0. The Global Economy: Hopes and Fears
International Monetary Fund
May 11, 2017
Title page
The Global Economy: Hopes and Fears
Maurice Obstfeld
Economic Counsellor

1. Gaining momentum?
Global recovery gaining traction but medium-term outlook remains subdued
Long-awaited cyclical rebound in activity seems underway
Sentiment has been strong, as have underlying real indicators (e.g., trade, and commodity prices)
Medium-term outlook subdued for AEs and commodity exporters
Risks more two sided than before but still skewed to the downside
U.S. tax reform could be growth-friendly; stronger European growth momentum?
But: Risk of higher U.S. deficit, disruption of trade relationships
Tightening financial conditions might trigger spillovers to EMs
Geopolitical and electoral uncertainty could take a toll on market sentiment
Risk of spillovers from an abrupt slowdown in China over the medium term
Comprehensive, consistent, well-communicated policy mixes are vital
Policy challenge: Secure the recovery, avoid downside risk scenarios, improve inclusiveness
Continue structural and fiscal reform, balance sheet repair, improvements in the financial stability framework
Time to renew multilateral efforts to tackle common challenges 1

2. An update on the world economy

3. The global economy seems to be gathering strength
Global manufacturing PMI
(index; >50 = expansion; sa)
Consumer confidence
(2010=100)
Updated 5/2/2017
\\Data1\res\Bloomberg\PPT\2017\WEMD\4APR\DATA\PMI_v1.xlsx
\\Data1\res\Bloomberg\PPT\2017\WEMD\4APR\DATA\PMI.xlsx
\\data1\res\Bloomberg\PPT\2017\WEMD\1JAN\Data\GDS_consumer_confidence.xlsx
PMI Adv: Australia Canada Czech Republic Denmark Euro area Israel Japan Korea New Zealand Singapore Switzerland Taiwan Province of China United Kingdom United States
PMI Emg: Brazil China Hungary India Indonesia Malaysia Mexico Poland Russia South Africa Turkey
Consumer confidence Adv: Australia Czech Republic Denmark Euro area Hong Kong SAR Israel Japan Korea Norway Sweden Switzerland Taiwan Province of China United Kingdom United States
Consumer confidence Emg: Argentina Brazil China Colombia Hungary Indonesia Latvia Philippines Poland Russia South Africa Thailand Turkey Ukraine
Source: IMF, Global Data Source. 2

4. Uptick in trade and higher commodity prices
World merchandise trade
(year-on-year percent change)
Commodity price indices
(Jan. 1, 2010 = 100)
Updated 5/2/2017
\\data1\res\Bloomberg\PPT\2017\WEMD\4APR\DATA\G20_Blog.xlsx (container throughput index)
\\Data1\res\Bloomberg\PPT\2017\WEMD\4APR\DATA\CPB-World-Trade-Monitor-December-2016.xlsx (2001 – 2016)
[Data] sheet
\\data1\res\Bloomberg\PPT\2017\WEMD\4APR\DATA\Commodity_Prices.xlsx
OLD NOT USED
RHS: \\DATA1\RES\Bloomberg\PPT\2016\WEMD\4APR\DATA\WEOFig1_13.xlsx
[Charts_inv_imp] sheet
(received from Gavin on Mar 18, 2016)
Sources: IMF, World Economic Outlook; and CPB Netherlands Bureau for Economic Policy Analysis, World Trade Monitor.
1/ Sum of world exports and imports, measured in U.S. dollars.
2/ APSP (Average Petroleum Spot Price): average of U.K. Brent, Dubai, and West Texas Intermediate, equally weighted. 3

5. Risks to prices have receded
Inflation rates in advanced and emerging economies 1/
(percent; share of the countries in each sample)
Headline CPI inflation
Core CPI inflation
PPI inflation
\\data1\res\Bloomberg\PPT\2016\WEMD\1JAN\Data\PCPI_simplified_v3.xlsx (M1)
\\data1\res\Bloomberg\PPT\2016\WEMD\1JAN\Data\PCPI_simplified_v3_quarterly.xlsx updated 4/20/2017
Advanced
Emerging
Sources: IMF, Global Data Source; and IMF staff calculations.
1/ A total of up to 48 countries are included in the analysis, 32 advanced and 16 emerging economies. 4

