Table 1. Overview of the World Economic Outlook
Projections
(Percent change unless noted otherwise) |
|
|
Year over Year |
|
|
|
|
|
|
|
Projections |
|
Difference from
September 2011 WEO Projections |
|
Q4 over Q4 |
|
|
|
|
Estimates |
Projections |
|
2010 |
2011 |
2012 |
2013 |
|
2012 |
2013 |
|
2011 |
2012 |
2013 |
|
World Output 1 |
5.2 |
3.8 |
3.3 |
3.9 |
|
–0.7 |
–0.6 |
|
3.3 |
3.4 |
4.0 |
Advanced
Economies |
3.2 |
1.6 |
1.2 |
1.9 |
|
–0.7 |
–0.5 |
|
1.3 |
1.3 |
2.1 |
United States |
3.0 |
1.8 |
1.8 |
2.2 |
|
0.0 |
–0.3 |
|
1.8 |
1.5 |
2.4 |
Euro Area |
1.9 |
1.6 |
–0.5 |
0.8 |
|
–1.6 |
–0.7 |
|
0.8 |
–0.2 |
1.2 |
Germany |
3.6 |
3.0 |
0.3 |
1.5 |
|
–1.0 |
0.0 |
|
1.8 |
0.7 |
1.6 |
France |
1.4 |
1.6 |
0.2 |
1.0 |
|
–1.2 |
–0.9 |
|
0.9 |
0.5 |
1.3 |
Italy |
1.5 |
0.4 |
–2.2 |
–0.6 |
|
–2.5 |
–1.1 |
|
–0.1 |
–2.7 |
0.9 |
Spain |
–0.1 |
0.7 |
–1.7 |
–0.3 |
|
–2.8 |
–2.1 |
|
0.2 |
–2.1 |
0.6 |
Japan |
4.4 |
–0.9 |
1.7 |
1.6 |
|
–0.6 |
–0.4 |
|
–0.9 |
1.9 |
1.5 |
United Kingdom |
2.1 |
0.9 |
0.6 |
2.0 |
|
–1.0 |
–0.4 |
|
0.8 |
1.0 |
2.4 |
Canada |
3.2 |
2.3 |
1.7 |
2.0 |
|
–0.2 |
–0.5 |
|
2.1 |
1.7 |
2.0 |
Other Advanced
Economies 2 |
5.8 |
3.3 |
2.6 |
3.4 |
|
–1.1 |
–0.3 |
|
2.9 |
3.2 |
3.5 |
Newly
Industrialized Asian Economies |
8.4 |
4.2 |
3.3 |
4.1 |
|
–1.2 |
–0.3 |
|
3.8 |
4.3 |
3.8 |
Emerging and
Developing Economies 3 |
7.3 |
6.2 |
5.4 |
5.9 |
|
–0.7 |
–0.6 |
|
5.9 |
6.0 |
6.3 |
Central and Eastern
Europe |
4.5 |
5.1 |
1.1 |
2.4 |
|
–1.6 |
–1.1 |
|
3.4 |
1.4 |
3.0 |
Commonwealth of
Independent States |
4.6 |
4.5 |
3.7 |
3.8 |
|
–0.7 |
–0.6 |
|
3.2 |
3.5 |
3.7 |
Russia |
4.0 |
4.1 |
3.3 |
3.5 |
|
–0.8 |
–0.5 |
|
3.5 |
2.8 |
4.0 |
Excluding Russia |
6.0 |
5.5 |
4.4 |
4.7 |
|
–0.7 |
–0.4 |
|
. . . |
. . . |
. . . |
Developing Asia |
9.5 |
7.9 |
7.3 |
7.8 |
|
–0.7 |
–0.6 |
|
7.4 |
7.9 |
7.6 |
China |
10.4 |
9.2 |
8.2 |
8.8 |
|
–0.8 |
–0.7 |
|
8.7 |
8.5 |
8.4 |
India |
9.9 |
7.4 |
7.0 |
7.3 |
|
–0.5 |
–0.8 |
|
6.7 |
6.9 |
7.2 |
ASEAN-5
4 |
6.9 |
4.8 |
5.2 |
5.6 |
|
–0.4 |
–0.2 |
|
3.7 |
7.4 |
5.0 |
Latin America and
the Caribbean |
6.1 |
4.6 |
3.6 |
3.9 |
|
–0.4 |
–0.2 |
|
3.9 |
3.3 |
5.0 |
Brazil |
7.5 |
2.9 |
3.0 |
4.0 |
