WORLD ECONOMIC OUTLOOK: GROWTH SLOWDOWN, PRECARIOUS RECOVERY Figure 1.11. Forecast Assumptions: Fiscal Indicators Figure 1. 12. Commodity Price Assumptions and (Percent of GDP Terms-of-Trade Windfall Gains and Losses (Percent of GDP, unless noted otherwise) Fiscal policy is assumed to be expansionary across advanced economies in 2019 reverse. Across the emerging market and developing economy group, ise into oil futures contracts, average oi rejected at $54.1 in 2019 is assumed to be expansionary in 2019 (in part reflecting a projected fiscal Cy S55.2 in 2020. Metal prices are ex decline 6.0 percent year over stimulus in China to offset some of the negative effects of higher tariffs), before tuming contractionary in 2020 d to decline 2.6 percent year over year in 2019 before increasing by 1.7 percent in 2020. 1.0-1 Change in the Structural Primary Fiscal Balance 110-1.commodityandoIlPrices Average petroleum spot price 0.5- Metals Advanced economies developing economies 2.5-2. Change in the Structural Primary Fiscal Balance 30-2. Terms-of-Trade Windfall Gains and Losses for Commodity 20 2015〓20162017 2015-16(cumulative October 2018 WEO United states Japan 8-3. Terms-of-Trade Windfall Gains and Losses for Commodity 2015-16 (cumulative) igures reflect comprehensive methodological revisions adopted in a2017-18 (cumulative) Beyond 2020, global growth is projected to plateau at about 3.6 percent over the medium term, similarly 4-. 2019-20(average: Feb 2019 commodity prices) to the medium-term forecast of the october 2018 WEO. The assumptions for trade, fiscal, and monetary DEU POL policies as well as commodity prices, which underpin this baseline forecast, are outlined in Box 1.2(see also Figures 1.11 and 1.12). Importantly, tariffs on ources: IMF, Primary Commodity Price Sys and IMF staff estimates $200 billion of US imports from China are assumed to cades ata labels use Intemational Organization for Standardization(S0)country stay at 10 percent(whereas in the October 2018 WEO Gains(losses) for 2019-20 are simple av and the January 2019 WEO Update they had been osses)for 2019 and 2020. The windfall is an estimate of the change in modity price changes. The windfall g assumed to rise to 25 percent as of March 1, 2019) year tfor a country exporting x US dollars of commodity A and importing m The global growth forecast reflects a combination of US dollars of commodity B in year t-1 is defined as (Ap x-1 Y-1, in which Ap and Ap, are the percentage changes in the prices of A and B waning cyclical forces and a return to tepid potential between year t- 1 and year t and Y is gDP in year t-1 in US dollars. See als growth in advanced economies; a precarious recovery in Gruss(2014) Intemational Monetary Fund April 2019
10 WORLD ECONOMIC OUTLOOK: Growth Slowdown, Precarious Recovery International Monetary Fund | April 2019 Beyond 2020, global growth is projected to plateau at about 3.6 percent over the medium term, similarly to the medium-term forecast of the October 2018 WEO. The assumptions for trade, fiscal, and monetary policies as well as commodity prices, which underpin this baseline forecast, are outlined in Box 1.2 (see also Figures 1.11 and 1.12). Importantly, tariffs on $200 billion of US imports from China are assumed to stay at 10 percent (whereas in the October 2018 WEO and the January 2019 WEO Update they had been assumed to rise to 25 percent as of March 1, 2019). The global growth forecast reflects a combination of waning cyclical forces and a return to tepid potential growth in advanced economies; a precarious recovery in 2015 2016 2017 2018 2019 2020 October 2018 WEO 2015 2016 2017 2018 2019 2020 October 2018 WEO 2. Change in the Structural Primary Fiscal Balance 1. Change in the Structural Primary Fiscal Balance Source: IMF staff estimates. Note: WEO = World Economic Outlook. 1 Japan’s latest figures reflect comprehensive methodological revisions adopted in December 2016. Fiscal policy is assumed to be expansionary across advanced economies in 2019 and expected to turn contractionary in 2020 as the US stimulus starts going into reverse. Across the emerging market and developing economy group, fiscal policy is assumed to be expansionary in 2019 (in part reflecting a projected fiscal stimulus in China to offset some of the negative effects of higher tariffs), before turning contractionary in 2020. –1.5 1.0 –1.0 –0.5 0.0 0.5 –1.5 2.5 –1.0 –0.5 0.0 0.5 1.0 1.5 2.0 United States Japan1 France, Germany, United Kingdom Greece, Ireland, Italy, Portugal, Spain Advanced economies Emerging market and developing economies Figure 1.11. Forecast Assumptions: Fiscal Indicators (Percent of GDP) Average petroleum spot price Food Metals 2019–20 (average; Feb. 2019 commodity prices) 2019–20 (average; Feb. 2019 commodity prices) 2015–16 (cumulative) 2017–18 (cumulative) 2015–16 (cumulative) 2017–18 (cumulative) 1. Commodity and Oil Prices (Index, 2018 = 100) 3. Terms-of-Trade Windfall Gains and Losses for Commodity Importers1 2. Terms-of-Trade Windfall Gains and Losses for Commodity Exporters1 Figure 1.12. Commodity Price Assumptions and Terms-of-Trade Windfall Gains and Losses (Percent of GDP, unless noted otherwise) Based on oil futures contracts, average oil prices are projected at $54.1 in 2019, rising to $55.2 in 2020. Metal prices are expected to decline 6.0 percent year over year in 2019 and inch down a further 0.8 percent in 2020. Food prices are projected to decline 2.6 percent year over year in 2019 before increasing by 1.7 percent in 2020. Sources: IMF, Primary Commodity Price System; and IMF staff estimates. Note: Data labels use International Organization for Standardization (ISO) country codes. 