CHAPTER 1 GLOBAL PROSPECTS AND POLICIES to stabilize at 1 percent over the medium term as Figure 1.15. Per Capita Real GDP Growth structural bottlenecks continue to weigh on investment (Percent, unless noted otherwise nd productivity, and metal export prices are expected to remain subdued. Rising debt-service costs as financial 41 economies accounting for close to 10 percent of global GDP in purchasing- -parity terms and close to 1 billion in population are projected to grow by conditions tighten globally and difficult adjustment less than advanced economies in per capita terms over the next five years. Some processes to diversify production structures away from regions, such as sub-Saharan Africa, feature considerable heterogeneity in per resource extraction are expected to weigh on growth in many economies across the region. 2006-18 2019-24 The medium-term outlook for the middle east 10-1. By country Group North Africa, Afghanistan, and Pakistan region is largely shaped by the outlook for fuel prices, needed adjustment to correct macroeconomic imbalances in certain economies, and geopolitical tensions. Growth in Saudi Arabia is expected to stabilize at about 214-212 percent over the medium term, as stronger non-oil growth is countered by the subdued outlook for oil prices and output. In Pakistan, in the absence of further adjustment policies, growth is projected to China Fuel exporters Nonfuel remain subdued at about 2.5 percent, with continued excluding china external and fiscal imbalances weighing on confidence. 10-2. Emerging Market and Developing Economies by Region Isewhere in the region, activity is weighed down by the expected impact of sanctions in Iran, civil strife in Syria and Yemen, and rising debt-service costs and tighter financial conditions in Lebanon Convergence prospects are bleak for some emerging arket and developing economies. Across sub-Saharan Africa and the Middle East, North Africa, Afghanistan and Pakistan region, 41 economies, accounting for close to 10 percent of global GDP in purchasing-power-parity MENAP EMDE Asia EMDE terms and close to 1 billion in population, are pro- excluding Europe jected to grow by less than advanced economies in per capita terms over the next five years, i 10-3. Sub-Saharan Africa: Population in 2018 and projected growth their income levels are set to fall further behind those 8. rates in GDP per capita, 2019-24 economies(Figure 1.15, panels I and 2). Panel 3 of 6- RWA SEN Figure 1. 15 documents the heterogeneity in per capita growth rates in sub-Saharan Africa, where the majority +tZA of countries is projected to grow at rates well above the weighted average for the regie Inflation Outlook 102030405060708090100 The outlook for inflation largely mirrors the pros- Population, 2018(millions) pects for growth and commodity prices discussed above for the advanced economy group, while for t Cnt levels Inflation is projected to remain broadly at current levels ced economies: cis= Commonwealth of in economy; LAC= Latin America and the lENAP= Middle East, North Africa, Afghanistan, and Pakistan ing market and developing economy group excluding PPP= purchasing power parity: SSA= sub-Saharan Africa. Bars denote Venezuela, it is set to resume its steady decline of the PP GDP-weighted averages, red markers indicate the medians, and black markers denote the top and bottom deciles of per capita gDP growth in the past decade after a temporary modest rise this year country groups. The fuel and nonfuel exporter subgroups are defined in Table D of Consistent with the softer outlook for commod the Statistical Appendix and cover EMDEs only Data labels use international ity prices and the expected moderation in growth, Organization for Standardization(ISO)country codes. The dashed line in panel 3 shows the weighted average per capita growth rate in SSa over 2019-24 International Monetary Fund April 2019 15
15 CHAPTER 1 Glob al Prospects and Policies International Monetary Fund | April 2019 to stabilize at 1¾ percent over the medium term as structural bottlenecks continue to weigh on investment and productivity, and metal export prices are expected to remain subdued. Rising debt-service costs as financial conditions tighten globally and difficult adjustment processes to diversify production structures away from resource extraction are expected to weigh on growth in many economies across the region. The medium-term outlook for the Middle East, North Africa, Afghanistan, and Pakistan region is largely shaped by the outlook for fuel prices, needed adjustment to correct macroeconomic imbalances in certain economies, and geopolitical tensions. Growth in Saudi Arabia is expected to stabilize at about 2¼–2½ percent over the medium term, as stronger non-oil growth is countered by the subdued outlook for oil prices and output. In Pakistan, in the absence of further adjustment policies, growth is projected to remain subdued at about 2.5 percent, with continued external and fiscal imbalances weighing on confidence. Elsewhere in the region, activity is weighed down by the expected impact of sanctions in Iran, civil strife in Syria and Yemen, and rising debt-service costs and tighter financial conditions in Lebanon. Convergence prospects are bleak for some emerging market and developing economies. Across sub-Saharan Africa and the Middle East, North Africa, Afghanistan, and Pakistan region, 41 economies, accounting for close to 10 percent of global GDP in purchasing-power-parity terms and close to 1 billion in population, are projected to grow by less