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2016/ISOM/SYM/003 Session I

Global Economic Outlook: Late 2016

Submitted by: IMF

Symposium on Priorities for APEC 2017Ha Noi, Viet Nam8 December 2016

International Monetary FundDecember 2016

Global Economic Outlook: Late 2016

Maurice ObstfeldEconomic Counsellor

A subdued, complex recovery, with new tensionsComplex set of economic forces continue to shape a subdued outlook• Ongoing realignments: China rebalancing, commodity exporter adjustment, asynchronous monetary

policy• Persistent drivers: Weak productivity growth, demographics, low demand, low natural real interest

rates • Absent vigorous policy, there is a risk of falling further into a low-growth, deflationary trap

But an overlay of political shocks becomes increasingly worrisome• Increasing tide of anti-trade, anti-immigration sentiment in the United States and Europe• Implications for APEC• Refugee crisis remains unresolved, displaced persons impose costs, especially in Middle East and

Africa

Raising growth and enhancing stability look increasingly critical• Overarching policy challenge: reinvigorate growth, ensure it is distributed more evenly, and make it

durable• Continue structural and tax reform, balance sheet repair, and improvements in the financial stability

framework• Global cooperation, including on climate, under attack, more essential than ever

1

Growth projections

WorldAdvanced

Economies U.S. U.K. Japan Euro Area Germany Canada

Other Advanced

Asia

2015 3.2 2.1 2.6 2.2 0.5 2.0 1.5 1.1 2.1

2016 3.1 1.6 1.6 1.8 0.5 1.7 1.7 1.2 2.2

Revision from Jul.

20160.0 -0.2 -0.6 0.1 0.2 0.1 0.1 -0.2 0.0

2017 3.4 1.8 2.2 1.1 0.6 1.5 1.4 1.9 2.5

Revision from Jul.

20160.0 0.0 -0.3 -0.2 0.5 0.1 0.2 -0.2 -0.1

Growth projections: Advanced economies(percent change from a year earlier)

Sources: IMF, World Economic Outlook October 2016; and IMF, World Economic Outlook July 2016 Update. 2

Contribution to growth(percentage points)

3Sources: IMF, World Economic Outlook October 2016; Haver Analytics; and IMF staff calculations.

50

70

90

110

130

150

170

190

210

230

250

-2

-1

0

1

2

3

4

5

6

00 02 04 06 08 10 12 14 16

Non-farm business: real output per labor hourEconomic policy uncertainty index (1985-2009=100; rhs)Linear (Non-farm business: real output per labor hour)

16Q3

U.S.: Slow recoveryLabor productivity and policy uncertainty(percent; year over year)

-2

-1

0

1

2

3

4

5

6

14Q2 14Q4 15Q2 15Q4 16Q2

Personal consump. exp. Non-residential invest.Residential invest. Change in inventoriesGov. consump. and invest. Net exportsReal GDP growth

World

Emerging Market and Developing Economies China India Brazil Russia

CommodityExporting Economies

Sub-Saharan

Africa

2015 3.2 4.0 6.9 7.6 -3.8 -3.7 0.8 3.4

2016 3.1 4.2 6.6 7.6 -3.3 -0.8 0.9 1.4

Revision fromJul. 2016 0.0 0.1 0.0 0.2 0.0 0.4 0.0 -0.2

2017 3.4 4.6 6.2 7.6 0.5 1.1 2.6 2.9

Revision from Jul. 2016 0.0 0.0 0.0 0.2 0.0 0.1 0.1 -0.4

Growth projections: Emerging markets and LIDCs(percent change from a year earlier)

Sources: IMF, World Economic Outlook October 2016; and IMF, World Economic Outlook July 2016 Update. 4

Real GDP growth; consumption and investment shares(percent)

Sources: IMF, World Economic Outlook; IMF, World Economic Outlook; and IMF staff calculations. 1/ Luxembourg and Hong Kong (SAR) not shown; these have corporate credit-to-GDP ratios and GDP per capita of (118.2, 413.6) and (40.1, 216.6), respectively.2/ Calculated as total social financing minus equity , LGFV and household loans.

