Table Of ContentWorld Economic and Financial Sur veys
World Economic Outlook
October 2016
Subdued Demand
Symptoms and Remedies
I N T E R N A T I O N A L M O N E T A R Y F U N D
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©2016 International Monetary Fund
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Names: International Monetary Fund.
Title: World economic outlook (International Monetary Fund)
Other titles: WEO | Occasional paper (International Monetary Fund) | World economic and
financial surveys.
Description: Washington, DC : International Monetary Fund, 1980- | Semiannual | Some
issues also have thematic titles. | Began with issue for May 1980. | 1981-1984: Occasional
paper / International Monetary Fund, 0251-6365 | 1986-: World economic and financial
surveys, 0256-6877.
Identifiers: ISSN 0256-6877 (print) | ISSN 1564-5215 (online)
Subjects: LCSH: Economic development—Periodicals. | International economic relations—
Periodicals. | Debts, External—Periodicals. | Balance of payments—Periodicals. |
International finance—Periodicals. | Economic forecasting—Periodicals.
Classification: LCC HC10.W79
HC10.80
ISBN 978-1-51359-954-0 (paper)
978-1-47553-996-7 (PDF)
978-1-47553-981-3 (ePub)
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The World Economic Outlook (WEO) is a survey by the IMF staff published twice a
year, in the spring and fall. The WEO is prepared by the IMF staff and has benefited
from comments and suggestions by Executive Directors following their discussion of the
report on September 23, 2016. The views expressed in this publication are those of the
IMF staff and do not necessarily represent the views of the IMF’s Executive Directors
or their national authorities.
Recommended citation: International Monetary Fund. 2016. World Economic Outlook:
Subdued Demand: Symptoms and Remedies. Washington, October.
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CONTENTS
Assumptions and Conventions x
Further Information and Data xi
Preface xii
Foreword xiii
Executive Summary xv
Chapter 1. Global Prospects and Policies 1
Recent Developments and Prospects 1
The Forecast 18
Risks 26
Policy Priorities 29
Scenario Box 1. Tariff Scenarios 37
Box 1.1. World Growth Projections over the Medium Term 40
Special Feature: Commodity Market Developments and Forecasts, with a Focus on
Food Security and Markets in the World Economy 48
References 60
Chapter 2. Global Trade: What’s behind the Slowdown? 63
The Implications of Trade for Productivity and Welfare: A Primer 66
The Slowdown in Trade Growth: Key Patterns 67
Understanding the Slowdown in Trade Growth 69
Summary and Policy Implications 85
Box 2.1. Is the Trade Slowdown Contributing to the Global Productivity Slowdown? New Evidence 88
Box 2.2. The Role of Trade Policies in Reinvigorating Trade 91
Box 2.3. Potential Gains from Jump-Starting Trade Liberalization 94
Annex 2.1. Data 95
Annex 2.2. Constructing Disaggregated Import Volume and Price Indices 95
Annex 2.3. Analysis Using an Empirical Model of Import Demand 98
Annex 2.4. Analysis Using a General Equilibrium Model 106
Annex 2.5. Analysis at the Product Level 107
Annex 2.6. Analysis Using Gravity Model of Trade 110
References 115
Chapter 3. Global Disinflation in an Era of Constrained Monetary Policy 121
A Primer on the Costs of Disinflation, Persistently Low Inflation, and Deflation 124
Inflation Dynamics: Patterns and Recent Drivers 126
How Well Anchored Are Inflation Expectations? 134
Summary and Policy Implications 142
Box 3.1. Industrial Slack and Producer Price Inflation 145