than advanced economies in per capita terms over the next five years, implying that their income levels are set to fall further behind those economies (Figure 1.15, panels 1 and 2). Panel 3 of Figure 1.15 documents the heterogeneity in per capita growth rates in sub-Saharan Africa, where the majority of countries is projected to grow at rates well above the weighted average for the region. Inflation Outlook The outlook for inflation largely mirrors the prospects for growth and commodity prices discussed above. Inflation is projected to remain broadly at current levels for the advanced economy group, while for the emerging market and developing economy group excluding Venezuela, it is set to resume its steady decline of the past decade after a temporary modest rise this year. Consistent with the softer outlook for commodity prices and the expected moderation in growth, 1995–2005 2006–18 2019–24 Figure 1.15. Per Capita Real GDP Growth (Percent, unless noted otherwise) –6 –8 –6 –4 –2 0 2 4 6 8 10 Average growth rate, 2019–24 3. Sub-Saharan Africa: Population in 2018 and projected growth rates in GDP per capita, 2019–24 2. Emerging Market and Developing Economies by Region –2 0 2 4 6 8 10 –4 –2 0 2 4 6 8 10 1. By Country Group 41 economies accounting for close to 10 percent of global GDP in purchasingpower-parity terms and close to 1 billion in population are projected to grow by less than advanced economies in per capita terms over the next five years. Some regions, such as sub-Saharan Africa, feature considerable heterogeneity in per capita growth rates. Source: IMF staff estimates. Note: AEs = advanced economies; CIS = Commonwealth of Independent States; EMDE = emerging market and developing economy; LAC = Latin America and the Caribbean; MENAP = Middle East, North Africa, Afghanistan, and Pakistan; PPP = purchasing power parity; SSA = sub-Saharan Africa. Bars denote PPP GDP-weighted averages, red markers indicate the medians, and black markers denote the top and bottom deciles of per capita GDP growth in the country groups. The fuel and nonfuel exporter subgroups are defined in Table D of the Statistical Appendix and cover EMDEs only. Data labels use International Organization for Standardization (ISO) country codes. The dashed line in panel 3 shows the weighted average per capita growth rate in SSA over 2019–24. AEs EMDEs LAC MENAP –10 0 10 20 30 Population, 2018 (millions) UGA TZA ZAF RWA SEN KEN ETH CIV COD AGO 40 50 60 70 80 90 100 EMDE Asia excluding China EMDE Europe SSA CIS China Fuel exporters Nonfuel exporters excluding China
WORLD ECONOMIC OUTLOOK: GROWTH SLOWDOWN, PRECARIOUS RECOVERY inflation is expected to decline to 1. 6 percent this year compared with the previous year. Higher oil prices in advanced economies, from 2.0 percent in 2018 ave been the main driver of this widening: they are With the US economy operating above potential this estimated to have boosted the current account balance year and next, core inflation is expected to exceed of oil exporters by about 3 percent of their GDp the medium-term target of 2.0 percent, and decline Symmetrically, the current account deficits of some to target thereafter. In the euro area, core inflation Asian net oil importers(such as India, Indonesia, and is expected to gradually increase from 1.2 percent in Pakistan)have widened, reflecting their higher oil 2018 to about 2 percent in 2022 as the economy is import bills. Among major current account surplus operating above potential. Japan's core inflation rate and deficit countries and regions. the current account (excluding fresh food and energy)is projected to rise surplus of China declined considerably, to 0. 4 percent to 1. 4 percent by the end of 2020 as the consumption of GDP, while the US current account deficit was tax rate is raised in October this year, softening back to unchanged at 2. 3 percent, and the surplus of the euro about 1.3 percent in the medium term area declined marginally to 3.0 percent. Inflation in emerging market and developing econ Forecasts for 2019 and beyond indicate a grad- omies excluding venezuela, while stable across most al reduction in global current account deficits and regions, is nonetheless expected to firm to 4.9 per surpluses, particularly after 2020( Figure 1.16). The cent this year from 4.8 percent in 2018, reflecting surplus of oil exporters will fall, as average oil prices s. These include are projected to drop from their 2018 level, and the temporary boost to consumer price infation from a current account surpluses in the euro area, Japan higher value-added tax rate in Russia and a gradual nd other advanced Asian economies are projected pickup in price pressure in India because of relatively decline gradually. Among deficit countries, the current strong demand conditions and a modest increase in account balance of the United States is projected to food inflation from a low base. Still-elevated inflation widen in 2019-20--driven by expansionary fiscal expectations as Argentina adjusts to a new anchoring policy-and to narrow again thereafter. The recently regime under a revamped monetary and exchange rate imposed trade measures by the United States and framework is also a notable temporary effect. As they ory actions by trading partners are fade, and growth stabilizes across the emerging market have limited impact on overall external imbalances(see d developing economy group, infation is set to Chapter 4 and the 2018 External Sector Report for a moderate to about 4 percent over the medium term discussion of the relationship