
1.1 |
0.3 |
|
... |
|
... |
... |
China |
9.6 |
8.7 |
10.0 |
9.7 |
|
1.0 |
0.0 |
|
10.7 |
|
9.3 |
9.4 |
India |
7.3 |
5.6 |
7.7 |
7.8 |
|
1.3 |
0.5 |
|
5.9 |
|
9.6 |
8.3 |
ASEAN-53 |
4.7 |
1.3 |
4.7 |
5.3 |
|
0.7 |
0.6 |
|
3.6 |
|
4.8 |
5.5 |
Middle East |
5.3 |
2.2 |
4.5 |
4.8 |
|
0.3 |
0.2 |
|
... |
|
... |
... |
Western Hemisphere |
4.2 |
-2.3 |
3.7 |
3.8 |
|
0.8 |
0.1 |
|
... |
|
... |
... |
Brazil |
5.1 |
-0.4 |
4.7 |
3.7 |
|
1.2 |
0.2 |
|
3.1 |
|
3.9 |
3.7 |
Mexico |
1.3 |
-6.8 |
4.0 |
4.7 |
|
0.7 |
-0.2 |
|
-3.0 |
|
3.2 |
5.4 |
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Memorandum |
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European Union |
1.0 |
-4.0 |
1.0 |
1.9 |
|
0.5 |
0.1 |
|
-1.9 |
|
1.3 |
2.2 |
World growth based on market
exchange rates |
1.8 |
-2.1 |
3.0 |
3.4 |
|
0.7 |
0.0 |
|
... |
|
... |
... |
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World trade volume (goods
and services) |
2.8 |
-12.3 |
5.8 |
6.3 |
|
3.3 |
1.1 |
|
... |
|
... |
... |
Imports |
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Advanced economies |
0.5 |
-12.2 |
5.5 |
5.5 |
|
4.3 |
1.1 |
|
... |
|
... |
... |
Emerging and developing
economies |
8.9 |
-13.5 |
6.5 |
7.7 |
|
1.9 |
1.3 |
|
... |
|
... |
... |
Exports |
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|
Advanced economies |
1.8 |
-12.1 |
5.9 |
5.6 |
|
3.9 |
0.5 |
|
... |
|
... |
... |
Emerging and developing
economies |
4.4 |
-11.7 |
5.4 |
7.8 |
|
1.8 |
2.0 |
|
... |
|
... |
... |
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Commodity prices (U.S.
dollars) |
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Oil4 |
36.4 |
-36.1 |
22.6 |
7.9 |
|
-1.7 |
4.0 |
|
... |
|
... |
... |
Nonfuel (average based on
world |
|
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|
commodity export weights) |
7.5 |
-18.9 |
5.8 |
1.6 |
|
3.4 |
-1.3 |
|
... |
|
... |
... |
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Consumer prices |
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Advanced economies |
3.4 |
0.1 |
1.3 |
1.5 |
|
0.2 |
0.2 |
|
0.7 |
|
1.2 |
1.5 |
Emerging and developing
economies2 |
9.2 |
5.2 |
6.2 |
4.6 |
|
1.3 |
0.1 |
|
4.7 |
|
6.5 |
3.0 |
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London interbank
offered rate (percent)5 |
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On U.S. dollar deposits |
3.0 |
1.1 |
0.7 |
1.8 |
|
-0.7 |
-1.6 |
|
... |
|
... |
... |
On euro deposits |
4.6 |
1.2 |
1.3 |
2.3 |
|
-0.3 |
-0.4 |
|
... |
|
... |
... |
On Japanese yen deposits |
1.0 |
0.7 |
0.6 |
0.7 |
|
0.0 |
0.0 |
|
... |
|
... |
... |
Note: Real effective exchange rates are assumed to remain
constant at the levels prevailing during November 19-December 17, 2009.
Country weights used to construct aggregate growth rates for groups of
countries were revised. When economies are not listed alphabetically, they
are ordered on the basis of economic size.
1The quarterly estimates
and projections account for 90 percent of the world purchasing-power-parity
weights.
2The quarterly estimates
and projections account for approximately 77 percent of the emerging and
developing economies.
3Indonesia, Malaysia,
Philippines, Thailand, and Vietnam.
4Simple 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 $62.00 in 2009; the assumed price
based on future markets is $76.00 in 2010 and $82.00 in 2011.