Box 3.2. The Japanese Experience with Deflation 147
Box 3.3. How Much Do Global Prices Matter for Food Inflation? 150
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WORLD ECONOMIC OUTLOOK: SUBDUED DEMAND—SYMPTOMS AND REMEDIES
Box 3.4. The Impact of Commodity Prices on Producer Price Inflation 154
Box 3.5. A Transparent Risk-Management Approach to Monetary Policy 156
Annex 3.1. Sample and Data 158
Annex 3.2. Model Simulations 158
Annex 3.3. Principal Component Analysis 160
Annex 3.4. Drivers of the Recent Decline in Inflation 161
Annex 3.5. The Effect of Inflation Shocks on Inflation Expectations 164
References 168
Chapter 4. Spillovers from China’s Transition and from Migration 171
Introduction 171
The Challenges and Opportunities of Migration 183
Box 4.1. China’s Ties with Low-Income and Developing Countries 195
Box 4.2. Conflicts Driving Migration: Middle East and North Africa 196
Box 4.3. Migration in Sub-Saharan Africa 197
References 199
Statistical Appendix 203
Assumptions 203
What’s New 204
Data and Conventions 204
Country Notes 205
Classification of Countries 205
General Features and Composition of Groups in the World Economic Outlook Classification 206
Table A. Classification by World Economic Outlook Groups and Their Shares in Aggregate GDP,
Exports of Goods and Services, and Population, 2015 207
Table B. Advanced Economies by Subgroup 208
Table C. European Union 208
Table D. Emerging Market and Developing Economies by Region and Main Source of
Export Earnings 209
Table E. Emerging Market and Developing Economies by Region, Net External Position, and
Status as Heavily Indebted Poor Countries and Low-Income Developing Countries 210
Table F. Economies with Exceptional Reporting Periods 212
Table G. Key Data Documentation 213
Box A1. Economic Policy Assumptions Underlying the Projections for Selected Economies 223
List of Tables
Output (Tables A1–A4) 228
Inflation (Tables A5–A7) 235
Financial Policies (Table A8) 240
Foreign Trade (Table A9) 241
Current Account Transactions (Tables A10–A12) 243
Balance of Payments and External Financing (Table A13) 250
Flow of Funds (Table A14) 254
Medium-Term Baseline Scenario (Table A15) 257
World Economic Outlook, Selected Topics 259
IMF Executive Board Discussion of the Outlook, September 2016 267
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CONTENTS
Tables
Table 1.1. Overview of the World Economic Outlook Projections 2
Annex Table 1.1.1. Europe: Real GDP, Consumer Prices, Current Account Balance,
and Unemployment 42
Annex Table 1.1.2. Asia and Pacific: Real GDP, Consumer Prices, Current Account Balance, and
Unemployment 43
Annex Table 1.1.3. Western Hemisphere: Real GDP, Consumer Prices, Current Account Balance, and
Unemployment 44
Annex Table 1.1.4. Commonwealth of Independent States: Real GDP, Consumer Prices,
Current Account Balance, and Unemployment 45
Annex Table 1.1.5. Middle East, North Africa, Afghanistan, and Pakistan: Real GDP, Consumer Prices,
Current Account Balance, and Unemployment 46
Annex Table 1.1.6. Sub-Saharan Africa: Real GDP, Consumer Prices, Current Account Balance, and
Unemployment 47
Table 1.SF.1. Used-to-Available LandS uitable for Agriculture by Region, 2013 52
Table 1.SF.2. Food Exports 53
Table 1.SF.3. Agricultural Yield 53
Table 1.SF.4. Urban Population by Region 54
Table 1.SF.5. Net Export of Food 55
Table 1.SF.6. Share of Food and Beverages in Total Consumption, 2010 56
Table 1.SF.1.1. Impact of Land Governance and Food Security on Land Deals 59
Table 2.1. Historical Association among Real Import Growth at the Product Level, Trade Policies, and