between trade costs and xternal imbalances) External sector outlook As highlighted in the External Sector Report, many Trade growth ountries current account imbalances in 2017 were Global trade growth slowed considerably in 2018 too large in relation to country-specific norms con- The slowdown reflects some payback in the first quarte sistent with underlying fundamentals and desirable from very high growth in late 2017 and, subsequently policies. As shown in panel I of Figure the impact of increased trade tensions on spending on current account balances in 2018 are estimated to have capital goods(which are heavily traded)and a more gen- declined, supported in many cases by real exchange eral slowdown in global activity. The forecast for 2019 is for some further slowdown, reflecting to an import average, further movement of current account balo? rate movements. Medium-term projections suggest ant extent the weakness in trade growth in late 2018 ances in the same direction(Figure 1. 17, panel 2).2 followed by some recovery in 2020. In subsequent years the same time, given that changes in macroeconomic trade growth is projected to continue at broadly the fundamentals relative to 2017 affect not only current same pace as in 2018 as investment demand gradually recovers in emerging market and developing economies, Balance of payments data show a notable positive world current offsetting the slowdown in capital spending in advanced economies projected for 2020 and beyor decline gradually during the forecast period, with projected global pressing more than global current ccount deficits Current account positions The change balance during 2018 is esti- Global current account deficits and surplu mated to have offset, on average, about one-fifth of the 2017 current account gap; the change between 2017 and 2024 would offset less estimated to have widened m than half of the 2017 gap Intemational Monetary Fund April 2019
16 WORLD ECONOMIC OUTLOOK: Growth Slowdown, Precarious Recovery International Monetary Fund | April 2019 inflation is expected to decline to 1.6 percent this year in advanced economies, from 2.0 percent in 2018. With the US economy operating above potential this year and next, core inflation is expected to exceed the medium-term target of 2.0 percent, and decline to target thereafter. In the euro area, core inflation is expected to gradually increase from 1.2 percent in 2018 to about 2 percent in 2022 as the economy is operating above potential. Japan’s core inflation rate (excluding fresh food and energy) is projected to rise to 1.4 percent by the end of 2020 as the consumption tax rate is raised in October this year, softening back to about 1.3 percent in the medium term. Inflation in emerging market and developing economies excluding Venezuela, while stable across most regions, is nonetheless expected to firm to 4.9 percent this year from 4.8 percent in 2018, reflecting developments in a few economies. These include a temporary boost to consumer price inflation from a higher value-added tax rate in Russia and a gradual pickup in price pressure in India because of relatively strong demand conditions and a modest increase in food inflation from a low base. Still-elevated inflation expectations as Argentina adjusts to a new anchoring regime under a revamped monetary and exchange rate framework is also a notable temporary effect. As they fade, and growth stabilizes across the emerging market and developing economy group, inflation is set to moderate to about 4 percent over the medium term. External Sector Outlook Trade Growth Global trade growth slowed considerably in 2018. The slowdown reflects some payback in the first quarter from very high growth in late 2017 and, subsequently, the impact of increased trade tensions on spending on capital goods (which are heavily traded) and a more general slowdown in global activity. The forecast for 2019 is for some further slowdown, reflecting to an important extent the weakness in trade growth in late 2018, followed by some recovery in 2020. In subsequent years, trade growth is projected to continue at broadly the same pace as in 2018 as investment demand gradually recovers in emerging market and developing economies, offsetting the slowdown in capital spending in advanced economies projected for 2020 and beyond. Current Account Positions Global current account deficits and surpluses are estimated to have widened marginally in 2018 compared with the previous year. Higher oil prices have been the main driver of this widening: they are estimated to have boosted the current account balance of oil exporters by about 3½ percent of their GDP. Symmetrically, the current account deficits of some Asian net oil importers (such as India, Indonesia, and Pakistan) have widened, reflecting their higher oil import bills. Among major current account surplus and deficit countries and regions, the current account surplus of China declined considerably, to 0.4 percent of GDP, while the US current account deficit was unchanged at 2.3 percent, and the surplus of the euro area declined marginally to 3.0 percent. Forecasts for 2019 and beyond indicate a gradual reduction in global current account deficits and surpluses, particularly after 2020 (Figure 1.16).1 The surplus of oil exporters will fall, as average oil prices are projected to drop from their 2018 level, and the current account surpluses in the euro area, Japan, and other advanced Asian economies are projected to decline gradually. Among deficit countries, the current account balance of the United