China: Slowing down and rebalancing

0

2

4

6

8

10

12

14

16

30

35

40

45

50

55

60

07 08 09 10 11 12 13 14 15 16P

Real GDP growth (yoy; rhs) Nominal consumptionNominal investment Real consumptionReal investment

5

Corporate credit: High level relative to peers 1/(selected economies; 2014)

South Africa

Ireland

Turkey

Sweden

SingaporeSwitzerland

KoreaFinland

Poland

Greece

India

Norway

Indones ia

Mexico

Hungary

Japan

Thailand

Euro area

Netherlands

Brazil

Russ ia

Italy

United States

Germany

Denmark

Argentina

Australia

Spain

United Kingdom

Malays ia

0

20

40

60

80

100

120

140

160

180

200

0 20 40 60 80 100

Cre

dit

to n

on-f

inan

cial

cor

pora

tes

(per

cent

of

GD

P)

GDP per capita (USD thousand)

China ‘07

China ‘16 2/

China ‘14

Recent market adjustments

Source: IMF, Global Data Source; IMF, World Economic Outlook; and IMF staff calculations.1/ Other EM countries are 44 emerging markets.

Expectations of US fiscal expansion have appreciated the US dollar,…

6

80

85

90

95

100

105

110

115

120

125

130United States United Kingdom Euro area Japan China Other EMs 1/

Jan. 14

Nov. 16

Jan. 20, 2016: Oil selloffJun. 23, 2016: Mkt close pre-BrexitNov. 8, 2016: U.S. election

Appr

ecia

tion

Nominal effective exchange rate swings, 2014-16(index; Jan. 1, 2014=100)

Sources: Bloomberg, L.P.; and IMF staff calculations.1/ Latest figures as of Dec. 2, 2016. OPEC announced its new OPEC-14 production target of 32.5mb/d on Nov. 30, 2016

…strengthened the recovery of some commodity prices,…

7

-10

-6

-2

2

6

10

14

18

22

26

30

Corn Soy Brent Oil Natural Gas

Gold Silver Tin Aluminum Nickel Lead Zinc Copper Iron Ore

Agricultural Energy Metals

Nov 8 - Nov 29 Nov 30 - Latest Nov 7 - Latest

Change in commodity prices after US presidential elections 1/(Percent)

EM sovereign spreads 1/(bps)

… and increased AE yields and EM sovereign spreads

Source: Arslanalp and Tsuda (2014, updated); and Bloomberg, L.P.Note: 1/ Brexit and US election dates correspond to June 23, 2016 and November 8,2016 respectively; 2/ The coverage of sovereign debt is central government.

0

200

400

600

800

13 14 15 16

EMBIG Asia EMBIG LatamEMBIG Europe

US

Ele

ctio

n

Bre

xit

12 /2

Foreign holdings of EM local currency gov. debt securities 2/(percent of total)

8

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

13 14 15 16

U.S. Euro Area Japan

12/4

Bre

xit

vote

US

Ele

ctio

n

Sovereign 10y yields-Advanced economies 1/(percent)

0 10 20 30 40 50

Indonesia

Malaysia

Mexico

Peru

Russia

Thailand

Philippines

India

China2016Q2 2007Q2

2016 Q2 Average

Explaining the trade slowdown

-7

-6

-5

-4

-3

-2

-1

0

From import IAD regression

Unpredicted

Predicted by own & partners' import demand

-1.8

-1.6

-1.4

-1.2

-1

-0.8

-0.6

-0.4

-0.2

0

Unpredicted

Global value chain participationTrade policies

From product level regression

Difference in average real import growth between 2003-07 and 2012-15(percentage points)

Distribution of average real import growth across different goods 1/(percent)

Trade: What are the drivers of the slowdown? Contributions to slowdown in real goods import growth 2/(percent)

Source: Chapter 2, October 2016, IMF, World Economic Outlook.1/ The figure is plotting the real average growth rate of world imports, at the Harmonized System (HS) 2-digit level. The data are based on import volume indices constructed from quantity and value trade data at HS 6-digit level for 52 economies. See Boz and Cerutti (forthcoming) for methodological details. 2/ Baseline based on an import demand model linking real import growth to growth in import intensity-adjusted demand (IAD) and relative prices. See WEO Chapter 2, Annexes 2.3 and 2.5.