|
–0.6 |
–0.2 |
|
2.1 |
3.8 |
4.1 |
Mexico |
5.4 |
4.1 |
3.5 |
3.5 |
|
–0.1 |
–0.2 |
|
4.1 |
3.1 |
3.6 |
Middle East and
North Africa (MENA) 5 |
4.3 |
3.1 |
3.2 |
3.6 |
|
. . . |
. . . |
|
. . . |
. . . |
. . . |
Sub-Saharan Africa |
5.3 |
4.9 |
5.5 |
5.3 |
|
–0.3 |
–0.2 |
|
. . . |
. . . |
. . . |
South Africa |
2.9 |
3.1 |
2.5 |
3.4 |
|
–1.1 |
–0.6 |
|
2.4 |
3.0 |
3.7 |
Memorandum |
|
|
|
|
|
|
|
|
|
|
|
European Union |
2.0 |
1.6 |
–0.1 |
1.2 |
|
–1.5 |
–0.7 |
|
0.8 |
0.3 |
1.7 |
World Growth Based
on Market Exchange Rates |
4.1 |
2.8 |
2.5 |
3.2 |
|
–0.7 |
–0.4 |
|
. . . |
. . . |
. . . |
|
|
|
|
|
|
|
|
|
|
|
|
World Trade
Volume (goods and services) |
12.7 |
6.9 |
3.8 |
5.4 |
|
–2.0 |
–1.0 |
|
. . . |
. . . |
. . . |
Imports |
|
|
|
|
|
|
|
|
|
|
|
Advanced
Economies |
11.5 |
4.8 |
2.0 |
3.9 |
|
–2.0 |
–0.8 |
|
. . . |
. . . |
. . . |
Emerging and
Developing Economies |
15.0 |
11.3 |
7.1 |
7.7 |
|
–1.0 |
–1.0 |
|
. . . |
. . . |
. . . |
Exports |
|
|
|
|
|
|
|
|
|
|
|
Advanced
Economies |
12.2 |
5.5 |
2.4 |
4.7 |
|
–2.8 |
–0.8 |
|
. . . |
. . . |
. . . |
Emerging and
Developing Economies |
13.8 |
9.0 |
6.1 |
7.0 |
|
–1.7 |
–1.6 |
|
. . . |
. . . |
. . . |
Commodity
Prices (U.S. dollars) |
|
|
|
|
|
|
|
|
|
|
|
Oil
6 |
27.9 |
31.9 |
–4.9 |
–3.6 |
|
–1.8 |
–3.1 |
|
. . . |
. . . |
. . . |
Nonfuel (average
based on world commodity export weights) |
26.3 |
17.7 |
–14.0 |
–1.7 |
|
–9.3 |
2.2 |
|
. . . |
. . . |
. . . |
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
Prices |
|
|
|
|
|
|
|
|
|
|
|
Advanced Economies |
1.6 |
2.7 |
1.6 |
1.3 |
|
0.2 |
–0.1 |
|
2.9 |
1.2 |
1.3 |
Emerging and
Developing Economies 3 |
6.1 |
7.2 |
6.2 |
5.5 |
|
0.3 |
0.4 |
|
6.5 |
5.6 |
4.8 |
London
Interbank Offered Rate (percent)
7 |
|
|
|
|
|
|
|
|
|
|
|
On U.S. Dollar
Deposits |
0.5 |
0.5 |
0.9 |
0.9 |
|
0.4 |
0.3 |
|
. . . |
. . . |
. . . |
On Euro Deposits |
0.8 |
1.4 |
1.1 |
1.2 |
|
–0.1 |
–0.4 |
|
. . . |
. . . |
. . . |
On Japanese Yen
Deposits |
0.4 |
0.4 |
0.5 |
0.2 |
|
0.2 |
0.0 |
|
. . . |
. . . |
. . . |
|
Note: Real effective exchange rates
are assumed to remain constant at the levels
prevailing during November 14–December 12, 2011.