States is projected to widen in 2019–20—driven by expansionary fiscal policy—and to narrow again thereafter. The recently imposed trade measures by the United States and retaliatory actions by trading partners are expected to have limited impact on overall external imbalances (see Chapter 4 and the 2018 External Sector Report for a discussion of the relationship between trade costs and external imbalances). As highlighted in the External Sector Report, many countries’ current account imbalances in 2017 were too large in relation to country-specific norms consistent with underlying fundamentals and desirable policies. As shown in panel 1 of Figure 1.17, excess current account balances in 2018 are estimated to have declined, supported in many cases by real exchange rate movements. Medium-term projections suggest, on average, further movement of current account balances in the same direction (Figure 1.17, panel 2).2 At the same time, given that changes in macroeconomic fundamentals relative to 2017 affect not only current 1Balance of payments data show a notable positive world current account discrepancy in recent years. This discrepancy is assumed to decline gradually during the forecast period, with projected global current account surpluses compressing more than global current account deficits. 2The change in the current account balance during 2018 is estimated to have offset, on average, about one-fifth of the 2017 current account gap; the change between 2017 and 2024 would offset less than half of the 2017 gap
CHAPTER 1 GLOBAL PROSPECTS AND POLICIES Figure 1.16. Global Current Account Balance Figure 1. 17. Current Account Balances in Relation to (Percent of world GDP) Economic Fundamentals Global current account deficits and surpluses are projected to gradually decline articularly after 2020. ported in many cases by real exchange rate movements. ejections suggest, on average, further movement of current account balances in Afr and Me the same direction Eur. creditors Adv Asia Oil exporters 1. 2017 Current Account Gaps and Change in Current ■NLD POL CHN MYS 3-■ United states Other ady.口Em.Asia a Eur. debtors Lat. Am. CEE Current account gap, 2017 20020406081012141618202224 2. 2017 Current Account Gaps and change in Current Account Balances, 2017-24 urce: IMF staff estimates Note: Adv Asia= advanced Asia(Hong Kong SAR, Korea, Singapore, Taiwan of the Congo, Egypt, Ethiopia, Ghana, Jordan, Kenya, Lebanon, Morocco, South 30 frica, Sudan, Ta Tunisia): CEE= central and eastern Euro ISGP ulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Slovak Republic, DEU NLD Turkey, Ukraine); Em Asia= emerging Asia(India, Indonesia, Pakistan, -4 ESP HKG Belgium, Denmark, Finland, Germany, Luxembourg, Netherlands, Norway, weden, Switzerland); Eur debtors= European debtors(Cyprus, Greece, Ireland aly, Portugal, Spain, Slovenia) Lat. Am.= Latin America(Argentina, Brazil, Chile g THA mirates, Venezuela; Other adv =other advanced economies(Australia, Canada, Current account gap, 2017 France, Iceland, New Zealand, United Kingdom) urce: IMF staff calculations ote: Data labels use International Organization for. account balances but also their equilibrium values, the ding(in line with the current account path of future excess imbalances cannot be precisely balance), with their ratios to domestic and world GDP inferred from this exercise 3 affected by projected growth rates for individual coun- tries and for the global economy as a whole. 4,5 International Investment positions Changes in international investment positions reflect both net financial Aows and valuation changes arising WEO forecasts include projections of 10-year government bond from Auctuations in exchange rates and asset prices yields, which would affect bond prices going forward, but the impact Given that WEO projections assume broadly stable of those changes in bond prices on the valuation of external assets and liabilities is typically not induded in international investment al effective exchange rates and limited variation position forecasts in asset prices, changes in international investment 'In addition to changes in exchange rates, the decline in global positions are driven by projections for net external bor- equity prices in late 2018(compared with their levels at the end of 017)implies deterioration of international investment positions at the end of 2018 in countries with significant net holdings of equity BFor instance, an improvement the terms of trade call and foreign direct investment abroad and a corresponding improve- associated with a more appreciated equilibrium exchange rate. ment in positions for countries with net equity liabilities. International Monetary Fund April 2019 17
17 CHAPTER 1 Glob al Prospects and Policies International Monetary Fund | April 2019 account balances but also their equilibrium values, the path of future excess imbalances cannot be precisely inferred from this exercise.3 International Investment Positions Changes in international investment positions reflect both net financial flows and valuation changes arising from fluctuations in exchange rates and asset prices. Given that WEO projections assume broadly stable real effective exchange rates and limited variation in asset prices, changes in international investment positions are driven by projections for net external bor- 3For instance, an improvement in the terms of trade is typically associated with a more appreciated equilibrium exchange rate. rowing and lending (in line with the current account balance), with their ratios to domestic and world GDP affected by projected growth rates for individual countries and for the global economy as a whole.4,5 4WEO forecasts include projections of 10-year government bond yields, which would affect bond prices going forward, but the impact of those changes in bond prices on the valuation of external assets and liabilities is typically not included in international investment position forecasts. 