Participation in Global Value Chains 84
Table 2.1.1. Baseline Estimation Results 90
Table 2.2.1. Trade Policy Challenges Vary across Countries 92
Annex Table 2.1.1. Data Sources 96
Annex Table 2.1.2. Sample of Economies Included in the Analytical Exercises 97
Annex Table 2.3.1. Import Content of Aggregate Demand Components 99
Annex Table 2.3.2. Empirical Model of Real Imports of Goods and Services 100
Annex Table 2.3.3. Empirical Model of Real Imports of Goods 101
Annex Table 2.3.4. Empirical Model of Real Imports of Services 102
Annex Table 2.3.5. Residuals: Real Goods Import Growth 103
Annex Table 2.3.6. Residuals: Real Services Import Growth 103
Annex Table 2.3.7. Residuals: Real Goods Import Growth Controlling for Global Uncertainty, Global
Financial Conditions, and Financial Stress 104
Annex Table 2.3.8. Decomposing the Decline in Real Goods Import Growth: Full Sample 104
Annex Table 2.3.9. Residuals: Real Goods Import Growth, Corrected for Potential Effect of
Trade Policies on Aggregate Demand 105
Annex Table 2.3.10. Decomposing the Decline in Real Goods Import Growth
Controlling for Trade Policies 105
Annex Table 2.5.1. Alternative Specifications for Real Imports in Product-Level Regressions 109
Annex Table 2.5.2. Alternative Specifications for Nominal Imports in Product-Level Regressions 111
Annex Table 2.6.1. Link between Global Value Chain Integration and Yearly Nominal Import
Growth Using Gravity Model Estimated in Levels 113
Annex Table 2.6.2. Link between Global Value Chain Integration and Yearly Nominal Import
Growth Using Gravity Model Estimated in Growth Rates 114
Table 3.3.1. Cross-Country Determinants of Pass-Through of Free-on-Board Food Prices to
Food Consumer Price Inflation 153
Annex Table 3.1.1. Sample of Advanced and Emerging Market Economies 158
Annex Table 3.1.2. Data Sources 158
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WORLD ECONOMIC OUTLOOK: SUBDUED DEMAND—SYMPTOMS AND REMEDIES
Table A1. Summary of World Output 228
Table A2. Advanced Economies: Real GDP and Total Domestic Demand 229
Table A3. Advanced Economies: Components of Real GDP 230
Table A4. Emerging Market and Developing Economies: Real GDP 232
Table A5. Summary of Inflation 235
Table A6. Advanced Economies: Consumer Prices 236
Table A7. Emerging Market and Developing Economies: Consumer Prices 238
Table A8. Major Advanced Economies: General Government Fiscal Balances and Debt 240
Table A9. Summary of World Trade Volumes andP rices 241
Table A10. Summary of Current Account Balances 243
Table A11. Advanced Economies: Balance on Current Account 246
Table A12. Emerging Market and Developing Economies: Balance on Current Account 247
Table A13. Summary of Financial Account Balances 250
Table A14. Summary of Net Lending and Borrowing 254
Table A15. Summary of World Medium-Term Baseline Scenario 257
Online Tables
Table B1. Advanced Economies: Unemployment, Employment, and Real GDP per Capita
Table B2. Emerging Market and Developing Economies: Real GDP
Table B3. Advanced Economies: Hourly Earnings, Productivity, and Unit Labor Costs in Manufacturing
Table B4. Emerging Market and Developing Economies: Consumer Prices
Table B5. Summary of Fiscal and Financial Indicators
Table B6. Advanced Economies: General and Central Government Net Lending/Borrowing and General
Government Net Lending/Borrowing Excluding Social Security Schemes
Table B7. Advanced Economies: General Government Structural Balances
Table B8. Emerging Market and Developing Economies: General Government Net Lending/Borrowing
and Overall Fiscal Balance