6. Low market volatility and EM sovereign spreads
Equity and bond volatility
(Jan 2013 = 100)
EM sovereign spreads
(bps)
Selected Euro area sovereign spreads against Germany
(bps; 10yr)
5/2/2017
\\data1\res\Bloomberg\PPT\2017\WEMD\4APR\DATA\VIX.xlsx
Chicago Board Options Exchange SPX Volatility Index, CBOE Emerging Markets ETF Volatility Index, Merrill Lynch Option Volatility Estimate MOVE Index
\\DATA1\RES\Bloomberg\PPT\2017\WEMD\1JAN\Data\EM_EMBIG.xlsx
\\data1\res\Bloomberg\PPT\2017\WEMD\4APR\DATA\Spread_Bloomberg_v3.xlsx
\\data1\res\Bloomberg\PPT\2017\WEMD\4APR\DATA\economic_policy_uncertainty.xlsx
we construct a scaled frequency count of articles about policy-related economic uncertainty in the South China Morning Post (SCMP), Hong Kong's leading English-language newspaper
Brexit vote
U.S. election
Brexit vote
U.S. election
Sources: Bloomberg, L.P.; and IMF staff calculations. 5

7. WEO projections

8. Growth projections: Advanced economies
(percent change from a year earlier)
World
Advanced
Economies
U.S.
U.K.
Japan
Euro Area
Germany
Canada
Other Advanced Asia
2016
3.1
1.7
1.6
1.8
1.0
1.4
2.3
2017
3.5
2.0
1.2
1.9
2.5
Revision from Jan. 2017
0.1
0.0
0.5
0.4
0.2
2018
3.6
1.5
0.6
2.6
\\Data1\res\Bloomberg\PPT\2017\WEMD\4APR\data\WEO_Growth_Projection_Tables_Apr2017.xlsx (updated 4/12/3017)
Note: Japan's historical national accounts figures reflect a comprehensive revision by the national authorities, released in December 2016.
The main revisions are the switch from the System National Accounts 1993 to the System of National Accounts 2008 and the updating of the benchmark year from 2005 to 2011.
Other Advanced Asia: Australia ,Hong Kong, Korea, New Zealand, Singapore, Taiwan
Sources: IMF, World Economic Outlook April 2017; and IMF, World Economic Outlook January 2017 Update. 6

9. Expected U.S. GDP growth Output gap and unemployment rate
(percent)
Distribution of real GDP Consensus Forecasts
(x-axis: GDP growth rate; y-axis: share of forecasters in the sample)
Updated 4/19/07
\\data1\res\Bloomberg\PPT\2017\WEMD\4APR\DATA\CFMAR2017_v1.xlsx old \\data1\res\Bloomberg\PPT\2017\WEMD\4APR\DATA\CFFeb2017_v1.xlsx
\\DATA1\RES\Bloomberg\PPT\2017\WEMD\1JAN\Data\US_LUR_OutputGap.xlsx
\\DATA1\RES\Bloomberg\PPT\2017\WEMD\1JAN\Data\inflation_exp.xlsx
Sources: Haver Analytics; IMF, World Economic Outlook; Information Notice System; Consensus Economics; and IMF staff calculations.

10. Growth projections: Emerging markets and LIDCs
(percent change from a year earlier)
World
Emerging Market and Developing Economies
China
India
Brazil
Russia
Commodity Exporting Economies
Sub-Saharan Africa
2016
3.1
4.1
6.7
6.8
-3.6
-0.2
1.0
1.4
2017
3.5
4.5
6.6
7.2
0.2
2.2
2.6
Revision from Jan. 2017
0.1
0.0
0.3
2018
3.6
4.8
6.2
7.7
1.7
2.9
\\Data1\res\Bloomberg\PPT\2017\WEMD\4APR\WEO_Growth_Projection_Tables_Apr2017.xlsx (Updated 4/3/2017)
EMDE = AFG ALB DZA AGO ATG ARG ARM AZE BHS BHR BGD BRB BLR BLZ BEN BTN BOL BIH BWA BRA BRN BGR BFA BDI KHM CMR CPV CAF TCD CHL CHN COL COM COD COG CRI CIV HRV DJI DMA DOM ECU EGY SLV GNQ ERI ETH FJI GAB GMB GEO GHA GRD GTM GIN GNB GUY HTI HND HUN IND IDN IRN IRQ JAM JOR KAZ KEN KIR KOS KWT KGZ LAO LBN LSO LBR LBY MKD MDG MWI MYS MDV MLI MHL MRT MUS MEX FSM MDA MNG MNE MAR MOZ MMR NAM NPL NIC NER NGA OMN PAK PLW PAN PNG PRY PER PHL POL QAT ROM RUS RWA WSM STP SAU SEN SRB SYC SLE SLB ZAF SSD LKA KNA LCA VCT SDN SUR SWZ SYR TJK TZA THA TLS TGO TON TTO TUN TUR TKM TUV UGA UKR ARE URY UZB VUT VEN VNM YEM ZMB ZWE
COMEX = DZA AGO ARG AZE BHR BOL BRA BRN CMR TCD CHL COL COG CRI CIV ECU GAB GHA GTM GIN GUY HND IDN IRN KAZ KWT LBY MYS MRT MNG MOZ MMR NIC NER NGA OMN PNG PRY PER QAT RUS SAU SDN SYR TJK TTO TKM ARE URY VEN YEM ZMB
Export Earnings: Fuel = DZA AGO AZE BHR BOL BRN TCD COL COG ECU GNQ GAB IRN IRQ KAZ KWT LBY NGA OMN QAT RUS SAU SSD TLS TTO TKM ARE VEN YEM
SSA = AGO BEN BWA BFA BDI CMR CPV CAF TCD COM COD COG CIV GNQ ERI ETH GAB GMB GHA GIN GNB KEN LSO LBR MDG MWI MLI MUS MOZ NAM NER NGA RWA STP SEN SYC SLE ZAF SSD SWZ TZA TGO UGA ZMB ZWE
Sources: IMF, World Economic Outlook April 2017; and IMF, World Economic Outlook January 2017 Update. 8