0

5

10

15

20

-5 0 5 10 15 20

2003-07

0

5

10

15

20

-10 0 10 20

2012-15

9

Less than -12 ppt-12 to -7 ppt-7 and -4 ppt-4 to 0 pptMore than 0No data

0

5

10

15

20

25

30

35

40

45

80 85 90 95 00 05 10 15

Establishment of WTO

Start of Uruguay Round

10Source: Source: Chapter 2, October 2016, IMF, World Economic Outlook; IMF staff calculations.

Trade policies: The pace of tariff reduction has slowed, …Tariffs in advanced economies(percent; simple average)

Tariffs in emerging markets and developing economies(percent; simple average)

0

5

10

15

20

25

30

35

40

45

80 85 90 95 00 05 10 15

Start of Uruguay Round

Establishment of WTO

0

10

20

30

40

50

60

70

95 00 05 10

Advanced economies

Vietnam

Emerging market and developing economies ex. China

World level(percent of products)

Sources: Bown (2015); Chapter 2, October 2016, IMF, World Economic Outlook; World Bank Temporary Trade Barriers Database; IMF, World Economic Outlook; and IMF staff calculations.

…there are signs of increasing temporary trade barriers, and participation in global value chains has plateaued

11

0.0

0.5

1.0

1.5

2.0

2.5

3.0

90 95 00 05 10 15

Temporary trade barriers Antidumping

Safeguards Countervailing duties

Evolution of global value chain participation(percent)

Evolution of public attitude to trade: Think trade is good 1/ (percent of responses)

12

Sources: Gallup Poll; PEW Research; and IMF staff calculations.1/ Percent that responded "Very Good" or "Somewhat Good" to question "What do you think about the growing trade and business ties with other countries - do you think it is a very good thing, somewhat good, some what bad or a very bad thing for our country?"

Globally, trade perceptions are mixed

50

55

60

65

70

75

80

85

90

95

2002 2007 2008 2009 2010 2014

25pct: Emerging and developing 75pct: Emerging and developing

Median: Emerging and developing 25pct: Other advanced

75pct: Other advanced Median: Other advanced

United States

Perceptions of trade’s impact on jobs and wages(Spring 2014; percent of responses)

FRA

DEUGRC

ISR

ITA

JPN

KORESP GBR

USA

ARG

BGDBRA

CHL

CHN

COL

EGY

SLVGHA

IND

IDN

JOR

KEN LBNMYS

MEX

NIC

NGA

PAK

PSEPERPHL POL

RUS

SEN

ZAF

TZA

THA

TUN

TUR

UGAUKR

VEN

VNM

0

10

20

30

40

50

60

70

80

90

100

0 20 40 60 80 100

% R

espo

nd T

rade

Cre

ates

Job

s

% Respond Trade Increase Wages

Postive Perception: Trade on Jobs and Wages(PEW GAS Spring 2014)

Policy conclusions

Many challenges ahead

Implement comprehensive policies within strong policy frameworks• Fiscal policy should be growth-friendly and inclusive within a medium-term framework• Exchange rate flexibility is a buffer, but beware inflation and currency mismatch• Strengthen supervision and macroprudential frameworks• Structural reforms—well-sequenced and combined with supportive macroeconomic policies—are

essential

What spillovers can we expect from US fiscal and monetary policies? • Further appreciation of US dollar?• Faster increase in global interest rates?• Growing U.S. trade deficit—and trade policy pressures, as in 1980s?

Reinvigorate coordinated efforts across countries• Refocus trade discussion toward net integration benefits and policies to mitigate side effects• Promote further regional economic integration• Address cooperatively other public-good problems (e.g., corporate taxation, financial stability, extreme

weather)13