1 Gains (losses) for 2019–20 are simple averages of annual incremental gains (losses) for 2019 and 2020. The windfall is an estimate of the change in disposable income arising from commodity price changes. The windfall gain in year t for a country exporting x US dollars of commodity A and importing m US dollars of commodity B in year t – 1 is defined as (Δpt A xt – 1 – Δpt B mt – 1) / Yt – 1, in which Δpt A and Δpt B are the percentage changes in the prices of A and B between year t – 1 and year t, and Y is GDP in year t – 1 in US dollars. See also Gruss (2014). –40 –30 –20 –10 0 10 20 30 SAU KAZ DZA NGA RUS COL MYS CAN AUS MEX BRA ARG IDN –8 –4 0 4 8 USA EGY TUR FRA DEU ITA POL CHN ESP JPN IND PAK THA KOR 75 80 85 90 95 100 105 110 2018 19 20 21 22 23 24
CHAPTER 1 GLOBAL PROSPECTS AND POLICIES merging market and developing economies, driven to a is surrounded by uncertainty. The downward revi- great extent by economies currently experiencing severe ions relative to the october 2018 WEO reflect the macroeconomic distress; and complex factors that shape negative effect of prolonged uncertainty about the the prospects for potential growth in both groups. Brexit outcome, only partially offset by the posit impact from fiscal stimulus announced in the 2019 Waning Cyclical Forces in Advanced Economies udget. This baseline projection assumes that a Brexit Growth in advanced economies is projected to slow deal is reached in 2019 and that the United Kingdom from 2.2 percent in 2018 to 1.8 percent in 2019 and transitions gradually to the new regime. However, as 1.7 percent in 2020. The estimated growth rate for of mid-March, the form Brexit will ultimately take 2018 and the projection for 2019, respectively, are remained highly uncertain 0. 2 percentage point and 0.3 percentage point lower In the United States, growth is expected to decline than in the October 2018 WEO, mostly reflecting to 2. 3 percent in 2019 and soften further to 1.9 per- downward revisions for the euro area ent in 2020 with the unwinding of fiscal stimulus The projected slowdown in advanced economies The downward revision to 2019 growth reflects the in 2019 accounts for over two-thirds of the expected impact of the government shutdown and somewhat deceleration in global growth relative to 2018. With lower fiscal spending than previously anticipated, while output gaps estimated as being closed for most econ- the modest upward revision for 2020 reflects a more omies in the group(indeed some are operating above accommodative stance of monetary policy than in the their estimated potential in a context of historically October forecast. Despite the downward revision, the low unemployment rates), the cyclical upsurge is set to projected pace of expansion for 2019 is above the US retreat toward more modest potential rates of growth. economy's estimated potential growth rate. Strong The retreat in part reflects the anticipated negative domestic demand growth will support higher imports ffects of the tariff increases enacted in 2018. A second and contribute to some widening of the current notable aspect of the advanced economy growth profile account deficit. is that the temporary boost to US and trading partner Japan's economy is set to grow by 1.0 percent in growth from the sizable US fiscal stimulus is expected 2019(0. 1 percentage point higher than in the October to diminish during 2019(and particularly in 2020 as WEO). This revision mainly reflects additional fiscal some of its provi support this year, including measures to mitigate the these two features already incorporated into the previ- effects of the ous forecast, the waning of cyclical forces appears more in October 2019. Growth is projected to moderate to apid than expected, triggered by additional devel- 0.5 percent in 2020(0. 2 percentage point higher than opments in particular economies during the secor in the October 2018 WEO, refecting the effects of the half of 2018 aforementioned mitigating measures Growth in the euro area is set to moderate from 1. 8 percent in 2018 to 1.3 percent in 2019(0.6 per- A Precarious Recovery in Emerging Market and centage point lower than projected in October)and Developing economies 1.5 percent in 2020. Although growth is expected to lobal growth in 2019 is also weighed down recover in the first half of 2019 as some of the tempo- the emerging market and developing economy group ry factors that held activity back dissipate, carry- where growth is expected to tick down to 4.4 percent over from the weakness in the second half of 2018 in 2019(from 4.5 percent in 2018),0.3 percentage expected to hold the 2019 growth rate down. Growth point lower than in the October 2018 WEO. The rates have been marked down for many economies decline in growth relative to 2018 reflects lower growth notably Germany(due to soft private consumption in China and the recession in Turkey, with an import reak industrial production following the introduc ant carryover from weaker activity in late 2018, as well tion of revised auto emission standards, and subdued as a deepening contraction in Iran. foreign demand); Italy(due to weak domestic demand, Conditions are projected to improve during 2019 as as sovereign yields remain elevated); and France( due to stimulus measures sustain activity in China and reces- the negative impact of street protests) sion strains gradually ease in economies such as Argen- tina and Turkey. In 2020, growth is projected to rise 1.4 percent growth in the United Kingdom in 2019-20 to 4.8 percent, driven almost entirely by an expected International Monetary Fund April 2019
