Imf World Economic Outlook (weo) Update Contractionary Forces ...
July 8, 2009
Contractionary Forces Receding But Weak Recovery Ahead
The global economy is beginning to pull out of a recession unprecedented in the post–World War II
era, but stabilization is uneven and the recovery is expected to be sluggish. Economic growth during
2009–10 is now projected to be about ½ percentage points higher than projected in the April 2009
World Economic Outlook (WEO), reaching 2.5 percent in 2010. Financial conditions have improved
more than expected, owing mainly to public intervention, and recent data suggest that the rate of
decline in economic activity is moderating, although to varying degrees among regions. Despite these
positive signs, the global recession is not over, and the recovery is still expected to be slow, as
financial systems remain impaired, support from public policies will gradually diminish, and
households in countries that suffered asset price busts will rebuild savings. The main policy priority
remains restoring financial sector health. Macroeconomic policies need to stay supportive, while
preparing the ground for an orderly unwinding of extraordinary levels of public intervention. At the
same time, given weak internal demand prospects in a number of current account deficit countries,
including the United States, policies need to sustain stronger demand in key surplus countries.
Stabilization is uneven and recovery will
WEO (Table 1). The higher annual average
likely be sluggish.
growth rate for 2010 largely reflects carryover
from a markup in growth during the final half
The world economy is stabilizing, helped by
of 2009. On a fourth-quarter-over-fourth-
unprecedented macroeconomic and financial
quarter basis, real GDP growth is projected at
policy support. However, the recession is not
2.9 percent in 2010, compared with 2.6 percent
over and the recovery is likely to be sluggish.
in the April WEO forecast.
Following a disappointing first quarter, during
which the global economy contracted almost
Figure 1. Global GDP Growth
as fast as during the fourth quarter of 2008,
(Percent; quarter-over-quarter, annualized)
(Figure 1), high-frequency data point to a
12
return to modest growth at the global level
Emerging and
10
developing economies
8
(Figure 2). However, the advanced economies
World
6
as a group are still projected not to show a
4
2
sustained pickup in activity until the second
0
Advanced
half of 2010, consistent with the April 2009
-2
economies
-4
WEO forecast.
-6
-8
-10
Accordingly, global activity is forecast to
2005
06
07
08
09
10
contract by 1.4 percent in 2009 and to expand
Source: IMF staff estimates.
by 2.5 percent in 2010, which is 0.6 percentage
point higher than envisaged in the April 2009
2
Table 1. Overview of the World Economic Outlook Projections
(Percent change, unless otherwise noted)
Year over Year
Q4 over Q4
Difference from April
Projections
2009 WEO Projections
Estimates
Projections
2007
2008
2009
2010
2009
2010
2008
2009
2010
World output1
5.1
3.1
-1.4
2.5
-0.1
0.6
0.2
0.0
2.9
Advanced economies
2.7
0.8
-3.8
0.6
0.0
0.6
-1.8
-2.2
1.3
United States
2.0
1.1
-2.6
0.8
0.2
0.8
-0.8
-1.4
1.7
Euro area
2.7
0.8
-4.8
-0.3
-0.6
0.1
-1.7
-3.8
0.6
Germany
2.5
1.3
-6.2
-0.6
-0.6
0.4
-1.8
-4.6
0.0
France
2.3
0.3
-3.0
0.4
0.0
0.0
-1.7
-1.9
1.3
Italy
1.6
-1.0
-5.1
-0.1
-0.7
0.3
-3.0
-3.3
0.4
Spain
3.7
1.2
-4.0
-0.8
-1.0
-0.1
-0.7
-4.1
0.3
Japan
2.3
-0.7
-6.0
1.7
0.2
1.2
-4.4
-1.8
0.9
United Kingdom
2.6
0.7
-4.2
0.2
-0.1
0.6
-1.8
-2.5
0.5
Canada
2.5
0.4
-2.3
1.6
0.2
0.4
-1.0
-1.5
2.5
Other advanced economies
4.7
1.6
-3.9
1.0
0.2
0.4
-2.8
-1.6
2.3
Newly industrialized Asian economies
5.7
1.5
-5.2
1.4
0.4
0.6
-4.9
-0.9
2.6
Emerging and developing economies2
8.3
6.0
1.5
4.7
-0.1
0.7
3.3
3.3
5.1
Africa
6.2
5.2
1.8
4.1
-0.2
0.2
...
...
...
Sub-Sahara
6.9
5.5
1.5
4.1
-0.2
0.3
...
...
...
Central and eastern Europe
5.4
3.0
-5.0
1.0
-1.3
0.2
...
...
...