When economies are not listed alphabetically, they
are ordered on the basis of economic size. The
aggregated quarterly data are seasonally adjusted. |
1The
quarterly estimates and projections account for 90
percent of the world purchasing-power-parity
weights. |
2Excludes
the G7 and euro area countries. |
3The
quarterly estimates and projections account for
approximately 80 percent of the emerging and
developing economies. |
4Indonesia,
Malaysia, Philippines, Thailand, and Vietnam. |
5The
September 2011 WEO projections did not include
Libya due to the uncertain political situation, but
Libya is included in these aggregate WEO
calculations. Excluding Libya, MENA growth
projections for 2012 and 2013 are lower by –1.6 and
–1.2 percentage points, respectively, than in the
September 2011 WEO. Note that the World and
Emerging and Developing Economies aggregates are
also not directly comparable with those in the
September 2011 WEO because of Libya’s inclusion,
but Libya’s weight in these aggregates is much
lower. |
6Simple
average of prices of U.K. Brent, Dubai, and West
Texas Intermediate crude oil. The average price of
oil in U.S. dollars a barrel was $104.23 in 2011;
the assumed price based on futures markets is $99.09
in 2012 and $95.55 in 2013. |
7Six-month
rate for the United States and Japan. Three-month
rate for the euro area. |
Lately, the near-term outlook has noticeably deteriorated, as evidenced
by worsening high-frequency indicators in the last quarter of
2011 (Figure 2:
CSV|PDF).
The main reason is the escalating euro area crisis, which is
interacting with financial fragilities elsewhere (Figure 3:
CSV|PDF).
Specifically, concerns about banking sector losses and fiscal
sustainability widened sovereign spreads for many euro area
countries, which reached highs not seen since the launch of the
Economic and Monetary Union. Bank funding all but dried up in
the euro area, prompting the European Central Bank (ECB) to
offer a three-year Long-Term Refinancing Operation (LTRO). Bank
lending conditions moved sideways or deteriorated across a
number of advanced economies. Capital flows to emerging
economies fell sharply. Currency markets were volatile, as the
Japanese yen appreciated and many emerging market currencies
depreciated significantly.
The recovery is expected to stall in
many economies
The updated WEO projections see global activity decelerating
but not collapsing. Most advanced economies avoid falling back
into a recession, while activity in emerging and developing
economies slows from a high pace. However, this is predicated on
the assumption that in the euro area, policymakers intensify
efforts to address the crisis. As a result, sovereign bond
premiums stabilize near current levels and start to normalize in
early 2013. Also, policies succeed in limiting deleveraging by
euro area banks. Credit and investment in the euro area contract
only modestly, with limited financial and trade spillovers to
other regions.
Overall, activity in the advanced economies is now projected
to expand by 1½ percent on average during 2012–13. Given the
depth of the 2009 recession, these growth rates are too sluggish
to make a major dent in very high unemployment. Moreover, the
2012 growth projection is a downward revision of ¾ percentage
points relative to the
September 2011 WEO.
• The euro area economy is now expected to go into a mild
recession in 2012—consistent with what was presented as a
downside scenario in the January 2011
WEO Update. The significant downward revision (1½
percentage points) since the
September 2011 WEO is due to the rise in sovereign yields,
the effects of bank deleveraging on the real economy, and the
impact of additional fiscal consolidation announced by euro area
governments.