11 CHAPTER 1 Glob al Prospects and Policies International Monetary Fund | April 2019 emerging market and developing economies, driven to a great extent by economies currently experiencing severe macroeconomic distress; and complex factors that shape the prospects for potential growth in both groups. Waning Cyclical Forces in Advanced Economies Growth in advanced economies is projected to slow from 2.2 percent in 2018 to 1.8 percent in 2019 and 1.7 percent in 2020. The estimated growth rate for 2018 and the projection for 2019, respectively, are 0.2 percentage point and 0.3 percentage point lower than in the October 2018 WEO, mostly reflecting downward revisions for the euro area. The projected slowdown in advanced economies in 2019 accounts for over two-thirds of the expected deceleration in global growth relative to 2018. With output gaps estimated as being closed for most economies in the group (indeed some are operating above their estimated potential in a context of historically low unemployment rates), the cyclical upsurge is set to retreat toward more modest potential rates of growth. The retreat in part reflects the anticipated negative effects of the tariff increases enacted in 2018. A second notable aspect of the advanced economy growth profile is that the temporary boost to US and trading partner growth from the sizable US fiscal stimulus is expected to diminish during 2019 (and particularly in 2020 as some of its provisions start to reverse). But beyond these two features already incorporated into the previous forecast, the waning of cyclical forces appears more rapid than expected, triggered by additional developments in particular economies during the second half of 2018. Growth in the euro area is set to moderate from 1.8 percent in 2018 to 1.3 percent in 2019 (0.6 percentage point lower than projected in October) and 1.5 percent in 2020. Although growth is expected to recover in the first half of 2019 as some of the temporary factors that held activity back dissipate, carryover from the weakness in the second half of 2018 is expected to hold the 2019 growth rate down. Growth rates have been marked down for many economies, notably Germany (due to soft private consumption, weak industrial production following the introduction of revised auto emission standards, and subdued foreign demand); Italy (due to weak domestic demand, as sovereign yields remain elevated); and France (due to the negative impact of street protests). The baseline projection of about 1.2 percent and 1.4 percent growth in the United Kingdom in 2019–20 is surrounded by uncertainty. The downward revisions relative to the October 2018 WEO reflect the negative effect of prolonged uncertainty about the Brexit outcome, only partially offset by the positive impact from fiscal stimulus announced in the 2019 budget. This baseline projection assumes that a Brexit deal is reached in 2019 and that the United Kingdom transitions gradually to the new regime. However, as of mid-March, the form Brexit will ultimately take remained highly uncertain. In the United States, growth is expected to decline to 2.3 percent in 2019 and soften further to 1.9 percent in 2020 with the unwinding of fiscal stimulus. The downward revision to 2019 growth reflects the impact of the government shutdown and somewhat lower fiscal spending than previously anticipated, while the modest upward revision for 2020 reflects a more accommodative stance of monetary policy than in the October forecast. Despite the downward revision, the projected pace of expansion for 2019 is above the US economy’s estimated potential growth rate. Strong domestic demand growth will support higher imports and contribute to some widening of the current account deficit. Japan’s economy is set to grow by 1.0 percent in 2019 (0.1 percentage point higher than in the October WEO). This revision mainly reflects additional fiscal support this year, including measures to mitigate the effects of the planned consumption tax rate increase in October 2019. Growth is projected to moderate to 0.5 percent in 2020 (0.2 percentage point higher than in the October 2018 WEO, reflecting the effects of the aforementioned mitigating measures). A Precarious Recovery in Emerging Market and Developing Economies Global growth in 2019 is also weighed down by the emerging market and developing economy group, where growth is expected to tick down to 4.4 percent in 2019 (from 4.5 percent in 2018), 0.3 percentage point lower than in the October 2018 WEO. The decline in growth relative to 2018 reflects lower growth in China and the recession in Turkey, with an important carryover from weaker activity in late 2018, as well as a deepening contraction in Iran. Conditions are projected to improve during 2019 as stimulus measures sustain activity in China and recession strains gradually ease in economies such as Argentina and Turkey. In 2020, growth is projected to rise to 4.8 percent, driven almost entirely by an expected