Commonwealth of Independent States
8.6
5.5
-5.8
2.0
-0.7
0.8
...
...
...
Russia
8.1
5.6
-6.5
1.5
-0.5
1.0
1.1
-0.8
-1.8
Excluding Russia
9.8
5.4
-3.9
3.2
-1.0
0.1
...
...
...
Developing Asia
10.6
7.6
5.5
7.0
0.7
0.9
...
...
...
China
13.0
9.0
7.5
8.5
1.0
1.0
6.9
8.4
8.6
India
9.4
7.3
5.4
6.5
0.9
0.9
4.8
5.8
6.7
ASEAN-53
6.3
4.8
-0.3
3.7
-0.3
1.4
1.9
1.6
4.4
Middle East
6.3
5.2
2.0
3.7
-0.5
0.2
...
...
...
Western Hemisphere
5.7
4.2
-2.6
2.3
-1.1
0.7
...
...
...
Brazil
5.7
5.1
-1.3
2.5
0.0
0.3
1.3
1.5
2.5
Mexico
3.3
1.3
-7.3
3.0
-3.6
2.0
-1.7
-4.0
3.1
Memorandum
European Union
3.1
1.1
-4.7
-0.1
-0.7
0.2
...
...
...
World growth based on market exchange rates
3.8
2.0
-2.6
1.7
-0.1
0.7
...
...
...
World trade volume (goods and services)
7.2
2.9
-12.2
1.0
-1.2
0.4
...
...
...
Imports
Advanced economies
4.7
0.4
-13.6
0.6
-1.5
0.2
...
...
...
Emerging and developing economies
13.8
9.4
-9.6
0.8
-0.8
0.2
...
...
...
Exports
Advanced economies
6.2
2.0
-15.0
1.3
-1.5
0.8
...
...
...
Emerging and developing economies
9.5
4.1
-6.5
1.4
-0.1
0.2
...
...
...
Commodity prices (U.S. dollars)
Oil4
10.7
36.4
-37.6
23.1
8.8
2.9
...
...
...
Nonfuel (average based on world
commodity export weights)
14.1
7.5
-23.8
2.2
4.1
-2.2
...
...
...
Consumer prices
Advanced economies
2.2
3.4
0.1
0.9
0.3
0.6
2.1
0.5
0.6
Emerging and developing economies2
6.4
9.3
5.3
4.6
-0.4
-0.1
7.6
4.2
3.7
London interbank offered rate (percent)5
On U.S. dollar deposits
5.3
3.0
1.2
1.4
-0.3
0.0
...
...
...
On euro deposits
4.3
4.6
1.4
1.8
-0.2
-0.2
...
...
...
On Japanese yen deposits
0.9
1.0
0.9
0.4
-0.1
-0.1
...
...
...
Note: Real effective exchange rates are assumed to remain constant at the levels prevailing during May 7-June 4, 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 76 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 $97.03 in 2008;
the assumed price based on future markets is $60.50 in 2009 and $74.50 in 2010.
5Six-month rate for the United States and Japan. Three-month rate for the euro area.
3
Figure 2. Selected High-Frequency Indicators
concerns about systemic failure and have
(Annualized percent change of 3-month moving average over previous
supported intermediation (as discussed in the
3-month moving average unless otherwise noted)
July 2009 Global Financial Stability Report
20 Industrial Production
Manufacturing Purchasing
65
Market Update). Consistent with these
Managers Index
15
Emerging
(index)
economies1
60
Emerging
developments, financial stress indexes for
10
economies1
5
55
advanced and emerging economies have
0 Advanced
50
receded since the beginning of 2009
-5 economies2
World
(Figure 3).1 However, the improvements are
-10
45
-15
40
far from uniform across markets and countries.
-20
Advanced
economies2
35
In particular, bank lending conditions are
-25
-30
30
expected to remain tight and external financing
2005
06
07
08
Apr.
2005
06
07
08
May
09
09
conditions constrained for a considerable time.
60 Merchandise Exports
Retail Sales
25
World
Emerging
Emerging
Figure 3. Financial Stress in Advanced and Emerging
40
20
economies1
economies1
Economies1
20
15
(Purchasing-power-parity-weighted average; stress index deviation from
World
10
average)
0
5
-20
Advanced
economies2
0
Advanced Economies
Emerging Economies
20
10
Emerging
-40
Advanced
United States
economies2
-5
Europe
Advanced
8
-60
15
Emerging
-10
economy
aggregate
economy
6
aggregate
-80
-15
Emerging
2005
06
07
08 Apr.
2005
06
07
08
Apr.