5In addition to changes in exchange rates, the decline in global equity prices in late 2018 (compared with their levels at the end of 2017) implies deterioration of international investment positions at the end of 2018 in countries with significant net holdings of equity and foreign direct investment abroad and a corresponding improvement in positions for countries with net equity liabilities. Afr. and ME Japan China Eur. creditors Adv. Asia Oil exporters United States Other adv. Em. Asia Eur. debtors Lat. Am. CEE Discrepancy Figure 1.16. Global Current Account Balance (Percent of world GDP) Global current account deficits and surpluses are projected to gradually decline, particularly after 2020. Source: IMF staff estimates. Note: Adv. Asia = advanced Asia (Hong Kong SAR, Korea, Singapore, Taiwan Province of China); Afr. and ME = Africa and the Middle East (Democratic Republic of the Congo, Egypt, Ethiopia, Ghana, Jordan, Kenya, Lebanon, Morocco, South Africa, Sudan, Tanzania, Tunisia); CEE = central and eastern Europe (Belarus, Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Slovak Republic, Turkey, Ukraine); Em. Asia = emerging Asia (India, Indonesia, Pakistan, Philippines, Thailand, Vietnam); Eur. creditors = European creditors (Austria, Belgium, Denmark, Finland, Germany, Luxembourg, Netherlands, Norway, Sweden, Switzerland); Eur. debtors = European debtors (Cyprus, Greece, Ireland, Italy, Portugal, Spain, Slovenia); Lat. Am. = Latin America (Argentina, Brazil, Chile, Colombia, Mexico, Peru, Uruguay); Oil exporters = Algeria, Azerbaijan, Iran, Kazakhstan, Kuwait, Nigeria, Oman, Qatar, Russia, Saudi Arabia, United Arab Emirates, Venezuela; Other adv. = other advanced economies (Australia, Canada, France, Iceland, New Zealand, United Kingdom). –4 4 –3 –2 –1 0 1 2 3 2002 04 06 08 10 12 14 16 18 20 22 24 Source: IMF staff calculations. Note: Data labels use International Organization for Standardization (ISO) country codes. Excess current account balances in 2018 are estimated to have declined, supported in many cases by real exchange rate movements. Medium-term projections suggest, on average, further movement of current account balances in the same direction. 1. 2017 Current Account Gaps and Change in Current Account Balances, 2017–18 –6 –4 –2 0 2 4 6 8 –4 –2 –4 –2 0 2 4 6 8 ESP NLD ITA DEU FRA BEL SGP HKG CHE KOR SWE SAU CAN AUS TUR THA ZAF POL RUS MEX MYS IDN IND BRA ARG USA GBR JPN CHN Change in current-account-to-GDP ratio, 2017–18 Change in current-account-to-GDP ratio, 2017–24 Current account gap, 2017 2. 2017 Current Account Gaps and Change in Current Account Balances, 2017–24 –8 –6 –4 –2 0 2 4 0 2 4 6 8 ESP ITA DEU NLD BEL FRA SGP HKG CHE SWE KOR SAU CAN AUS TUR THA ZAF POL RUS MEX MYS IDN IND BRA ARG USA GBR JPN CHN Current account gap, 2017 Figure 1.17. Current Account Balances in Relation to Economic Fundamentals
WORLD ECONOMIC OUTLOOK: GROWTH SLOWDOWN, PRECARIOUS RECOVERY Figure 1.18. Net International Investment Position some reduction in the creditor position of China and oil exporters. On the debtor side, the debtor position of world gdP are slightly this year, and then to broa dd gdp over the of the United States increases initially and then stabi- lizes with the forecast reduction in its current account deficit as the fiscal stimulus is withdrawn while the 1. Global International Investment Position ent of world gd position of euro area debtor countries further improves 〓Atr.andM 000 Eur. creditors Adv asia Oil exporters Similar trends are highlighted in panel 2 of Fig- ure 1.18, which shows projected changes in net international investment positions as a percentage of domestic GDP across countries and regions between 2017 and 2024, the last year of the WEO projection 日日冒目目 horizon. The net creditor position of advanced Euro. -United States Other adv.Em Asia -Eur.debtors Lat.Am.CEE pean economies is projected to be above 80 percent 2005 07 09 11 13 15 17 19 21 23 24 of gDP and of Japan to exceed 65 percent, while the net creditor position of China would decline to below 2. Net lIP, 2017, and projected changes, 2017-24 10 percent. The debtor position of the United States is projected to approach 50 percent of GDP, some Eur. debtors 9 percentage points above the 2017 estimate, while Eur. creditors the net international investment position of a group of Adv. asia euro area debtor countries, including Italy and spain, is expected to improve by more than 25 percentage Lat. Am. Em points of their collective GDP By 2024, net foreign liabilities, at about 32 percent of their GDP, would be United states Other ady half what they were a decade earlier. Net lIP. 2017 Sustained excess external imbalances in the worlds Source: IMF staff estimates key economies and policy actions that threaten to Province of China); Afr. and ME= Africa and the Middle East(Democratic Republic widen such imbalances pose risks to global stability of the Congo, Egypt, Ethiopia, Ghana, Jordan, Kenya, Lebanon, Morocco, South The fiscal easing under way in the United States is Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Slovak Republic, projected to increase the US current account deficit Turkey, Ukraine); Em. Asia= emerging Asia(India, Indonesia, Pakista This could aggravate trade tensions and result in a Philippines, Thailand, Vietnam): Eur. creditors= European creditors(Austria, faster tightening of global financing conditions, with Sweden, Switzerland): Eur. debtors European debtors (Cyprus, Greece, ireland, negative implications for emerging market economies, Italy, Portugal, Spain, Slovenia); IP= intemational investment position; especially those with weak external positions. Over Lat. Am.