Table B9. Emerging Market and Developing Economies: General Government Net Lending/Borrowing
Table B10. Selected Advanced Economies: Exchange Rates
Table B11. Emerging Market and Developing Economies: Broad Money Aggregates
Table B12. Advanced Economies: Export Volumes, Import Volumes, and Terms of Trade in Goods and
Services
Table B13. Emerging Market and Developing Economies by Region: Total Trade in Goods
Table B14. Emerging Market and Developing Economies by Source of Export Earnings: Total
Trade in Goods
Table B15. Summary of Current Account Transactions
Table B16. Emerging Market and Developing Economies: Summary of External Debt and Debt Service
Table B17. Emerging Market and Developing Economies by Region: External Debt by Maturity
Table B18. Emerging Market and Developing Economies by Analytical Criteria: External
Debt by Maturity
Table B19. Emerging Market and Developing Economies: Ratio of External Debt to GDP
Table B20. Emerging Market and Developing Economies: Debt-Service Ratios
Table B21. Emerging Market and Developing Economies, Medium-Term Baseline Scenario: Selected
Economic Indicators
Figures
Figure 1.1. Global Activity Indicators 4
Figure 1.2. Global Inflation 6
Figure 1.3. Commodity and Oil Markets 6
Figure 1.4. Real Effective Exchange Rate Changes, March 2016–September 2016 7
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CONTENTS
Figure 1.5. Emerging Market Economies: Capital Flows 8
Figure 1.6. Advanced Economies: Monetary and Financial Market Conditions 9
Figure 1.7. Advanced Economies: Credit, House Prices, and Balance Sheets 9
Figure 1.8. Emerging Market Economies: Interest Rates 10
Figure 1.9. Emerging Market Economies: Equity Markets and Credit 10
Figure 1.10. Domestic Demand, Output Gap, Unemployment, and Labor Force Participation
in Advanced Economies 12
Figure 1.11. Demographics 13
Figure 1.12. Advanced Economies: Growth, Investment, and Employment in Recent
WEO Vintages 14
Figure 1.13. Emerging Markets: Terms-of-Trade Windfall Gains and Losses and Real
Exchange Rates 17
Figure 1.14. Real per Capita Growth Rates and Convergence (1995–2020) 17
Figure 1.15. Fiscal Indicators 19
Figure 1.16. External Sector 25
Figure 1.17. Creditors versus Debtors 26
Figure 1.18. Current Account Gaps and Real Exchange Rates 26
Figure 1.19. Risks to the Global Outlook 29
Figure 1.20. Recession and Deflation Risks 30
Scenario Figure 1. Unilateral and Bilateral Imposition of Tariffs on Imported Goods 37
Scenario Figure 2. A Worldwide Increase in Protectionism 38
Figure 1.1.1 World Growth Projections over the Medium Term 40
Figure 1.SF.1. Commodity Market Developments 48
Figure 1.SF.2. Producer Support Estimate 51
Figure 1.SF.3. World Food Production and Consumption by Country, 2015 52
Figure 1.SF.4. Population and World Food Consumption 52
Figure 1.SF.5. Maize Yield 54
Figure 1.SF.6. Food Prices and Violent Events 56
Figure 1.SF.7. Global Food Security Index, 2016 57
Figure 1.SF.1.1. Evolution of Deals over Time by Target Region 58
Figure 2.1. World Real Trade and GDP Growth in Historical Perspective 64
Figure 2.2. World Trade in Volumes, Values, and across Countries 68
Figure 2.3. Trade Dynamics across Broad Country Groups 70
Figure 2.4. Trade Dynamics across Types of Trade and Products 70
Figure 2.5. Empirical Model: Actual and Predicted Evolution of Real Import Growth 72
Figure 2.6. Empirical Model: Difference between Actual and Predicted Growth of Real
Goods Imports 73
Figure 2.7. Empirical Model: Decomposing the Slowdown in Real Goods Import Growth 73
Figure 2.8. Structural Model: Actual and Model-Implied Evolution of Nominal