10
Asia
4
09
09
5
2
Sources: Haver Analytics; and IMF staff calculations.
Japan
0
Ar
1 gentina, Brazil, Bulgaria, Chile, China, Colombia, Estonia, Hungary, India, Indonesia,
0
Latvia, Lithuania, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Romania, Russia,
Latin
Western
-2
Slovak Republic, South Africa, Thailand, Turkey, Ukraine, and Venezuela.
America
Europe
A
2 ustralia, Canada, Czech Republic, Denmark, euro area, Hong Kong SAR, Israel, Japan,
-5
-4
Korea, New Zealand, Norway, Singapore, Sweden, Switzerland, Taiwan Province of China,
2007
08
May
2007
08
Apr.
United Kingdom, and United States.
09
09
Source: IMF staff calculations.
T
1 he financial stress indices are expressed as a deviation from average since mid 1990s.
Going forward, the pace of recovery will
The components of the indices for advanced and emerging economies differ.
depend on the balance between opposing
forces. The downward drag exerted by the
At the same time, commodity prices have
financial shock, the sharp fall of global trade,
rebounded ahead of the recovery (Figure 4).
and the general increase in uncertainty and
The recent rally in commodity prices has been
collapse of confidence is gradually
strong and broad-based, reflecting improved
diminishing. However, supportive forces are
market sentiment, U.S. dollar depreciation, and
still weak. Many housing markets have yet to
commodity-specific factors. In the oil market,
bottom out. Importantly, financial markets
remain impaired and bank balance sheets still
1
need to be cleaned and institutions
The Financial Stress Index captures episodes of
impaired financial intermediation by assessing market
restructured. Cuts in policy interest rates,
responses in securities markets, exchange markets, and
continued provision of ample liquidity, credit
the banking sector (see Balakrishnan, Danninger,
easing, public guarantees, and bank
Elekdag, and Tytell, 2009, The Transmission of
Financial Stress from Advanced to Emerging
recapitalization have appreciably lowered
Economies, IMF Working Paper No. 09/133).
4
prices have responded strongly to perceptions
growth in 2010 would still fall short of
that market dynamics are shifting from
potential until late in the year, implying
significant oversupply to more balanced
continuing increases in unemployment.
conditions. This owes in part to improving
Among the major economies, growth rates
demand prospects but also Organization of
have been marked up mainly for the United
Petroleum Exporting Countries (OPEC)
States and Japan.
members’ strict observance of lower
production quotas. Forward markets project oil
• In the United States, high-frequency
prices at $74.50 for 2010, not much above
indicators point to a diminishing rate of
current levels, with high excess capacity
deterioration, including in the labor and
expected to buffer growing demand.
housing markets. Industrial production
may be close to bottoming out; the
Figure 4. Selected Commodity Price Indices
inventory cycle is turning; and business
(December 31, 2008 = 100)
and consumer confidence has improved.
180
These developments are consistent with
Crude Oil
stabilization of output during the second
(APSP) 1
160
half of 2009 and with a gradual recovery
Agricultural raw
Metals
materials
140
emerging in 2010.
120
• In Japan, following a dismal first quarter,
100
there are signs that output is stabilizing.
Food
80
Improved consumer confidence, progress
Dec. 08
Jan. 09
Feb. 09
Mar. 09
Apr. 09
May. 09
Jun. 09
in inventory adjustment, aggressive fiscal
Sources: Bloomberg Financial Markets; and IMF staff calculations.
policies, and strong performance by some
A
1 PSP: Average unweighted petroleum spot price of West Texas Intermediate, U.K. Brent,
and Dubai Fateh crude.
other Asian economies are expected to lift
growth in the coming quarters.
In this setting, activity and credit growth are
likely to remain subdued in many economies.
• In the euro area, consumer and business
Looking beyond 2010, it remains unclear how
survey indicators have been recovering but
structurally weaker private consumption in the
data on real activity show few signs of
United States and other advanced and
stabilization and thus activity is projected
emerging economies that suffered asset price
to strengthen more slowly than elsewhere.
collapses will be compensated for by stronger
Macroeconomic policies are providing
demand elsewhere. Currently, expansionary
support but much of the adjustment in the
macroeconomic policies and an inventory
labor market still lies ahead. Rising
adjustment are supporting global activity but
unemployment will weigh on consumption
these are temporary forces.
and activity, as will the economy’s heavy
dependence on a still-ailing banking sector.