WORLD ECONOMIC OUTLOOK: GROWTH SLOWDOWN, PRECARIOUS RECOVERY Figure 1. 13. Growth Rate: Emerging Market and Developing and a challenging external environment marked by the slowdown in advanced economies: trade tensions xpected gradual tightening of financial conditions The projected pickup in growth among emerging consistent with some further removal of me conomies in 2020 is driven almost entirely by an expected strengthening of policy accommodation United States: and. for activity in economies currently in macroeconomic distress and some easing of strains in countries affected by conflict and geopolitical tensions commodity exporters, a generally subdued outlook for commodity prices(including oil prices, which are pro- jected to remain below their 2018 average throughout xcluding stressed the forecast horizon) excluding ARG, TUR, stressed excluding ARG, TUR, stressed (constant 2018 weights Growth in emerging and developing Asia is expected to dip to 6.3 percent in 2019 and 2020(from 6.4 percent in 2018), with a marginal downward revision for 2020 relative to the October WEO. Economic growth in China, despite fiscal stimulus and no further increase in tariffs from the United States relative to those in force as of September 2018, is projected to slow on an annual- ized basis in 2019 and 2020. This reflects weaker under lying growth in 2018, especially in the second half, and the impact of lingering trade tensions with the United ates. The projection for 2019 is slightly stronger than in the October 2018 WEO, reflecting the revised assumption on United States tariffs on Chinese exports, described in Box 1. 2, while the projection for 2020 is slightly weaker, as the underlying momentum in activity more subdued. In India, growth is projected to pick up to 7.3 percent in 2019 and 7.5 percent in 2020, 201415161718192021 23 24 supported by the continued recovery of investment and robust consumption amid a more expansionary stance of staff estimates monetary from fiscal SD, UKR, VEN, YEM. Country list uses Intemational Organization for policy. Nevertheless, reflecting the recent ion( SO)country codes the national account statistics that indicated somewha softer underlying momentum, growth forecasts have strengthening of activity in these economies on the 201 8 WEO by 0. 1 percentage point for 201any a been revised downward compared with the Octob back of policy adjustment and some easing of strains 0.2 percentage point for 2020, respectively in countries affected by conflict and geopolitical ten- Activity in emerging and developing Europe in 2019 is sions(Figure 1. 13). For the latter group of countries expected to weaken more than previously anticipated, in particular, the forecast is subject to very significant despite generally buoyant and higher-than-expected uncertainty. With declining growth in advanced econ- growth in several central and eastern European coun- omies, the projected pickup in global growth in 2020 tries, before recovering in 2020. The sizable revision is entirely predicated on this projected improvement for the region is mostly due to a substantial projected for the emerging market and developing economy contraction in Tirkey in 2019, where the weakness in group. Figure 1. 13 also highlights the role played by demand-following tighter external financing con- the increasing weight of fast-growing economies, such ditions and needed policy tightening-is expected to as China and India, in supporting aggregate growth for continue in early 2019 before a recovery takes hold in emerging markets and developing economies as well as the second half of the year In Latin America, growth is projected to recover emers ging market and over the next two years, to 1. 4 percent in 2019 and developing economies continue to be shaped by the 2.4 percent in 2020. In Brazil, growth is projected to interaction between count ific fundamentals strengthen from 1. I percent in 2018 to 2. 1 percent in Intemational Monetary Fund April 2019
12 WORLD ECONOMIC OUTLOOK: Growth Slowdown, Precarious Recovery International Monetary Fund | April 2019 strengthening of activity in these economies on the back of policy adjustment and some easing of strains in countries affected by conflict and geopolitical tensions (Figure 1.13). For the latter group of countries in particular, the forecast is subject to very significant uncertainty. With declining growth in advanced economies, the projected pickup in global growth in 2020 is entirely predicated on this projected improvement for the emerging market and developing economy group. Figure 1.13 also highlights the role played by the increasing weight of fast-growing economies, such as China and India, in supporting aggregate growth for emerging markets and developing economies as well as world growth. Near-term prospects for emerging market and developing economies continue to be shaped by the interaction between country-specific fundamentals and a challenging external environment marked by the slowdown in advanced economies; trade tensions; expected gradual