• With only limited policy room, growth in most other
advanced economies is also lower, mainly due to adverse
spillovers from the euro area via trade and financial channels
that exacerbate the effects of existing weaknesses. For the
United States, the growth impact of such spillovers is broadly
offset by stronger underlying domestic demand dynamics in 2012.
Nonetheless, activity slows from the pace reached during the
second half of 2011, as higher risk aversion tightens financial
conditions and fiscal policy turns more contractionary.
During 2012–13, growth in emerging and developing economies
is expected to average 5¾ percent—a significant slowdown from
the 6¾ percent growth registered during 2010–11 and about
½ percentage point lower than projected in the
September 2011 WEO. This reflects the deterioration in the
external environment, as well as the slowdown in domestic demand
in key emerging economies. Despite a substantial downward
revision of ¾ percentage point, developing Asia is still
projected to grow most rapidly at 7½ percent on average during
2012–13. Economic activity in the Middle East and North Africa
is expected to accelerate in 2012-13, driven mainly by the
recovery in Libya and the continued strong performance of other
oil exporters. But most oil-importing countries in the region
face muted growth prospects due to longer-than-expected
political transitions and an adverse external environment. The
impact of the global slowdown on sub-Saharan Africa has to date
been limited to a few countries—most notably, South Africa—and
the region's output is expected to expand by around 5½ percent
in 2012. The adverse spillover effects are expected to be
largest for central and eastern Europe, given the region’s
strong trade and financial linkages with the euro area
economies. The impact on other regions is expected to be
relatively mild, as macroeconomic policy easing is expected to
largely offset the effects of slowing demand from advanced
economies and rising global risk aversion. For many emerging and
developing economies, the strength of the forecasts also
reflects relatively high commodity prices (see below).
Commodity prices and
consumer price inflation recede, but risks remain
Commodity prices generally declined in 2011, in response to
weaker global demand. Oil prices, however, have held up in
recent months, largely because of supply developments. Moreover,
geopolitical risks to oil prices have risen again. These risks
are expected to remain elevated for some time, and oil prices
will ease only marginally in 2012 despite less favorable
prospects for global activity. As a result, the IMF’s baseline
petroleum price projection for 2012 is broadly unchanged since
the
September 2011 WEO ($99 a barrel compared with $100). For
non-oil commodities, improving supply conditions and slowing
global demand are expected to cause further price declines.
Non-oil commodity prices are projected to fall by 14 percent in
2012. In the near term, the risks to prices are to the downside
for most of these commodities.
Global consumer price inflation is projected to ease as
demand softens and commodity prices stabilize or recede. In
advanced economies, ample economic slack and well-anchored
inflation expectations will keep inflation pressures subdued, as
the effects of last year’s higher commodity prices wane.
Inflation is projected to fall to about 1½ percent in the course
of this year, down from a peak of about 2¾ percent in 2011. In
emerging and developing economies, pressures are also expected
to drop, as both growth and food price inflation slow. However,
inflation is expected to remain persistent in some regions.
Overall, consumer prices in these economies are projected to
decelerate, with inflation around 6¼ percent during 2012, down
from over
7¼ percent in 2011.
Downside risks have risen
sharply
Downside risks stem from several sources. The most immediate
risk is intensification of the adverse feedback loops between
sovereign and bank funding pressures in the euro area, resulting
in much larger and more protracted bank deleveraging and sizable
contractions in credit and output.
Figure 4 (CSV|PDF)
presents such a downside scenario. It assumes that sovereign
spreads temporarily rise. Increased concerns about fiscal
sustainability force a more front-loaded fiscal consolidation,
which depresses near-term demand and growth. Bank asset quality
deteriorates by more than in the baseline, owing to higher
losses on sovereign debt holdings and on loans to the private
sector. Private investment contracts by additional 1¾ percentage
points of GDP (relative to WEO projections). As a result, euro
area output is reduced by about 4 percent relative to the WEO
forecast. Assuming that financial contagion to the rest of the
world is more intense than in the baseline (but weaker than
following the collapse of Lehman Brothers in 2008) and taking
into consideration spillovers via international trade, global
output will be lower than the WEO projections by about 2
percent.