= Latin America(Argentina, Brazil, Chile, Colombia, Mexico, Peru Uruguay); Oil exporters= Algeria, Azerbaijan, Iran, Kazakhstan, Kuwait, Nigeria, the medium term, widening debtor positions in key man, Qatar, Russia, Saudi Arabia, United Arab Emirates, Venezuela economies could constrain global growth and possibly Other adv = other advanced economies (Australia, Canada, France, Iceland, New result in sharp and disruptive currency and asset price Zealand, United Kingdom). adjustments(see also the 2018 External Sector Report As discussed in the"policy prioritie JS economy-which is already operating beyond full mployment--should implement a medium-term plan As panel I of Figure 1.18 shows, creditor and debtor to reverse the rising ratio of public debt, accompanied positions as a share of world gDP are projected to by fiscal measures to gradually boost domestic capac widen slightly this year, and then to broadly stabilize ity. This would help ensure more sustainable growth as a share of world gDP over the forecast horizon dynamics and contain external imbalances. Stronger On the creditor side, the growing creditor positions of reliance on demand growth in some creditor countries, a group of European advanced economies, a result of especially those, such as Germany, with the policy large projected current account surpluses, is offset by space to support it, would help facilitate domestic and Intemational Monetary Fund April 2019
18 WORLD ECONOMIC OUTLOOK: Growth Slowdown, Precarious Recovery International Monetary Fund | April 2019 As panel 1 of Figure 1.18 shows, creditor and debtor positions as a share of world GDP are projected to widen slightly this year, and then to broadly stabilize as a share of world GDP over the forecast horizon. On the creditor side, the growing creditor positions of a group of European advanced economies, a result of large projected current account surpluses, is offset by some reduction in the creditor position of China and oil exporters. On the debtor side, the debtor position of the United States increases initially and then stabilizes with the forecast reduction in its current account deficit as the fiscal stimulus is withdrawn, while the position of euro area debtor countries further improves significantly. Similar trends are highlighted in panel 2 of Figure 1.18, which shows projected changes in net international investment positions as a percentage of domestic GDP across countries and regions between 2017 and 2024, the last year of the WEO projection horizon. The net creditor position of advanced European economies is projected to be above 80 percent of GDP and of Japan to exceed 65 percent, while the net creditor position of China would decline to below 10 percent. The debtor position of the United States is projected to approach 50 percent of GDP, some 9 percentage points above the 2017 estimate, while the net international investment position of a group of euro area debtor countries, including Italy and Spain, is expected to improve by more than 25 percentage points of their collective GDP. By 2024, net foreign liabilities, at about 32 percent of their GDP, would be half what they were a decade earlier. Implications of Imbalances Sustained excess external imbalances in the world’s key economies and policy actions that threaten to widen such imbalances pose risks to global stability. The fiscal easing under way in the United States is projected to increase the US current account deficit. This could aggravate trade tensions and result in a faster tightening of global financing conditions, with negative implications for emerging market economies, especially those with weak external positions. Over the medium term, widening debtor positions in key economies could constrain global growth and possibly result in sharp and disruptive currency and asset price adjustments (see also the 2018 External Sector Report). As discussed in the “Policy Priorities” section, the US economy—which is already operating beyond full employment—should implement a medium-term plan to reverse the rising ratio of public debt, accompanied by fiscal measures to gradually boost domestic capacity. This would help ensure more sustainable growth dynamics and contain external imbalances. Stronger reliance on demand growth in some creditor countries, especially those, such as Germany, with the policy space to support it, would help facilitate domestic and Afr. and ME Japan China Eur. creditors Adv. Asia Oil exporters United States Other adv. Em. Asia Eur. debtors Lat. Am. CEE Source: IMF staff estimates. Note: Adv. Asia = advanced Asia (Hong Kong SAR, Korea, Singapore, Taiwan Province of China); Afr. and ME = Africa and the Middle East (Democratic Republic of the Congo, Egypt, Ethiopia, Ghana, Jordan, Kenya, Lebanon, Morocco, South Africa, Sudan, Tanzania, Tunisia); CEE = central and eastern Europe (Belarus, Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Slovak Republic, Turkey, Ukraine); Em. Asia = emerging Asia (India, Indonesia, Pakistan, Philippines, Thailand, Vietnam); Eur. creditors = European creditors (Austria, Belgium, Denmark, Finland, Germany, Luxembourg, Netherlands, Norway, Sweden, Switzerland); Eur. debtors = European debtors (Cyprus, Greece, Ireland, Italy, Portugal, Spain, Slovenia); IIP = international investment position; Lat. Am. = Latin America (Argentina, Brazil, Chile, Colombia, Mexico, Peru, Uruguay); Oil exporters = Algeria, Azerbaijan, Iran, Kazakhstan, Kuwait, Nigeria, Oman, Qatar, Russia, Saudi Arabia, United Arab Emirates, Venezuela; Other adv. = other advanced economies (Australia, Canada, France, Iceland, New Zealand, United Kingdom). –20 –10 0 10 20 30 40 –100 –75 –50 –25 0 25 50 75 100 125 150 Adv. Asia Japan Eur. creditors Afr. and ME Em. Asia Lat. Am. United States Other adv. Oil exporters China CEE Eur. debtors Projected change in IIP, 2017–24 Net IIP, 2017 2. Net IIP, 2017, and Projected Changes, 2017–24 (Percent of GDP) –40 –30 –20 –10 0 10 20 30 40 2005 07 09 11 13 15 17 19 21 23 24 1. Global International Investment Position (Percent of world GDP) Figure 1.18. Net International Investment Position Creditor and debtor positions as a share of world GDP are projected to widen slightly this year, and then to broadly stabilize as a share of world GDP over the forecast horizon
CHAPTER 1 GLOBAL PROSPECTS AND POLICIES global rebalancing while sustaining global growth over stimulus measures take effect, and a gradual softening of growth in the United States as fiscal stimulus fades The materialization of risks in these economies would lower global growth directly and through real and Risks: Skewed to the downside financial spillovers. The outlook discussed in the preceding section In Europe, a protracted period of clevated yields in envisages that global growth will stabilize in the first Italy would put further stress on Italian banks, weigh alf of 2019 and recover gradually thereafter. If the on economic activity, and worsen debt dynamics ongoing trade truce between the United States and Other Europe-specific factors that could give rise to China is resolved with a rollback of tariff increases broader risk aversion and a widespread increase in risk acted in 2018, rising business confidence and finan- spreads include the rising possibility of a no-deal Brexit cial sentiment could lift growth above this baseline and European Parliamentary election outcomes that forecast. Some optimism about a positive resolution delay or reverse progress on strengthening the euro of trade differences between the United States and area architecture. More generally, a no-deal Brexit that China is indeed already reflected in market valuations. severely disrupts supply chains and raises trade costs However, the possibility of further downward revisions could potentially have large and long-lasting negative is high, and the balance of risks remains skewed to the Icts on the economies of the United Kingdom and downside. Key sources of downside risk to the global the European Union(see Scenario Box 1) outlook include. In the United States, the market-implied path of Trade tensions global trade investment and xpected policy rates remains below the Federal Open output remain under threat from ongoing trade Market Committee's projections, raising the possibilit tensions. The November 30, 2018, signing of the of a market reassessment of the expected policy path if US-Mexico-Canada Agreement to replace the North US economic data remain strong. This could result in American Free Trade Agreement; the extension past igher US interest rates, renewed dollar appreciation March 1, 2019, of the truce between the United States and tighter financial conditions for emerging market and China on tariff increases: and the announced and developing economies reduction in Chinese tariffs on US car imports are bilities(in the form of elevated currency and maturity remain subject to a negotiation process in the case s mismatches). As discussed in the April 2019 GFSR, steps in the right direction. However, final outcom the US credit cycle is at an advanced stage, with a of the US-China dispute and domestic ratification rising share of lower-rated issuers in the corporate processes for the US-Mexico-Canada Agreement. In addition, a proposal to raise tariffs on all imported loans extended to highly indebted companles mar a cars and car parts remains under consideration in offer limited protection for investors in the event of a the United States. Failure to resolve differences and a default. If US growth were to weaken, such financial resulting increase in tariff barriers above and beyond fragilities could amplify and prolong the slowdown by what is incorporated into the forecast would lead to leading to debt-service difficulties in highly lever higher costs of imported intermediate and capital aged companies, credit rating downgrades, and rising goods and higher final goods prices for consumers rollover risks, with further negative feedback effects on Beyond these direc uncertainty and concerns of escalation and retal- In China, the authorities have responded to the iation would reduce business investment, disrupt slowdown in 2018 by limiting the extent of financial supply chains, and slow productivity growth. The regulatory tightening, injecting liquidity through resulting depressed outlook for corporate profitability cuts in bank reserve requirements, and reducing the ould dent financial market sentiment and further personal income tax and value-added tax for small and dampen growth(see Scenario Box I of the Octo medium enterprises. Nevertheless, if trade tensions fail ber 2018 WEO) to ease, activity may fall short of Downside risks in systemic economies: The global more,excessive stimulus to support near-term growth growth profile is shaped by projections of a recovery in through a loosening of credit standards, or a resurgence the euro area as one-off factors dissipate, avoidance of of shadow banking activity and off-budget infrastruc a no-deal Brexit, some firming of growth in China as ture spending, would heighten financial vulnerabilities, International Monetary Fund April 2019
