World Economic Outlook, October 2015: Adjusting to Lower Commodity Prices

231 Pages·2015·9 MB·English

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World Economic Outlook, October 2015 M
F 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
World Economic and Financial Sur veys
World Economic Outlook
October 2015
Adjusting to Lower Commodity Prices
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
©2015 International Monetary Fund

Cover and Design: Luisa Menjivar and Jorge Salazar
Composition: AGS
Cataloging-in-Publication Data
Joint Bank-Fund Library
World economic outlook (International Monetary Fund)
World economic outlook : a survey by the staff of the International Monetary Fund. —
Washington, DC : International Monetary Fund, 1980–
v. ; 28 cm. — (1981–1984: Occasional paper / International Monetary Fund, 0251-6365).
— (1986– : World economic and financial surveys, 0256-6877)
Semiannual. Some issues also have thematic titles.
Has occasional updates, 1984–
ISSN (print) 0256-6877
ISSN (online) 1564-5215
1. Economic development — Periodicals. 2. Economic forecasting — Periodicals.
3. Economic policy — Periodicals. 4. International economic relations — Periodicals.
I. International Monetary Fund. II. Series: Occasional paper (International Monetary Fund).
III. Series: World economic and financial surveys.
HC10.80
ISBN 978-1-51352-073-5 (paper)
978-1-51355-261-3 (PDF)
978-1-51351-539-7 (ePub)
978-1-51357-489-9 (Mobi)
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 21, 2015. 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. 2015. World Economic Outlook:
Adjusting to Lower Commodity Prices. Washington (October).
Publication orders may be placed online, by fax, or through the mail:
International Monetary Fund, Publication Services
P.O. Box 92780, Washington, DC 20090, U.S.A.
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CONTENTS
Assumptions and Conventions ix
Further Information and Data xi
Preface xii
Foreword xiii
Executive Summary xv
Chapter 1. Recent Developments and Prospects 1
Recent Developments and Prospects 1
Risks 20
Policies 24
Special Feature: Commodity Market Developments and Forecasts, with a Focus on Metals
in the World Economy 38
Annex 1.1. Regional Projections 31
Scenario Box 1. A Structural Slowing in Emerging Market Economies 25
Box 1.1. What Is the Effect of Recessions? 51
Box 1.2. Small Economies, Large Current Account Deficits 53
Box 1.3. Capital Flows and Financial Deepening in Developing Economies 59
Box 1.SF.1. The New Frontiers of Metal Extraction: The North-to-South Shift 47
References 62
Chapter 2. Where Are Commodity Exporters Headed? Output Growth in the Aftermath of the Commodity Boom 65
Introduction 65
Commodity Terms-of-Trade Windfalls: A Model-Based Illustration 68
Five Decades of Evidence: Commodity Terms-of-Trade Cycles and Output 73
Sectoral Reallocation during Commodity Booms: Case Studies 79
Conclusions 84
Annex 2.1. Data Sources, Index Construction, and Country Groupings 85
Annex 2.2. Methodology for Dating Commodity Price Cycles 88
Annex 2.3. Stylized Facts and Event Studies 88
Annex 2.4. Local Projection Method 91
Box 2.1. The Not-So-Sick Patient: Commodity Booms and the Dutch Disease Phenomenon 93
Box 2.2. Commodity Booms and Public Investment 95
Box 2.3. Getting By with a Little Help from a Boom: Do Commodity Windfalls
Speed Up Human Development? 97
Box 2.4. Do Commodity Exporters’ Economies Overheat during Commodity Booms? 100
References 102
Chapter 3. Exchange Rates and Trade Flows: Disconnected? 105
Introduction 105
From Exchange Rates to Trade: Historical Evidence 107
Disconnect or Stability? 116
International Monetary Fund | October 2015 iii
WORLD ECONOMIC OUTLOOK: ADJUSTING TO LOWER COMMODITY PRICES
Implications for the Outlook 121
Annex 3.1. Data 123
Annex 3.2. Estimation of Trade Elasticities 125
Annex 3.3. Derivation of the Marshall-Lerner Condition under Incomplete Pass-Through 126
Annex 3.4. Analysis of Large Exchange Rate Depreciation Episodes 127
Annex 3.5. Trade Elasticities over Time: Stability Tests 130
Box 3.1. The Relationship between Exchange Rates and Global-Value-Chain-Related Trade 132
Box 3.2. Measuring Real Effective Exchange Rates and Competitiveness:
The Role of Global Value Chains 135
Box 3.3. Japanese Exports: What’s the Holdup? 138
References 141
Statistical Appendix 143
Assumptions 143
What’s New 144
Data and Conventions 144
Classification of Countries 145