tightening of financial conditions consistent with some further removal of monetary policy accommodation in the United States; and, for commodity exporters, a generally subdued outlook for commodity prices (including oil prices, which are projected to remain below their 2018 average throughout the forecast horizon). Growth in emerging and developing Asia is expected to dip to 6.3 percent in 2019 and 2020 (from 6.4 percent in 2018), with a marginal downward revision for 2020 relative to the October WEO. Economic growth in China, despite fiscal stimulus and no further increase in tariffs from the United States relative to those in force as of September 2018, is projected to slow on an annualized basis in 2019 and 2020. This reflects weaker underlying growth in 2018, especially in the second half, and the impact of lingering trade tensions with the United States. The projection for 2019 is slightly stronger than in the October 2018 WEO, reflecting the revised assumption on United States tariffs on Chinese exports, as described in Box 1.2, while the projection for 2020 is slightly weaker, as the underlying momentum in activity is more subdued. In India, growth is projected to pick up to 7.3 percent in 2019 and 7.5 percent in 2020, supported by the continued recovery of investment and robust consumption amid a more expansionary stance of monetary policy and some expected impetus from fiscal policy. Nevertheless, reflecting the recent revision to the national account statistics that indicated somewhat softer underlying momentum, growth forecasts have been revised downward compared with the October 2018 WEO by 0.1 percentage point for 2019 and 0.2 percentage point for 2020, respectively. Activity in emerging and developing Europe in 2019 is expected to weaken more than previously anticipated, despite generally buoyant and higher-than-expected growth in several central and eastern European countries, before recovering in 2020. The sizable revision for the region is mostly due to a substantial projected contraction in Turkey in 2019, where the weakness in demand—following tighter external financing conditions and needed policy tightening—is expected to continue in early 2019 before a recovery takes hold in the second half of the year. In Latin America, growth is projected to recover over the next two years, to 1.4 percent in 2019 and 2.4 percent in 2020. In Brazil, growth is projected to strengthen from 1.1 percent in 2018 to 2.1 percent in All EMDEs EMDEs excluding stressed EMDEs excluding ARG, TUR, stressed EMDEs excluding ARG, TUR, stressed (constant 2018 weights, 2019–24) Source: IMF staff estimates. Note: EMDEs = emerging market and developing economies; stressed = IRN, IRQ, LBY, SDN, SSD, UKR, VEN, YEM. Country list uses International Organization for Standardization (ISO) country codes. The projected pickup in growth among emerging market and developing economies in 2020 is driven almost entirely by an expected strengthening of activity in economies currently in macroeconomic distress and some easing of strains in countries affected by conflict and geopolitical tensions. 4.2 4.4 4.6 4.8 5.0 5.2 2014 15 16 17 18 19 20 21 22 23 24 Figure 1.13. Growth Rate: Emerging Market and Developing Economies (Percent)
CHAPTER 1 GLOBAL PROSPECTS AND POLICIES 2019 and 2.5 percent in 2020. In Mexico, growth is further over the medium term as the underlying relative to October. These changes, in part, refle p now forecast to remain below 2 percent in 2019-20, structural headwinds to potential output(namely, markdown close to 1 percentage point for both ye ontinued weak productivity growth and slowing labor force growth) increasingly assert influence on the path shifts in perceptions about policy direction under new of output as the cyclical forces discussed above fade administrations in both countries. Argentind's econ- away. Growth for the emerging market and developing my is projected to contract in the first half of 2019 conomy group is expected to broadly stabilize at its as domestic demand slows with tighter policies to 2020 level for the outer years of the forecast horizon, reduce imbalances, returning to growth in the second but with important offsetting regional differences half of the year as real disposable income recovers Specifically, for advanced economies, growth is r last year projected to slow to 1.6 percent by 2022 and remain pI drought. Venezuelas economy is expected to contract at that level thereafter. The productivity slowdown that by one-fourth in 2019, and a further 10 percent in set in before the 2008-09 global financial crisis(Adler 2020--a greater collapse than projected in the October and others 2017)is projected to abate somewhat, 2018 WEO and one that generates a sizable drag on ith a slight pickup in productivity expected over the projected growth for the region and for the emerging mediu um term Despite the apparent proliferation of market and developing economy group in both years. digitalization and automation, their cumulative impact Growth in the Middle East, North Africa, Afghan- on productivity is expected to be modest over the istan,and Pakistan region is expected to decline to forecast horizon--likely benefiting consumer welfare 1.5 percent in 2019, before recovering to about to a larger extent than labor productivity( Box 1.5 of 3. 