Another downside risk arises from insufficient progress in developing
medium-term fiscal consolidation plans in the United States and
Japan. In the short term, this risk might be mitigated as the
turbulence in the euro area makes government debt of these
economies more attractive to investors. However, as long as
public debt levels are projected to rise over the medium term,
and in the absence of well-defined and credible fiscal
consolidation strategies, there is the possibility of turmoil in
global bond and currency markets. A more immediate risk is that
an accident-prone political economy will lead to excessive
fiscal tightening in the near term in the United States.
In key emerging economies, risks relate to the possibility of
a hard landing, especially in the context of uncertain (possibly
slowing) potential output. In recent years, a number of major
emerging economies experienced buoyant credit and asset price
growth as well as rising financial vulnerabilities. This has
buoyed demand and may have led to overestimation of the trend
growth rates in these economies. Should the dynamics of real
estate and credit markets unwind—triggered by losses in
confidence and a paring back of expectations at home or by
falling demand from abroad—the impact on economic activity could
be very damaging.
Moreover, concerns about geopolitical oil supply risks are
increasing again. The oil market impact of intensified concerns
about an Iran-related oil supply shock (or an actual disruption)
would be large, given limited inventory and spare capacity
buffers, as well as the still-tight physical market conditions
expected throughout 2012.
Decisive and consistent
policy action is urgently needed
The current environment—characterized by fragile financial
systems, high public deficits and debt, and interest rates close
to the zero bound—provides fertile ground for self-perpetuating
pessimism and the propagation of adverse shocks, the most
critical of which is a worsening of the crisis in the euro area.
In this setting, there are three requirements for a more
resilient recovery: sustained but gradual adjustment; ample
liquidity and easy monetary policy, mainly in advanced
economies; and restored confidence in policymakers’ ability to
act. Importantly, not all countries should adjust in the same
way, to the same extent, or at the same time, lest their efforts
become self-defeating. Countries with relatively strong fiscal
and external positions, for example, should not adjust to the
same extent as countries lacking those strengths or facing
market pressures. Through mutually consistent actions,
policymakers can help anchor expectations and reestablish
confidence.
• Fiscal adjustment. In the near term, sufficient
fiscal adjustment is in motion in most advanced economies.
Countries should let automatic stabilizers operate freely for as
long as they can readily finance higher deficits. Among those
countries, those with very low interest rates or other factors
that create adequate fiscal space, including some in the euro
area, should reconsider the pace of near-term fiscal
consolidation. Overdoing fiscal adjustment in the short term to
counter cyclical revenue losses will further undercut activity,
diminish popular support for adjustment, and undermine market
confidence. Among the major economies, a specific concern is
that political paralysis in the United States will lead to an
excessively rapid unwinding of stimulus spending. Regarding the
medium term, the United States and Japan should push ahead in
formulating and implementing credible medium-term consolidation
plans, because neither country can take for granted its status
as a safe haven. Measures could include reforms to slow the
growth of health care and pension spending, caps on
discretionary spending, and tax system reforms to boost fiscal
revenue. Putting in place credible medium-term plans also will
create policy room to support balance sheet repair, growth, and
job creation. Fiscal policies are discussed in more detail in
the
January 2012 Fiscal Monitor Update.