5Six-month rate for the
United States and Japan. Three-month rate for the euro area.
Recovery is proceeding at varying speeds
Output in the advanced economies is now expected to expand
by 2 percent in 2010, following a sharp decline in output in 2009. The new
forecast reflects an upward revision of 3/4 percentage point. In 2011,
growth is projected to edge up further to 2½ percent. In spite of the
revision, the recovery in advanced economies is still expected to be weak by
historical standards, with real output remaining below its pre-crisis level
until late 2011. Moreover, high unemployment rates and public debt, as well
as not-fully-healed financial systems, and in some countries, weak household
balance sheets are presenting further challenges to the recovery in these
economies.
Growth in emerging and developing economies is expected to
rise to about 6 percent in 2010, following a modest 2 percent in 2009. The
new projection reflects an upward revision of almost 1 percentage point. In
2011, output is projected to accelerate further. Stronger economic
frameworks and swift policy responses have helped many emerging economies to
cushion the impact of the unprecedented external shock and quickly
re-attract capital flows.
Within both groups, growth performance is expected to vary
considerably across countries and regions, reflecting different initial
conditions, external shocks, and policy responses. For instance, key
emerging economies in Asia are leading the global recovery. A few advanced
European economies and a number of economies in central and eastern Europe
and the Commonwealth of Independent States are lagging behind. The rebound
of commodity prices is helping support growth in commodity producers in all
regions. Many developing countries in sub-Saharan Africa that experienced
only a mild slowdown in 2009 are well placed to recover in 2010. Growth
paths are diverse for advanced economies as well.
Financial conditions have improved further but remain
challenging
Financial markets have recovered faster than expected,
helped by strengthening activity. Nevertheless, financial conditions are
likely to remain more difficult than before the crisis (see January 2010
Global Financial Stability Report Market Update). Specifically:
- Money markets have stabilized, and the tightening of
bank lending standards has moderated. Moreover, most banks in core
markets are now less reliant on central bank emergency facilities and
government guarantees. Nonetheless, bank lending is likely to remain
sluggish, given the need to rebuild capital, the weakness of private
securitization, and the possibility of further credit write-downs,
notably related to commercial real estate.
- Equity markets have rebounded, and corporate bond
issuance has reached record levels, amid a reopening of most high-yield
markets. However, the surge in corporate bond issuance has not offset
the reduction in bank credit growth to the private sector. Those sectors
that have only limited access to capital markets, namely consumers and
small and medium-size enterprises, are likely to continue to face credit
constraints. So far, public lending programs and guarantees have been
critical in channeling credit to these sectors.
- Sovereign debt has come under pressure for some small
countries, as they struggle with large government deficits and debt, and
as investors increasingly differentiate across countries.
Amid a relatively rapid return to healthy growth in many
emerging economies, portfolio flows into these markets have picked up,
easing financial conditions and prompting nascent concerns about asset price
valuations. By contrast, cross-border bank financing is still contracting in
most regions, as global banks continue to delever. This will limit domestic
credit growth, especially in regions that had been most reliant on
cross-border bank flows.
Commodity prices are rebounding
Commodity prices rose strongly during the early stages of
the recovery, despite generally high inventories. To a large extent, this
was due to the buoyant recovery in emerging Asia, to the onset of recovery
in other emerging and developing economies more generally, and to the
improvement in global financial conditions.
Looking ahead, commodity prices are expected to rise a bit
further supported by the strength of global demand, especially from emerging
economies. However, this upward pressure is expected to be modest, given the
above-average inventory levels and substantial spare capacity in many
commodity sectors. Accordingly, the IMF’s baseline petroleum price
projection is unchanged for 2010 and revised up by a small amount in 2011 (to
$82 a barrel, from $79 a barrel in the October 2009 WEO). Other non-fuel
commodity prices have also been marked up modestly.
Inflation pressures will remain subdued in most economies
The still-low levels of capacity utilization and
well-anchored inflation expectations are expected to contain inflation
pressures (Figure
3, view:
Data Figure 3). In the advanced economies, headline inflation is
expected to pick up from zero in 2009 to 1¼ percent in 2010, as rebounding
energy prices more than offset slowing labor costs. In emerging and
developing economies, inflation is expected to edge up to 6¼ percent in
2010, as some of these economies may face growing upward pressures due to
more limited economic slack and increased capital flows.