General Features and Composition of Groups in the World Economic Outlook Classification 145
Table A. Classification by World Economic Outlook Groups and Their Shares in Aggregate GDP,
Exports of Goods and Services, and Population, 2014 147
Table B. Advanced Economies by Subgroup 148
Table C. European Union 148
Table D. Emerging Market and Developing Economies by Region and Main Source of Export Earnings 149
Table E. Emerging Market and Developing Economies by Region, Net External Position, and
Status as Heavily Indebted Poor Countries and Low-Income Developing Countries 150
Table F. Economies with Exceptional Reporting Periods 152
Table G. Key Data Documentation 153
Box A1. Economic Policy Assumptions Underlying the Projections for Selected Economies 163
List of Tables 167
Output (Tables A1–A4) 168
Inflation (Tables A5–A7) 175
Financial Policies (Table A8) 180
Foreign Trade (Table A9) 181
Current Account Transactions (Tables A10–A12) 183
Balance of Payments and External Financing (Table A13) 190
Flow of Funds (Table A14) 194
Medium-Term Baseline Scenario (Table A15) 197
World Economic Outlook, Selected Topics 199
IMF Executive Board Discussion of the Outlook, September 2015 207
iv International Monetary Fund | October 2015
CONTENTS
Tables
Table 1.1. Overview of the World Economic Outlook Projections 2
Table 1.SF.1. World Crude Steel Production, 2014 41
Table 1.SF.2. Metal Trade Evolution 44
Table 1.SF.3. Net Metal Exports 45
Table 1.SF.1.1. Impact of Political Institutions on Mineral Discoveries 49
Table 1.2.1. Median Country Characteristics 53
Table 1.2.2. Cross-Sectional Current Account Models 53
Table 1.2.3. Profile of Countries with Large Current Account Deficits 57
Table 1.3.1. Gross Capital Inflows and Private Credit: Two-State Least-Squares Estimates 61
Annex Table 1.1.1. European Economies: Real GDP, Consumer Prices, Current Account
Balance, and Unemployment 32
Annex Table 1.1.2. Asian and Pacific Economies: Real GDP, Consumer Prices, Current
Account Balance, and Unemployment 33
Annex Table 1.1.3. Western Hemisphere Economies: Real GDP, Consumer Prices, Current
Account Balance, and Unemployment 34
Annex Table 1.1.4. Commonwealth of Independent States Economies: Real GDP, Consumer
Prices, Current Account Balance, and Unemployment 35
Annex Table 1.1.5. Middle East and North African Economies, Afghanistan, and Pakistan:
Real GDP, Consumer Prices, Current Account Balance, and Unemployment 36
Annex Table 1.1.6. Sub-Saharan African Economies: Real GDP, Consumer Prices,
Current Account Balance, and Unemployment 37
Table 2.1. Commodity Exports 81
Annex Table 2.1.1. Data Sources 86
Annex Table 2.1.2. Commodity-Exporting Emerging Market and Developing Economies 88
Annex Table 2.4.1. Sample of Commodity Exporters Used in the Local Projection Method
Estimations, 1960–2007 92
Annex Table 2.4.2. Country Coverage for Key Macroeconomic Variables in the Local Projection
Method Estimations 92
Table 3.1. Exchange Rate Pass-Through and Price Elasticities 110
Annex Table 3.1.1. Data Sources 124
Annex Table 3.1.2. Economies Included in Estimation of Trade Elasticities 124
Annex Table 3.1.3. Economies Covered in the Trade in Value Added Database 124
Annex Table 3.1.4. Economies Included in the Rolling Regressions 124
Annex Table 3.4.1. Large Exchange Rate Depreciations Not Associated with Banking Crises 127
Annex Table 3.4.2. Large Exchange Rate Depreciations Associated with Banking Crises 128
Annex Table 3.5.1. Trade Elasticities over Time: Stability Tests 131
Table 3.1.1. Responses of Global-Value-Chain-Related Trade to the Real Effective Exchange Rate 133
Table A1. Summary of World Output 168
Table A2. Advanced Economies: Real GDP and Total Domestic Demand 169
Table A3. Advanced Economies: Components of Real GDP 170
Table A4. Emerging Market and Developing Economies: Real GDP 172
Table A5. Summary of Inflation 175
Table A6. Advanced Economies: Consumer Prices 176
Table A7. Emerging Market and Developing Economies: Consumer Prices 177
Table A8. Major Advanced Economies: General Government Fiscal Balances and Debt 180
Table A9. Summary of World Trade Volumes and Prices 181
Table A10. Summary of Current Account Balances 183
Table A11. Advanced Economies: Balance on Current Account 186
International Monetary Fund | October 2015 v
WORLD ECONOMIC OUTLOOK: ADJUSTING TO LOWER COMMODITY PRICES
Table A12. Emerging Market and Developing Economies: Balance on Current Account 187
Table A13. Summary of Financial Account Balances 190