2 percent in 2020. The outlook for the region is the April 2018 WEO). Other developments potentially weighed down by multiple factors, including slower oil have less favorable implications for productivity. These GDP growth in Saudi Arabia; ongoing macroeconomic include the retreat from global economic integration adjustment challenges in Pakistan; US sanctions in (projections for global trade volume growth have been Iran; and civil tensions and confict across several other marked down following the tariff increases of 2018) economies, including Iraq, Syria, and Yemen, where The modest uptick expected in productivity is likel recovery from the collapse associated with the war is only partially to counteract the drag on potential out now expected to be slower than previously anticipated. put growth anticipated from slower labor force growth In sub-Saharan Africa, growth is as the population ages. This is particularly relevant for to 3.5 percent in 2019 and 3.7 percent in 2020(from Japan and southern Europe(see Chapter 2 of the April 3.0 percent in 2018). The projection is 0.3 percentage 2018 WEO for a discussion of the changes in labo point and 0.2 percentage point lower for 2019 and 2020, force participation rates across advanced economies) respectively, than in the October 2018 WEO For emerging market and developing economies, downward revisions for Angola and Nigeria with the growth is projected to stabilize at about 4.8 percent softening of oil prices. Growth in South Africa is expected over the medium term. The combination of higher to marginally improve from 0.8 percent in 2018 to growth than in advanced economies and the group's 1.2 percent in 2019 and 1.5 percent in 2020, a 0.2 per- rising weight in global GDP translates into a signif- centage point downward revision for both years relative to icant increase in emerging market and developing the October projections. The projected recovery reflect economies'share of global growth, from 76 percent in modestly reduced but continued policy uncertainty in the 2019 to about 85 percent in 2024 South African economy after the May 2019 elections The med Activity in the Commonwealth of Independent States continued strong investment growth in emerging mar is projected to expand about 2 4 percent in 2019-20, ket and developing economies, accounting for more slightly lower than projected in the October 2018 WEO, than one-third of their GDP growth rate during the as weaker oil prices weigh on Russias growth prospects. projection horizon(Figure 1. 14). In turn, this robust Modest Outlook for Medium-Term Growth investment path is predicated on a smooth trajectory for the drivers of capital spending: a gradual tightenin Beyond 2020, global growth is set to plateau at in financial conditions(which is particularly relevany o 3.6 percent over the medium term. For the advanced to the investment outlook in the emerging market and economy group, growth is projected to moderate developing economy group, given the rapid buildup of International Monetary Fund April 2019
13 CHAPTER 1 Glob al Prospects and Policies International Monetary Fund | April 2019 2019 and 2.5 percent in 2020. In Mexico, growth is now forecast to remain below 2 percent in 2019–20, a markdown close to 1 percentage point for both years relative to October. These changes, in part, reflect shifts in perceptions about policy direction under new administrations in both countries. Argentina’s economy is projected to contract in the first half of 2019 as domestic demand slows with tighter policies to reduce imbalances, returning to growth in the second half of the year as real disposable income recovers and agricultural production rebounds after last year’s drought. Venezuela’s economy is expected to contract by one-fourth in 2019, and a further 10 percent in 2020—a greater collapse than projected in the October 2018 WEO and one that generates a sizable drag on projected growth for the region and for the emerging market and developing economy group in both years. Growth in the Middle East, North Africa, Afghanistan, and Pakistan region is expected to decline to 1.5 percent in 2019, before recovering to about 3.2 percent in 2020. The outlook for the region is weighed down by multiple factors, including slower oil GDP growth in Saudi Arabia; ongoing macroeconomic adjustment challenges in Pakistan; US sanctions in Iran; and civil tensions and conflict across several other economies, including Iraq, Syria, and Yemen, where recovery from the collapse associated with the war is now expected to be slower than previously anticipated. In sub-Saharan Africa, growth is expected to pick up to 3.5 percent in 2019 and 3.7 percent in 2020 (from 3.0 percent in 2018). The projection is 0.3 percentage point and 0.2 percentage point lower for 2019 and 2020, respectively, than in the October 2018 WEO, reflecting downward revisions for Angola and Nigeria with the softening of oil prices. Growth in South Africa is expected to marginally improve from 0.8 percent in 2018 to 1.2 percent in 2019 and 1.5 percent in 2020, a 0.2 percentage point downward revision for both years relative to the October projections. The projected recovery reflects modestly reduced but continued policy uncertainty in the South African economy after the May 2019 elections. Activity in the Commonwealth