There are important risks in both directions
There are still significant risks to the outlook.
On the upside, the reversal of the confidence crisis and
the reduction in uncertainty may continue to foster a stronger-than-expected
improvement in financial market sentiment and prompt a larger-than-expected
rebound in capital flows, trade, and private demand. New policy initiatives
in the United States to reduce unemployment could provide a further impetus
to both U.S. and global growth.
On the downside, a key risk is that a premature and
incoherent exit from supportive policies may undermine global growth and its
rebalancing. Another important risk is that impaired financial systems and
housing markets or rising unemployment in key advanced economies may hold
back the recovery in household spending more than expected. In addition,
rising concerns about worsening budgetary positions and fiscal
sustainability could unsettle financial markets and stifle the recovery by
raising the cost of borrowing for households and companies. Yet another
downside risk is that rallying commodity prices may constrain the recovery
in advanced economies.
Continued policy efforts are needed to sustain the
recovery and prepare for exit
Against this backdrop, policymakers are faced with the
daunting policy challenge of achieving the rebalancing of demand away from
public and toward private sectors and away from economies with excessive
external deficits toward those with excessive surpluses, while repairing
financial sectors and fostering restructuring in real sectors. Both
rebalancing acts are, however, not proceeding without problems. Many
advanced economies continue to struggle with repairing and reforming their
financial sectors. Concurrently, various emerging economies are grappling
with the challenges posed by surging capital inflows, in some cases
resisting exchange rate appreciation that could support stronger domestic
demand and a reduction in excessive current account surpluses.
Regarding monetary policy, many central banks can afford
to maintain low interest rates over the coming year, as underlying inflation
is expected to remain low and unemployment high for some time. At the same
time, credible strategies for unwinding monetary policy support need to be
prepared and communicated now to anchor expectations and dampen potential
fears of inflation or renewed financial instability. Countries that are
already enjoying a relatively robust rebound of activity and credit will
have to tighten monetary conditions earlier and faster than their
counterparts elsewhere.
Due to the still-fragile nature of the recovery, fiscal
policies need to remain supportive of economic activity in the near term.
The fiscal stimulus planned for 2010 should be fully implemented. However,
countries facing growing concerns about fiscal sustainability should make
progress in devising and communicating credible exit strategies. In many
cases, durable exit will require not only unwinding crisis-related fiscal
stimulus but also substantial improvements in primary balances for a
sustained period. Fiscal adjustment strategies should include: reducing
fiscal deficits mindful of the need to protect spending on the poor and
foreign aid and reforming entitlement spending, among others measures.
Once private demand has become self-sustained, the
sequencing of exit from accommodative monetary and fiscal policy should be
guided by a variety of considerations, including whether: high fiscal
deficits and debt are raising concerns about sustainability and sovereign
risk—which is the primary consideration in many countries; low interest
rates might be contributing to asset price bubbles; the exchange rate is
under pressure to appreciate or depreciate as well as its position relative
to medium-term fundamentals; and how quickly monetary or fiscal policy can
be adjusted to changes in domestic demand.
Crucially, there remains a pressing need to continue
repairing the financial sector in advanced and the hardest-hit emerging
economies. In these cases, policies are still needed to tackle bank’
impaired assets and restructuring. Unwinding the financial sector support
measures put in place since the start of the crisis should be gradual; it
can be facilitated by incentives that make measures less attractive as
conditions improve. Policymakers will also need to move boldly to reform the
financial sector with the objectives of reducing the risks of future
instability and rethinking how the potential fallout of financial crises
would be borne in the future, while at the same time making the sector more
effective and resilient.
At the same time, some emerging market countries will have
to manage a surge of capital inflows. This is a complex task and the right
responses differ across countries, including some fiscal tightening to ease
pressure on interest rates and exchange rate appreciation or greater
flexibility. Recognizing that inflows can be very large and partly
transitory, depending on circumstances, macro-prudential policies aimed at
limiting the emergence of new asset price bubbles, some buildup of reserves,
and some capital controls on inflows can be part of the appropriate response.
Lastly, policymakers are facing major structural policy
challenges. In advanced and emerging economies with excessive external
surpluses and domestic saving rates, global rebalancing could be fostered
through structural policies to support domestic demand and the development
of non-tradable sectors. On the other hand, economies that relied
excessively on domestic demand-led growth will need to shift resources
toward the tradable sector.
Source |