Import-to-GDP Ratio 77
Figure 2.9. Trade Costs in Historical Perspective: A Top-Down Approach 79
Figure 2.10. Trade Policies in Historical Perspective 80
Figure 2.11. Logistics and Transportation Costs of Trade in Historical Perspective 82
Figure 2.12. Global Value Chains in Historical Perspective 82
Figure 2.13. Contribution of Trade Policies and Global Value Chains to the Slowdown in Real
Goods Import Growth 85
Figure 2.14. Gravity Model: Global Value Chain Participation and Bilateral Sectoral Trade Growth 86
Figure 2.1.1. The Evolution of Trade across Industries in Major Economies 89
Figure 2.2.1. Potential Gains from Tackling Traditional TradeB arriers 93
Figure 2.2.2. Trade Policy Frontier Areas 93
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WORLD ECONOMIC OUTLOOK: SUBDUED DEMAND—SYMPTOMS AND REMEDIES
Figure 2.3.1. Gains from Eliminating Tariffs and Implementing the World Trade Organization
Trade Facilitation Agreement 95
Annex Figure 2.1.1. Nominal Import Growth across Categories of Services 97
Annex Figure 2.2.1. Real Import Growth 98
Annex Figure 2.5.1. Trade Finance Availability 108
Annex Figure 2.5.2. Contribution of Trade Policies and Global Value Chains to the Slowdown in
Real and Nominal Goods Import Growth 110
Figure 3.1. Oil Prices and Consumer Price Inflation 122
Figure 3.2. Share of Countries with Low Inflation 122
Figure 3.3. Medium-Term Inflation Expectations and Oil Prices 123
Figure 3.4. Effect of Disinflationary Shocks in Advanced Economies under Constrained Monetary
Policy and Unanchored Inflation Expectations 125
Figure 3.5. Consumer Price Inflation 127
Figure 3.6. Share of Consumer Price Inflation Variation Explained by First Common Factor 127
Figure 3.7. Core Consumer Price Inflation 128
Figure 3.8. Wage Inflation in Advanced Economies 129
Figure 3.9. Sectoral Producer Prices in Advanced Economies 129
Figure 3.10. Sectoral Consumer Prices in Advanced Economies 130
Figure 3.11. Estimated Phillips Curve Parameters 132
Figure 3.12. Contribution to Inflation Deviations from Targets: Advanced Economies 132
Figure 3.13. Contribution to Inflation Deviations from Targets: Emerging Market Economies 133
Figure 3.14. Correlation of Manufacturing Slack in China, Japan, and the United States with
Import Price Contribution to Inflation in Other Economies 134
Figure 3.15. Survey- and Market-Based Inflation Expectations 136
Figure 3.16. Sensitivity of Inflation Expectations to Inflation Surprises 137
Figure 3.17. Sensitivity of Inflation Expectations to Inflation Surprises and Monetary
Policy Frameworks 138
Figure 3.18. Sensitivity of Inflation Expectations to Inflation Surprises before and after Adoption
of Inflation Targeting 138
Figure 3.19. Sensitivity of Inflation Expectations to Inflation Surprises over Time 139
Figure 3.20. Change in Sensitivity of Inflation Expectations to Inflation Surprises 140
Figure 3.21. Average Sensitivity of Inflation Expectations to Inflation Surprises in Countries at the
Effective Lower Bound 140
Figure 3.22. Sensitivity of Longer-Term Inflation Expectations to Changes in Oil Prices 141
Figure 3.1.1. Producer Price and Consumer Price Inflation in China, Japan, and the United States 144
Figure 3.1.2. Industrial Slack in China, Japan, and the United States 145
Figure 3.1.3. Decomposition for Total Producer Price Inflation for China, Japan, and the
United States 145
Figure 3.2.1. Inflation Dynamics 147
Figure 3.2.2. Cyclical and Structural Indicators in Japan 148
Figure 3.2.3. Policy Indicators in Japan 149
Figure 3.3.1. Food Weights in Consumption and per Capita GDP 150