19 CHAPTER 1 Glob al Prospects and Policies International Monetary Fund | April 2019 global rebalancing while sustaining global growth over the medium term. Risks: Skewed to the Downside The outlook discussed in the preceding section envisages that global growth will stabilize in the first half of 2019 and recover gradually thereafter. If the ongoing trade truce between the United States and China is resolved with a rollback of tariff increases enacted in 2018, rising business confidence and financial sentiment could lift growth above this baseline forecast. Some optimism about a positive resolution of trade differences between the United States and China is indeed already reflected in market valuations. However, the possibility of further downward revisions is high, and the balance of risks remains skewed to the downside. Key sources of downside risk to the global outlook include: Trade tensions: Global trade, investment, and output remain under threat from ongoing trade tensions. The November 30, 2018, signing of the US-Mexico-Canada Agreement to replace the North American Free Trade Agreement; the extension past March 1, 2019, of the truce between the United States and China on tariff increases; and the announced reduction in Chinese tariffs on US car imports are steps in the right direction. However, final outcomes remain subject to a negotiation process in the case of the US–China dispute and domestic ratification processes for the US-Mexico-Canada Agreement. In addition, a proposal to raise tariffs on all imported cars and car parts remains under consideration in the United States. Failure to resolve differences and a resulting increase in tariff barriers above and beyond what is incorporated into the forecast would lead to higher costs of imported intermediate and capital goods and higher final goods prices for consumers. Beyond these direct impacts, higher trade policy uncertainty and concerns of escalation and retaliation would reduce business investment, disrupt supply chains, and slow productivity growth. The resulting depressed outlook for corporate profitability could dent financial market sentiment and further dampen growth (see Scenario Box 1 of the October 2018 WEO). Downside risks in systemic economies: The global growth profile is shaped by projections of a recovery in the euro area as one-off factors dissipate, avoidance of a no-deal Brexit, some firming of growth in China as stimulus measures take effect, and a gradual softening of growth in the United States as fiscal stimulus fades. The materialization of risks in these economies would lower global growth directly and through real and financial spillovers. In Europe, a protracted period of elevated yields in Italy would put further stress on Italian banks, weigh on economic activity, and worsen debt dynamics. Other Europe-specific factors that could give rise to broader risk aversion and a widespread increase in risk spreads include the rising possibility of a no-deal Brexit and European Parliamentary election outcomes that delay or reverse progress on strengthening the euro area architecture. More generally, a no-deal Brexit that severely disrupts supply chains and raises trade costs could potentially have large and long-lasting negative impacts on the economies of the United Kingdom and the European Union (see Scenario Box 1). In the United States, the market-implied path of expected policy rates remains below the Federal Open Market Committee’s projections, raising the possibility of a market reassessment of the expected policy path if US economic data remain strong. This could result in higher US interest rates, renewed dollar appreciation, and tighter financial conditions for emerging market and developing economies with balance sheet vulnerabilities (in the form of elevated currency and maturity mismatches). As discussed in the April 2019 GFSR, the US credit cycle is at an advanced stage, with a rising share of lower-rated issuers in the corporate bond market and a growing volume of covenant-lite loans extended to highly indebted companies that offer limited protection for investors in the event of a default. If US growth were to weaken, such financial fragilities could amplify and prolong the slowdown by leading to debt-service difficulties in highly leveraged companies, credit rating downgrades, and rising rollover risks, with further negative feedback effects on corporate spending. In China, the authorities have responded to the slowdown in 2018 by limiting the extent of financial regulatory tightening, injecting liquidity through cuts in bank reserve requirements, and reducing the personal income tax and value-added tax for small and medium enterprises. Nevertheless, if trade tensions fail to ease, activity may fall short of expectations. Furthermore, excessive stimulus to support near-term growth through a loosening of credit standards, or a resurgence of shadow banking activity and off-budget infrastructure spending, would heighten financial vulnerabilities