11. Downside risks: Further U.S. dollar appreciation

12. Crises in EMs and U.S. dollar appreciation
U.S. REER and crises in emerging markets 1/
(REER index, 1980=100; number of crises)
95Q3-02Q1
\\DATA1\RES\Bloomberg\PPT\2017\WEMD\1JAN\Data\SYSTEMIC BANKING CRISES DATABASE.xlsx (updated 4/20/2017)
Apprec.
12%
Sources: Haver Analytics; IMF International Financial Statistics; Federal Reserve Board of Governors; and IMF staff calculations.
1/ The number of crises in EMs per year is based on Laeven and Valencia (2013)’s methodology data are not available. 9

13. Global imbalances could expand
Current account balance
(percent of world GDP)
\\Data1\res\Bloomberg\PPT\2017\WEMD\4APR\DATA\WEO_Global_Imbalances_v1.xlsx
\\data1\RES\Bloomberg\PPT\G20MAP\2012\5MAY\charts_tables\G20_MAP_Charts_CA_S_I.xlsx
Source: IMF staff estimates.
Note: Oil exporters = Algeria, Angola, Azerbaijan, Bahrain, Bolivia, Brunei Darussalam, Chad, Republic of Congo, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kazakhstan, Kuwait, Libya, Nigeria, Norway, Oman, Qatar, Russia, Saudi Arabia, South Sudan, Timor-Leste, Trinidad and Tobago, Turkmenistan, United Arab Emirates, Venezuela, Yemen; Other Asia = Hong Kong SAR, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan Province of China, Thailand. European economies (excluding Germany and Norway) are sorted into surplus or deficit each year by the signs (positive or negative, respectively) of their current account balances. 10

14. EMDEs, capital flows, and convergence

15. “Uphill flow” has receded – but for how long?
Current account balance by country groups 1/
(percent of World GDP)
EMDEs: Net capital flow composition and reserve accumulation
(percent of World GDP)
Discrepancy
\\data1\res\Bloomberg\PPT\2017\WEMD\4APR\DATA\capitalflow_workbook_v3.xlsx E 2/
Sources: Boz, Cubeddu, and Obstfeld (2017); IMF Financial Flows Analytics; IMF World Economic Outlook; and IMF staff calculations.
1/ The chart is based on an unbalanced panel comprising 129 in 1980 and 140 countries in data are WEO estimates.
2/ 2016 data reflect a sub-sample of 62 EMDEs with available quarterly observations up to 2016Q3. 11

16. The role of saving and investment
Change from (pre-crisis) Change from (post-crisis)
\\data1\res\Bloomberg\PPT\2017\WEMD\4APR\DATA\capitalflow_workbook_v1.xlsx
Percent of world GDP
AEs EMDEs AEs EMDEs
Sources: Boz, Cubeddu, and Obstfeld (2017); and IMF World Economic Outlook. Note: 2016 data are projections from the IMF World Economic Outlook. Change in saving includes a small discrepancy so as to ensure that the current account matches the difference between saving and investment. 12