Figure 3.3.2. World Food Prices and Consumer Food Prices 151
Figure 3.3.3. Food Prices Relative to Nonfood Prices 151
Figure 3.3.4. Food Pass-Through Coefficients for Various Country Groups 152
Figure 3.3.5. Distribution of Food Pass-Through Coefficients 152
Figure 3.4.1. Commodity Prices and Producer Prices 154
Figure 3.4.2. Contribution to Cumulative Producer Price Inflation 155
Figure 3.5.1. Forecast as Envisaged at 2009:Q2: Loss-Minimization versus Linear Reaction Function 156
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CONTENTS
Annex Figure 3.2.1. Effect of Disinflationary Shocks on Core Inflation in Advanced Economies under
Constrained Monetary Policy 159
Annex Figure 3.2.2. Effect of Disinflationary Shocks on Core Inflation in Advanced Economies under
Constrained Monetary Policy and Unanchored Inflation Expectations 160
Annex Figure 3.3.1. Share of Consumer Price Inflation Variation Explained by Different Factors 161
Annex Figure 3.3.2. First Common Factor and Commodity Prices 161
Annex Figure 3.4.1. Contribution to Inflation Deviations from Targets Using Various Measures
of Inflation Expectations 163
Annex Figure 3.4.2. Contribution to Inflation Deviations from Targets Using Various Measures of
Cyclical Unemployment 163
Annex Figure 3.4.3. Correlation of Manufacturing Slack in China, Japan, and the United States
with Import Price Contribution to Inflation in Other Economies 164
Annex Figure 3.4.4. Correlation of China Manufacturing Slack with Import Price Contribution to
Inflation in Other Economies: Results from Panel Regressions 165
Annex Figure 3.5.1. Change in Inflation Expectations and Inflation Shocks 165
Annex Figure 3.5.2. Sensitivity of Inflation Expectations when Controlling for Slack:
Advanced Economies 166
Figure 4.1. China: GDP and Trade Growth 172
Figure 4.2. Number of International Migrants and Refugees 172
Figure 4.3. China: Global Clout and Rebalancing 173
Figure 4.4. Spillovers from China over Time 175
Figure 4.5. Impact on Exports of a 1 Percent Shock to China’s Demand after One Year 176
Figure 4.6. Decline in Average Export Growth Rate Attributed to China Demand,
2014:Q1–2015:Q3 176
Figure 4.7. China: Processing Trade 177
Figure 4.8. A Large Footprint in Commodity Markets 178
Figure 4.9. Cumulative One-Year Price Impact from a 1 Percent Shock to China’s
Industrial Production 179
Figure 4.10. China: Slowdown Scenario 180
Figure 4.11. Spillovers from China 180
Figure 4.12. Transmission of Spillovers through Financial Channels 181
Figure 4.13. China: Cyclical Slowdown Scenario 182
Figure 4.14. International Migrants and Refugees 184
Figure 4.15. Migration by Age and Skill 185
Figure 4.16. Determinants of Migration 186
Figure 4.17. Females: Low Education versus High Skilled, 2000 187
Figure 4.18. Labor Market Performance 187
Figure 4.19. Germany: Present Value of Expected Future Net Fiscal Contribution by Age Group 188
Figure 4.20. Estimated Impact of Migration in More Developed Economies, 2100 189
Figure 4.21. Migration: Positive Longer-Term Growth Effects 190
Figure 4.22. Contributions of Outward Migration to Population Growth 191
Figure 4.23. Migration of Population with Tertiary Education 192
Figure 4.24. Remittances and Diasporas 193
Figure 4.1.1. China’s Ties with Low-Income and Developing Countries 195
Figure 4.3.1. Migration in Sub-Saharan Africa 197
Figure 4.3.2. Age and Education of Migrants and Origin Country Population 198
Figure 4.3.3. Top Receivers of Remittances in Sub-Saharan Africa, 2013–15 198
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