Accordingly, GDP in the advanced economies
is projected to decline by 3.8 percent in 2009
Emerging and developing economies are
before growing by 0.6 percent in 2010.
projected to regain growth momentum during
Although the projections are 0.6 percentage
the second half of 2009, albeit with notable
points higher than in the April WEO forecast,
regional differences. Low-income countries
5
are facing important challenges of their own
• Growth projections for emerging Africa
because official aid has fallen and these
and the Middle East have been revised
economies are particularly vulnerable to
downward by 0.3 and 0.5 percentage
swings in commodity prices.
points in 2009, respectively, while those
for 2010 are broadly unchanged. Both
• Growth projections in emerging Asia have
regions have been more negatively affected
been revised upward to 5.5 percent in 2009
by the drop in global trade than previously
and 7.0 percent in 2010. The upgrade owes
expected, with Middle Eastern oil
to improved prospects in China and India,
exporters using their financial reserves to
in part reflecting substantial
prop up domestic demand.
macroeconomic stimulus; and a faster-
than-expected turnaround in capital flows.
Inflation pressures to remain low.
However, the recent acceleration in growth
is likely to peter out unless there is a
Inflation pressures have continued to ease with
recovery in advanced economies.
the continued weakness of the global
economy. Year-over-year inflation moderated
• Growth projections for Latin America have
to 1.7 percent in May, down from around
been lowered by 1.1 percentage points in
6 percent one year earlier (Figure 5). In the
2009, primarily because production has
advanced economies, headline inflation fell
been hit much harder by the global trade
below zero percent in May as oil prices
slowdown than initially expected.
remained far below levels one year earlier,
However, the region is benefiting from
despite their recent pickup. Core inflation is
rising commodity prices, and growth
still running around 1½ percent, down from
projections have been revised up by
2 percent one year earlier. Similarly, headline
0.7 percentage points in 2010.
and core inflation in the emerging markets
have moderated, falling below 4½ percent and
• The growth projections for central and
to around 1 percent in May, respectively.
eastern Europe and the Commonwealth of
However, developments have been uneven,
Independent States (CIS) have been
with inflation falling more in China and the
revised downward by 1.3 and
Middle East than elsewhere.
0.7 percentage points in 2009 and upward
by 0.2 and 0.8 percentage points in 2010,
respectively. Developments differ
appreciably across countries but many
have been badly affected by the global
financial crisis, with capital flows reversed
and commodity exports sharply contracted,
although the recent recovery of commodity
prices is forecast to raise demand in key
CIS economies.
6
Figure 5. Global Inflation
½ percentage point for 2010 from the April
(Twelve-month change in the consumer price index unless otherwise
WEO forecast, owing to somewhat stronger
noted)
demand and commodity prices than earlier
Global Aggregates
projected. Unemployment rates will reach
10 Headline Inflation
Core Inflation
10
double digits in some countries, holding back
Emerging
8
8
wages and household spending and presenting
economies
6
Emerging
6
significant policy challenges. In the emerging
World
economies
economies, stronger disinflationary forces in
4
World
4
some regions have prompted modest
2
2
Advanced
markdowns to the April projections for
economies
Advanced
0
0
economies
inflation, notwithstanding the upward revisions
-2
-2
2002 03 04 05 06 07 08 May
2002 03 04 05 06 07 08 May
to output growth.
09
09
Country Indicators
Risks have moderated but remain to the
5 Headline Inflation
Inflation Expectations2
4
downside.
United States1
4
United States
3
The risks to the outlook are still tilted to the
3
downside, although tail risks have diminished
2
2
Euro area
Euro area
noticeably. In the advanced economies, rising
1
Japan
1
unemployment and a loss of confidence in the
0
Japan
0
stability of the financial sector (possibly
-1
resulting from a larger-than-anticipated wave
-2
-1
2002 03 04 05 06 07 08 May
2002 03 04 05 06 07 08 Jun.
09
09
of corporate bankruptcies) could put renewed
downward pressure on asset prices and
Sources: Bloomberg Financial Markets; Haver Analytics; and IMF staff calculations.
P
1 ersonal consumption expenditure deflator.
potentially trigger a deflationary episode.