Table A14. Summary of Net Lending and Borrowing 194
Table A15. Summary of World Medium-Term Baseline Scenario 197
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 5
Figure 1.3. Commodity and Oil Markets 6
Figure 1.4. Financial Conditions in Advanced Economies 7
Figure 1.5. Advanced Economies: Monetary Conditions 8
Figure 1.6. Financial Conditions in Emerging Market Economies 9
Figure 1.7. Monetary Policies and Credit in Emerging Market Economies 9
Figure 1.8. Growth, Employment, and Labor Productivity in Advanced Economies 10
Figure 1.9. Fiscal Policies 12
Figure 1.10. GDP Growth Forecasts 14
Figure 1.11. External Sector 18
Figure 1.12. Capital Flows in Emerging Market Economies 18
Figure 1.13. Real Exchange Rates and Current Account Gaps 20
Figure 1.14. Risks to the Global Outlook 21
vi International Monetary Fund | October 2015
CONTENTS
Figure 1.15. Recession and Deflation Risks 22
Figure 1.1.1. Advanced Economies: Real GDP 51
Figure 1.1.2. Portugal: Evolution of Log Real GDP and Extrapolated Trends 51
Figure 1.2.1. Sources of External Financing, Current Account Deficit Countries 54
Figure 1.2.2. Composition of Net International Investment Position, Current Account Deficit Countries 56
Figure 1.3.1. Gross Capital Inflows and Private Credit in Selected Low-Income Developing Countries 60
Scenario Figure 1. World Economic Outlook Stagnation Scenario 26
Figure 1.SF.1. Commodity Market Developments 39
Figure 1.SF.2. Metal Price Indices 41
Figure 1.SF.3. Production and Consumption of Metals 42
Figure 1.SF.4 Evolution of Metal Market 43
Figure 1.SF.5 Development of Metal Market 43
Figure 1.SF.6. China: Composition of Metal Use and Growth Rates by Sector 45
Figure 1.SF.7. China: Metal Imports 46
Figure 1.SF.8. Growth Rates of Metal Price Index 46
Figure 1.SF.1.1. Metal Deposit Discoveries in Latin America and the Caribbean
and Sub-Saharan Africa 47
Figure 1.SF.1.2. Number of Metal Deposit Discoveries by Region and Decade 48
Figure 2.1. World Commodity Prices, 1960–2015 65
Figure 2.2. Average Growth in Commodity-Exporting versus Other Emerging Market
and Developing Economies, 1990–2015 66
Figure 2.3. Real Income, Output, and Domestic Demand, 2000–10 70
Figure 2.4. Model Simulations: Macroeconomic Effects of a Commodity Boom 71
Figure 2.5. Consumption Dynamics with Overly Optimistic Commodity Price Expectations 73
Figure 2.6. Sovereign Bond Yield Spreads and the Commodity Terms of Trade 73
Figure 2.7. Identification of Cycles in the Commodity Terms of Trade: Three Country Examples 75
Figure 2.8. Event Studies: Average Annual Growth Rates of Key Macroeconomic Variables
during Commodity Terms-of-Trade Upswings and Downswings 75
Figure 2.9. Variation in Average Output Growth between Upswings and Downswings:
The Role of Policy Frameworks and Financial Depth 77
Figure 2.10. Most Recent Upswing: Average Real Growth Rates during Upswings and Downswings 78
Figure 2.11. Macroeconomic Variables in the Aftermath of Commodity Terms-of-Trade Shocks 79
Figure 2.12. Output in the Aftermath of Commodity Terms-of-Trade Shocks: Role of
Income Level and Type of Community 80
Figure 2.13. Commodity Booms and Macroeconomic Indicators in Australia, Canada, and Chile 81
Figure 2.14. Growth of Capital and Labor by Sector: Boom versus Preboom Periods 82
Figure 2.15. Evolution of Activity in Nontradables Relative to Manufacturing, Commodity
Exporters Relative to Commodity Importers 83
Figure 2.16. Total Factor Productivity Growth Decompositions 84
Figure 2.17. Investment and Total Factor Productivity Growth 84
Annex Figure 2.2.1. Characteristics, Amplitudes, and Durations of Cycles 90
Annex Figure 2.3.1. Commodity Intensity, Policy Frameworks, and Financial Depth:
Commodity-Exporting Emerging Markets versus Low-Income Developing Countries 90
Annex Figure 2.3.2. Average Differences in Real Growth Rates between Upswings and Downswings 91
Figure 2.1.1. Manufacturing Export Performance 94
Figure 2.2.1. Long-Term Effects of Heightened Public Investment during Commodity Booms 95
Figure 2.3.1. Human Development Indicators 97
Figure 2.3.2. Comparing the Performance of Commodity and Noncommodity Exporters 98
Figure 2.3.3. Event Studies: Average Changes in Human Development Indicators during
Upswings and Downswings 98
International Monetary Fund | October 2015 vii
WORLD ECONOMIC OUTLOOK: ADJUSTING TO LOWER COMMODITY PRICES
Figure 2.4.1. Output Gaps in Six Commodity Exporters 100