of Independent States is projected to expand about 2¼ percent in 2019–20, slightly lower than projected in the October 2018 WEO, as weaker oil prices weigh on Russia’s growth prospects. Modest Outlook for Medium-Term Growth Beyond 2020, global growth is set to plateau at 3.6 percent over the medium term. For the advanced economy group, growth is projected to moderate further over the medium term as the underlying structural headwinds to potential output (namely, continued weak productivity growth and slowing labor force growth) increasingly assert influence on the path of output as the cyclical forces discussed above fade away. Growth for the emerging market and developing economy group is expected to broadly stabilize at its 2020 level for the outer years of the forecast horizon, but with important offsetting regional differences. Specifically, for advanced economies, growth is projected to slow to 1.6 percent by 2022 and remain at that level thereafter. The productivity slowdown that set in before the 2008–09 global financial crisis (Adler and others 2017) is projected to abate somewhat, with a slight pickup in productivity expected over the medium term. Despite the apparent proliferation of digitalization and automation, their cumulative impact on productivity is expected to be modest over the forecast horizon—likely benefiting consumer welfare to a larger extent than labor productivity (Box 1.5 of the April 2018 WEO). Other developments potentially have less favorable implications for productivity. These include the retreat from global economic integration (projections for global trade volume growth have been marked down following the tariff increases of 2018). The modest uptick expected in productivity is likely only partially to counteract the drag on potential output growth anticipated from slower labor force growth as the population ages. This is particularly relevant for Japan and southern Europe (see Chapter 2 of the April 2018 WEO for a discussion of the changes in labor force participation rates across advanced economies). For emerging market and developing economies, growth is projected to stabilize at about 4.8 percent over the medium term. The combination of higher growth than in advanced economies and the group’s rising weight in global GDP translates into a significant increase in emerging market and developing economies’ share of global growth, from 76 percent in 2019 to about 85 percent in 2024. The medium-term growth forecast incorporates continued strong investment growth in emerging market and developing economies, accounting for more than one-third of their GDP growth rate during the projection horizon (Figure 1.14). In turn, this robust investment path is predicated on a smooth trajectory for the drivers of capital spending; a gradual tightening in financial conditions (which is particularly relevant to the investment outlook in the emerging market and developing economy group, given the rapid buildup of
WORLD ECONOMIC OUTLOOK: GROWTH SLOWDOWN, PRECARIOUS RECOVERY Figure 1.14. Contributions to GDP Growth ening slows the accumulation of debt and associated (Percent vulnerabilities. Growth in India is expected to stabilize economies is projected to account ent growth in emerging market and developing at just under 73 percent over the medium term, based on continued implementation of structural reforms nd easing of infrastructure bottlenecks In Latin America, growth is projected to increase 三 I Net foreign balance from 2.4 percent in 2020 to 2.8 percent over the sumption Private consumption -GDP medium term. Financial stabilization and recovery in Argentina, where growth is projected to strengthen 6-1. Advanced Economies about 31 percent over the medium term, contributes to that regions growth improvement. So is stable, though moderate, growth in Brazil and Mexico(in the range of 2 4-2%4 percent) as structural rigidities, sub- dued terms of trade, and fiscal imbalances(particularly for Brazil)weigh on the outlook. Activity in emerging Europe is projected to pick up from the current post-global-financial-crisis low, with the region expected to grow just above 3 percent 2015161718192021222324 the medium term. This improvement reflects pri he forecast for Turkey, where activity ed 6-2. Emerging Market and Developing Economies gradually strengthen after the economy returns to pos- itive annual growth in 2020. Over the medium term, Turkey's growth is projected to pick up to 3.5 per- cent as domestic demand recovers from the current sharp contraction that is reducing macroeconomic and financial imbalances. For other economies in the region with robust growth rates in recent years, such as 0 Poland and Romania, growth is expected to moderate a 2015 16 17 18 19 20 21 22 23 24 the fading of stimulus from eu investment funds and accommodative policies. urce: IMF staff estimates The outlook for the Commonwealth of Independent States is for growth to stabilize at 2. 