2One-year-ahead consensus forecasts. The December values are the average of the
Moreover, rising questions about public debt
surrounding November and January values.
sustainability in some countries could add to
Despite upward pressure from recovering
upward pressure on bond yields, with negative
commodity prices, global inflation is expected
effects on the recovery of housing markets.
to remain subdued through 2010, held back by
Falling house prices are another important risk
significant excess capacity. Risks for sustained
that could undermine confidence in bank
deflation are small, as core inflation and
capital bases. At the same time, a number of
inflation expectations in most major
emerging economies remain quite vulnerable
economies are still holding in the 1–2 percent
to intensified financial stress, with potential
range. In the advanced economies, potential
feedback effects on advanced economies.
output growth rates have taken a hit, with
More generally, if higher unemployment and
activity in the housing and financial sectors
social discontent were to prompt governments
slumping and a need for a reallocation of
to introduce trade and financial restrictions and
resources toward other sectors. Nonetheless,
roll back reforms to other sectors, there would
the weakness of demand implies a noticeable
be confidence and productivity would suffer.
widening of excess capacity that will keep
However, there are also some upside risks,
inflation close to zero percent in 2009.
including a larger-then-expected drop in risk
Inflation rates have been marked up by about
7
aversion and stronger internal demand
financial institutions where needed, remains of
dynamics in some major emerging economies.
overarching importance. Forceful and suitably
transparent implementation of these steps
Strong policy implementation remains key
would help rebuild confidence and reaccelerate
for a durable recovery.
credit growth.
While policies still have much work to do in
Overall, short-term measures to support
dealing with the crisis, there will also be a
financial systems need to be consistent with
need to increasingly shift from providing
long-term objectives to strengthen incentives
short-term support to laying the foundations
and improve market discipline. Progress with
for a return to strong medium-run growth. This
respect to the latter will determine the extent to
will depend crucially on fostering stronger
which the financial sector can effectively
potential output growth, particularly in
perform its role of allocating savings to
advanced economies, and rebalancing global
competing projects and thereby sustain
demand. Financial, monetary, fiscal, and
productivity growth.
structural policies all have a role to play in this
regard.
Monetary and fiscal policy
Financial policy
Monetary policy should remain supportive
until growth resumes and deflationary risks
The overarching policy priority remains
dissipate. Remaining room to cut policy rates
restoring financial sector health. While major
should be exploited, while nonconventional
progress has been made in restoring bank
policy measures to support credit flows should
solvency, it is not yet sufficient to stop the
continue to be explored. At the same time, exit
deleveraging. Accordingly, continued efforts
strategies for withdrawal of exceptional
to restore financial sector health, deployed in a
conventional and nonconventional monetary
multilaterally consistent way, will be key
policy support should be developed and
determinants of the durability of recent
explained, so as to contain inflation fears.
improvements in financial conditions and the
Additionally, it would be helpful to develop
strength of the recovery in the real economy.
tools to facilitate a smooth unwinding of the
In the United States, addressing problem assets
significantly expanded central bank balance
remains a key priority for putting the financial
sheets.
sector on a firmer footing. Although many of
the largest U.S. banks are again able to raise
Rising concerns about fiscal sustainability
private capital and, in some cases, to repay
underline the need for stronger medium-run
government capital, major downside risks
fiscal policy frameworks. Although fiscal
continue in the banking sector. In the
policy should stay supportive through 2010,
European Union and elsewhere, authorities are
plans should be made for rebuilding fiscal
also actively assessing banking system
balances and ensuring sustainable debt paths
soundness by conducting stress tests. While
after growth is firmly reestablished. Relevant
good progress has already been made,
reforms should aim at strengthening fiscal
achieving credible recapitalization together
rules and institutions and reducing the buildup
with appropriate restructuring or resolution of
of future pension and health liabilities.
8
Commitments to raise statutory retirement
Turning to the demand side, public demand
ages in line with life expectancies and to slow
will have to recede and private demand
down health services costs through efficiency
increase. In countries such as the United
improvements could help to achieve the latter
States, which posted large current account
objective.
deficits in the recent past, this may require a
shift from internal to external demand. By
In the emerging economies, macroeconomic
implication, the reverse will be required in
policy has to strike a balance between the need
countries that posted large current account
to support demand and the risk of exacerbating
surpluses.
capital outflows and undermining fiscal
sustainability. To this end, where underlying
The extent to which these supply and demand
inflationary pressures are easing, central banks
side developments will weigh on the recovery
should reduce their policy rates cautiously to
beyond 2010 depends on many factors.
avoid a disorderly adjustment in exchange
However, of critical importance will be the
rates as well as large capital outflows.
success of policies in rebuilding financial
Emerging economies also need to assess the
sectors in advanced economies and in
soundness of their banking systems, especially
supporting private consumption in emerging
where important segments of the corporate
economies with large current account
sector are struggling to meet payments, for
surpluses.
example, because of sharply declining export
revenues and loss of external financing.
Rebalancing global demand
Looking beyond the next year, the crisis is
likely, on the supply side, to have reduced the
global economy’s sustainable output. Falling
investment and widespread bankruptcies are
lowering the level and perhaps also the rate of
growth of potential output. Moreover, rising
cyclical unemployment may translate into
higher structural unemployment as workers
lose market attachment.