Figure 2.4.2. Changes in the Output Gap and Terms of Trade 101
Figure 2.4.3. Real-Time and Multivariate-Filter Estimates of 2007 Output Gaps 101
Figure 3.1. Recent Exchange Rate Movements in Historical Perspective 105
Figure 3.2. Long-Term Exchange Rate Pass-Through and Price Elasticities 109
Figure 3.3. Effect of a 10 Percent Real Effective Depreciation on Real Net Exports 111
Figure 3.4. Export Dynamics Following Large Exchange Rate Depreciations 113
Figure 3.5. Export Dynamics Following Large Exchange Rate Depreciations:
The Role of Initial Economic Slack 114
Figure 3.6. Export Dynamics Following Large Exchange Rate Depreciations Associated
with Banking Crises 115
Figure 3.7. Evolution of Global Value Chains 117
Figure 3.8. Trade Elasticities over Time in Different Regions 120
Figure 3.9. Ratios of Exports and Imports to GDP, 1990–2014 121
Figure 3.10. Export Dynamics Following Large Exchange Rate Depreciations: Through and After 1997 122
Figure 3.11. Illustrative Effect of Real Effective Exchange Rate Movements since January 2013
on Real Net Exports 123
Annex Figure 3.2.1. Exchange Rate Pass-Through Estimates: Comparison with Bussière,
Delle Chiaie, and Peltonen 2014 126
Annex Figure 3.2.2. Income Elasticities of Imports and Exports 126
Annex Figure 3.4.1. Export Dynamics Following Large Exchange Rate Depreciations 129
Annex Figure 3.4.2. Export Dynamics Following Large Exchange Rate Depreciations Identified
Based on the Real Effective Exchange Rate 129
Annex Figure 3.4.3. Export Dynamics Following Laeven and Valencia 2013 Currency Crises 130
Annex Figure 3.4.4. Export Dynamics Following Large Exchange Rate Depreciations:
Role of Initial Output Gap 130
Figure 3.1.1. Decomposition of Gross Exports and Imports, 1995 versus 2011 132
Figure 3.1.2. Global Value Chain Trade Elasticities 134
Figure 3.2.1. Real Effective Exchange Rate Weights Assigned to China and Germany 136
Figure 3.2.2. Comparison of Conventional and Input-Output Real Effective Exchange Rates 136
Figure 3.3.1. Japan: Exchange Rate and Exports 138
Figure 3.3.2. Exchange Rate, Profits, and Pass-Through 139
Figure 3.3.3. Offshoring and Exports 140
viii International Monetary Fund | October 2015
Editor’s notes:
(October 1, 2015)
Note 44 on page 122 has been amended to correct the start date of the period covered from January 2012 to
January 2013.
(October 7, 2015)
The final sentence of the second full bullet on page 4 has been amended. The final clause has been changed
from “reflecting slower U.S. growth but also lackluster domestic demand” to read “reflecting slower U.S. growth
and a drop in oil production.”
The fifth sentence of the final bullet in the first column of page 15 has been amended. The final clause has
been changed from “with significant negative spillovers onto growth in large parts of the region given the size
and interconnectedness of the Brazilian economy” to read instead “with negative spillovers on other parts of
the region, especially Brazil’s trading partners in Mercosur.”
(October 13, 2015)
The last three sentences of the first full paragraph on page 21 have been replaced. The original text of these
sentences read as follows:
Simulations using the IMF’s Global Projection Model, which draw on past shocks over a longer horizon, sug-
gest a small decrease in the probability of a recession in the major advanced economies over a four-quarter
horizon relative to April 2015 (Figure 1.15, panel 1). However, the risk of a recession is now higher in the
Latin America 5 and the “rest of the world” group. This increase, which highlights the higher emerging market
economy risks noted earlier in the chapter, reflects lower starting values for growth, given weaker growth in the
second quarter of 2015 for these economies as a group and weaker near-term forecasts.
The amended text reads as follows:
Simulations using the IMF’s Global Projection Model, which draw on past shocks over a longer horizon, sug-
gest a small increase in the probability of a recession in the major advanced economies and in the Latin America
5 economies over a four-quarter horizon relative to April 2015 (Figure 1.15, panel 1). This increase primarily
reflects the lower starting values for growth for some of the economies and the somewhat lower growth forecast
under the baseline. With the latter, the probability of negative shocks leading to a technical recession is higher
compared to a situation in which the baseline forecast is stronger.