4 percent over the medium term. This largely reflects sluggish growth in leverage during years of low interest rates); quick res Russia of about 1 percent over the medium term, olution of trade disagreements and subsequent easing weighed down by the modest outlook for oil prices of trade tensions; and broader policy actions that help and structural headwinds reduce Chapter 3 discusses how the retreat Prospects vary across sub-Saharan Africa, reflecting from trade integration threatens the long-standir ity of the economies, associated downward trend in the relative price of capital goods parities in the level of development, exposure to weather and how this could weigh on the investment prospects shocks, and commodity dependence. For the region as a of developing economies whole, growth is projected to increase from 3. 7 percent The medium-term growth forecast for emerging in 2020 to about 4 percent in 2024(although for close market and developing economies reflects important to two-fifths of economies, the average growth rate over differences across regions. In emerging Asia, growth is the medium term is projected to exceed 5 percent) expected to remain above 6 percent through the fore- Growth prospects for commodity exporters are weighed gradual slowdown in China to 5.5 percent by 20242s a down by the soft outlook for commodity prices, includ- cast horizon. Central to this smooth growth profile is for Nigeria and Angola, where growth is expected to internal rebalancing toward a private-consumption and ch about 2.6 percent and 3.9 percent, respectively, in services-based economy continues and regulatory tight- the medium term. In South Africa, growth is projected Intemational Monetary Fund April 2019
14 WORLD ECONOMIC OUTLOOK: Growth Slowdown, Precarious Recovery International Monetary Fund | April 2019 leverage during years of low interest rates); quick resolution of trade disagreements and subsequent easing of trade tensions; and broader policy actions that help reduce uncertainty. Chapter 3 discusses how the retreat from trade integration threatens the long-standing downward trend in the relative price of capital goods and how this could weigh on the investment prospects of developing economies. The medium-term growth forecast for emerging market and developing economies reflects important differences across regions. In emerging Asia, growth is expected to remain above 6 percent through the forecast horizon. Central to this smooth growth profile is a gradual slowdown in China to 5.5 percent by 2024 as internal rebalancing toward a private-consumption and services-based economy continues and regulatory tightening slows the accumulation of debt and associated vulnerabilities. Growth in India is expected to stabilize at just under 7¾ percent over the medium term, based on continued implementation of structural reforms and easing of infrastructure bottlenecks. In Latin America, growth is projected to increase from 2.4 percent in 2020 to 2.8 percent over the medium term. Financial stabilization and recovery in Argentina, where growth is projected to strengthen to about 3½ percent over the medium term, contributes to that region’s growth improvement. So is stable, though moderate, growth in Brazil and Mexico (in the range of 2¼–2¾ percent) as structural rigidities, subdued terms of trade, and fiscal imbalances (particularly for Brazil) weigh on the outlook. Activity in emerging Europe is projected to pick up from the current post-global-financial-crisis low, with the region expected to grow just above 3 percent over the medium term. This improvement reflects primarily the forecast for Turkey, where activity is projected to gradually strengthen after the economy returns to positive annual growth in 2020. Over the medium term, Turkey’s growth is projected to pick up to 3.5 percent as domestic demand recovers from the current sharp contraction that is reducing macroeconomic and financial imbalances. For other economies in the region with robust growth rates in recent years, such as Poland and Romania, growth is expected to moderate to about 3 percent over the medium term, reflecting the fading of stimulus from EU investment funds and accommodative policies. The outlook for the Commonwealth of Independent States is for growth to stabilize at 2.4 percent over the medium term. This largely reflects sluggish growth in Russia of about 1½ percent over the medium term, weighed down by the modest outlook for oil prices and structural headwinds. Prospects vary across sub-Saharan Africa, reflecting the heterogeneity of the economies, associated with disparities in the level of development, exposure to weather shocks, and commodity dependence. For the region as a whole, growth is projected to increase from 3.7 percent in 2020 to about 4 percent in 2024 (although for close to two-fifths of economies, the average growth rate over the medium term is projected to exceed 5 percent). Growth prospects for commodity exporters are weighed down by the soft outlook for commodity prices, including for Nigeria and Angola, where growth is expected to reach about 2.6 percent and 3.9 percent, respectively, in the medium term. In South Africa, growth is projected Inventories Net foreign balance Public consumption Private consumption Fixed investment GDP Figure 1.14. Contributions to GDP Growth (Percent) 1. Advanced Economies 2. Emerging Market and Developing Economies 2015 16 17 18 19 20 21 22 23 24 2015 16 17 18 19 20 21 22 23 24 –1 0 1 2 3 4 5 6 Source: IMF staff estimates. 0 1 2 3 4 5 6 –1 Over the forecast horizon, investment growth in emerging market and developing economies is projected to account for more than one-third of their GDP growth rate