• Liquidity. While fiscal consolidation proceeds in
the advanced economies, monetary policy should continue to
support growth, as long as inflation expectations remain
anchored and unemployment stays high. If downside risks to
growth materialize, further monetary stimulus—including through
quantitative easing—may well be necessary. In this regard,
targeted programs to help ease credit constraints on businesses
and households would be useful in economies where monetary
transmission is impaired. In the euro area, it is critical to
break the adverse feedback loops between subpar growth,
deteriorating fiscal positions, and weakening bank balance
sheets, which may very well lead to a prolonged period of asset
and consumer price deflation. Addressing this requires action on
several fronts. First, additional and timely monetary easing by
the ECB will be important, consistent with its mandate to ensure
stable prices. Also, the ECB should continue to provide
liquidity and stay fully engaged in securities purchases to help
maintain confidence in the euro. And sufficient funding must be
made available through the European Financial Stability Facility
(EFSF) and the European Stability Mechanism (ESM) to countries
facing severe funding constraints.
• Bank deleveraging. To break the adverse loops
between weak growth and deteriorating bank balance sheets, more
capital needs to be injected into the euro area banks (including
from public sources) and supervisors must do whatever possible
to avoid excessively fast deleveraging that could lead to a
devastating credit crunch (see the
January 2012 Global Financial Stability Report Update).
Individual countries under pressure may well require recourse to
euro-wide resources to facilitate bank recapitalization.
• Financial adjustment. Easy funding in the
short-term must be coupled with continued progress to repair and
reform financial systems. This is a critical element of
normalizing credit conditions and would help reduce the burden
on monetary and fiscal policy of supporting the recovery.
Financial sector policies are discussed in more detail in the
January 2012
Global Financial Stability Report Update.
Restoring confidence in the viability of the euro area hinges
on deepening financial and fiscal integration over time and on
implementing structural reforms to help resolve internal
imbalances. On the financial front, moving toward a model of
common supervision, resolution, and deposit insurance will
strengthen and unify the euro area financial system and break
the adverse feedback loops between banks and sovereigns. In the
near term, a pan-euro area facility that has the capacity to
take direct stakes in banks will also help break these loops.
Further fiscal integration is also essential and must include
more risk sharing across euro area members, alongside stronger
fiscal discipline or centralization. The EFSF and ESM are major
steps in this direction. But adding substantial real resources
to what is currently available, by folding the EFSF into the ESM
and increasing the size of the ESM, would help greatly. In the
medium term, reforms to labor and product markets will help
address underlying internal imbalances and competitiveness
problems, which are the root causes of the travails; in the
short term, they may help anchor market expectations.
In emerging and developing economies, the near-term focus
should be on responding to moderating domestic demand and
slowing external demand from advanced economies, while dealing
with volatile capital flows. The specific conditions facing
these economies and the policy room available to them vary
widely, and so will the appropriate policy response. In general,
inflation pressures have eased, credit growth has peaked, and
capital inflows have diminished (Figure
5:
CSV|PDF).
Economies where inflation is under control, public debt is not
high, and external surpluses are appreciable (including China
and selected emerging economies in Asia) can afford to deploy
additional social spending to support poorer households in the
face of weakening external demand. Economies with diminishing
inflation pressure but weaker fiscal fundamentals (including
various economies in Latin America) can afford to stop
tightening or to ease monetary policy, provided they manage to
control lending to overheating sectors (such as real estate)
through macroprudential measures. Those that suffer from both
relatively high inflation and public debt (including India and
various economies in the Middle East) may need to take a more
cautious stance on any policy easing.
Collective action can help set the global economy on a more robust
growth trajectory by fostering global demand rebalancing. In
many advanced economies, notably those with external deficits,
the deleveraging of households is set to continue for some time.
Structural reforms to boost potential output—including measures
to reform labor and product markets and strengthen economies’
resilience to population aging—can lower but not obviate the
need for deleveraging. Achieving more resilient global growth in
this setting will require that economies with strong household
balance sheets and external positions eliminate distortions that
weigh on domestic demand. Depending on the precise challenges
facing these economies, actions could usefully focus on building
more market-oriented exchange systems, improving social safety
nets and pension, health care, and education systems;
strengthening financial sectors; and improving the business
environment for private investment.