17. Medium term considerations: Productivity growth

18. Productivity growth slowdown: Trends
TFP growth in ICT/non-ICT-intensive sectors in advanced economies 1/
(percent; 6-year moving average)
Trend TFP growth
(percent; weighted using purchasing power parity GDP)
LHS: \\DATA1\RES\Bloomberg\PPT\2017\WEMD\1JAN\Data\Productivity_Charts_TFP_Stylized_Facts.xlsx
RHS: \\DATA1\RES\Bloomberg\PPT\2017\WEMD\1JAN\Presentation\WEMD_Jan2017_Productivity.pptx (slides 7 and 8)
(updated 1/12/2017)
Sources: Furceri, Çelik, and Schnucker (2016); Dabla-Norris and others (2015); EU KLEMS and WORLD KLEMS data; and IMF staff estimations.
Note: ICT = information and communications technologies, TFP = total factor productivity. Top and bottom 5th percentiles of the distribution across
country-industries are excluded as outlier treatment for Panel A. Total factor productivity frontier in Panel B is defined as the average of the three
highest total factor productivity levels across countries, for each industry and year. See further details in Appendix IV.
2007
Sources: “Gone with the Headwinds: Global Productivity,” SDN/17/04; Penn World Table 9.0; IMF, World Economic Outlook; Furceri, Çelik, and Schnucker (2016); Dabla-Norris and others (2015); EU KLEMS and WORLD KLEMS data; and IMF staff calculations.
1/ ICT = information and communications technologies, TFP = total factor productivity. Top and bottom 5th percentiles of the distribution across country-industries are excluded as outlier treatment. 13

19. Productivity growth slowdown: Headwinds
Contribution of human capital accumulation to annual labor productivity growth
(percent; simple avg. for both groups)
AEs: Observed TFP for low and high rollover risk firms 1/
(index; 2005=100)
\\DATA1\RES\Bloomberg\PPT\2017\WEMD\1JAN\Presentation\WEMD_Jan2017_Productivity.pptx (slides 7 and 8)
(updated 1/12/2017)
Sources: “Gone with the Headwinds: Global Productivity,” SDN/17/04; Duval, Hong, and Timmer (forthcoming); Furceri, Çelik, and Schnucker (2016); Dabla-Norris and others (2015); EU KLEMS and WORLD KLEMS data; and IMF staff calculations.
1/ High/low rollover risk correspond to the 75th and 25th percentiles of the cross-country cross-firm distribution of rollover risk in the sample. Rollover risk is measured as debt maturing within a year in 2007, as a percent of total sales. 14

20. Growth, openness, and distribution

21. Why is labor receiving a declining share of GDP?
Contributions to aggregate labor share changes,
(deviation from regression constant) 1/
Evolution of the labor share of income, by skill – Advanced economies
(percent)
\\data1\res\Bloomberg\PPT\2017\WEMD\4APR\DATA\labor chapter_fig3 (Version 2).xlsb
\\DATA1\RES\Bloomberg\PPT\2017\WEMD\4APR\DATA\Weo_Labor_share_trends_Fig_3.5.xlsx (P:\WRK\CHT\w2017weo\Ch3\Figures\4_PUB\_CSV) checked. Same data
\\DATA1\WEO\WRK\CHT\w2017weo\Ch3\Figures\Figures for Mgmt..xlsx (Figure 3_11)
\\data1\res\Bloomberg\PPT\2017\WEMD\4APR\DATA\labor chapter_fig3.11_v1.xlsx
ISIC=International Standard Industrial Classification of all Economic Activities Revision 4.
Sources: World Input-Output Database; CEIC database; OECD database; IMF, World Economic Outlook; and IMF staff calculations.
1/ Derived contributions are scaled to show total changes over 25 years. 15

22. Growth has done more to lift lower incomes in EMs
Aggregate average per capita income by income group
(2011 PPP; in thousands of U.S. dollars; aggregation based on population weights)
Advanced countries 1/ Emerging countries 1/
60%
70%
67%
\\data1\res\Bloomberg\PPT\2017\WEMD\4APR\DATA\RRinc11_weightedmean_2013.xlsx 4% 3%
-3%
Sources: World Panel Income Distribution Dataset (Lakner-Milanovic-WPID); and IMF staff calculations.
1/ Based on a sample of 14 advanced countries and 16 emerging markets, respectively. 16

23. Policy conclusions

24. Policy recommendations
Comprehensive, consistent, well-communicated policy mixes are vital to sustain the momentum
With diverse cyclical positions, policy priorities differ across countries. There is a general need for fiscal policy to support inclusive growth and ensure fiscal sustainability, while adequately managing risks:
AEs with output gaps: Accommodative monetary and fiscal policy as needed and feasible
AEs without output gaps: Data-dependent monetary normalization; fiscal policy should be growth-friendly, and switch to consolidation where necessary; where appropriate focus on reducing CA imbalances
EMDEs: No one size fits all (see WEO details)
Structural reforms for all—well-sequenced, and paired with supportive macro policies as needed
Productive infrastructure
Investment in education
Fiscal reforms that encourage labor-market participation (especially for women), investment, R&D
Policies that promote efficient use of human resources can raise inclusion while also helping productivity
Reinvigorate multilateral efforts
Refocus trade discussion toward net integration benefits and policies to mitigate side effects
Address cooperatively other public-good problems 17