global economic prospects: broad-based upturn, but for how...
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2018/FDM1/005 Session 2.2
Global Economic Prospects: Broad-Based Upturn, But for How Long?
Purpose: Information
Submitted by: World Bank Group
Finance and Central Bank Deputies’ Meeting
Port Moresby, Papua New Guinea15-16 March 2018
Global Economic Prospects:Broad-Based Upturn, but for How Long?
APEC 2018: FCBDM
15 March 2018
Chandi Kularatne
2
Four Questions
1What is the state of the global economy?
2What are the major risks?
4What are the policy resolutions for the new year?
3What are potential growth prospects?
3
Global Growth:Rebounding
GDP growth(Percent)
Source: World Bank.
Note: Aggregate growth rates calculated using constant 2010 U.S. dollar GDP weights. Shaded area indicates forecasts. EMDEs refer to emerging market and developing economies.
2.52.6
2.8 2.8
2.4
3.0 3.1 3.0 2.9
1.11.3
2.0 2.2
1.6
2.3 2.2
1.91.7
4.9 4.9
4.3
3.6 3.7
4.34.5
4.7 4.7
0
2
4
6
2012 2013 2014 2015 2016 2017 2018 2019 2020
World Advanced economies EMDEs
4
Global growth:
Reflected in rising demand for commodities
Global oil consumption growth
Source: World Bank.
Commodity price indices
40
60
80
100
120
140
160
180
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
EnergyMetalsAgriculture
Index, 100=2010
-1
0
1
2
3
4
2010
2011
2012
2013
2014
2015
2016
2017
2018
OECDChinaOther Non-OECD
mb/d, year-on-year
5
Global growth:
Reflected in rising trade
New trade restrictions
Source: World Bank.
Global goods trade growth
-15
-10
-5
0
5
10
15
20
25
0
1
2
3
4
5
6
Jan-1
2
Jul-12
Jan-1
3
Jul-13
Jan-1
4
Jul-14
Jan-1
5
Jul-15
Jan-1
6
Jul-16
Jan-1
7
Jul-17
Jan-1
8
Goods trade (real)Goods trade (nominal, RHS)Semiconductors (nominal, RHS)
Percent, year-on-year Percent, year-on-year
0
200
400
600
800
1,000
1,200
Jan-1
2
Jul-12
Jan-1
3
Jul-13
Jan-1
4
Jul-14
Jan-1
5
Jul-15
Jan-1
6
Jul-16
Jan-1
7
Jul-17
Jan-1
8
G4 (China, EU, Japan, United States)Others
Flow of measures
6
Global and Regional Forecasts:Expansion Underway, but Pace Differs across Regions
GDP growth(Percent)
Source: World Bank.
Note: e and f refer to estimates and forecasts, respectively.
Change from
June 2017
2011-15 2016 2017e 2018f 2019f 2017 2018
World 2.8 2.4 3.0 3.1 3.0 0.3 0.2
Advanced economies 1.6 1.6 2.3 2.2 1.9 0.4 0.4
EMDEs 4.8 3.7 4.3 4.5 4.7 0.2 0.0
East Asia and Pacific 7.3 6.3 6.4 6.2 6.1 0.2 0.1
Europe and Central Asia 3.2 1.6 3.7 2.9 3.0 1.2 0.2
Latin America and the Caribbean 2.1 -1.5 0.9 2.0 2.6 0.1 -0.1
Middle East and North Africa 3.5 5.0 1.8 3.0 3.2 -0.3 0.1
South Asia 6.4 7.5 6.5 6.9 7.2 -0.3 -0.2
Sub-Saharan Africa 4.3 1.3 2.4 3.2 3.5 -0.2 0.0
7
Drivers of Growth:
Cyclical recovery – rebound in investment
Source: World Bank.
0.0
1.5
3.0
4.5
201
62
01
72
01
82
01
92
02
0
201
6
201
72
01
82
01
92
02
0
201
62
01
72
01
82
01
9
202
0
201
62
01
72
01
82
01
92
02
0
GDP Consumption Investment Exports
Percent June 2017
Advanced-economy GDP and demand
components growth
-2
0
2
4
6
201
3
201
4
201
5
201
6
201
7
201
8
201
3
201
4
201
5
201
6
201
7
201
8
201
3
201
4
201
5
201
6
201
7
201
8
EMDEs Commodity exporters Commodity importers ex. China
Net exports Consumption Investment
Percentage points
GDP and demand component growth
8
Output Gaps:
Steadily closing
Source: World Bank.
-4
-2
0
2
4
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
Advanced economiesEMDE commodity exportersEMDE commodity importers
Percent of potential GDP
-5
-4
-3
-2
-1
0
1
2
3
4
2000
2003
2006
2009
2012
2015
2018
WorldAdvanced economiesEMDEs
Percent of potential GDP
9
Trends in Inflation:
Inflation subdued but inflation expectations on the rise
Source: World Bank.
US and Euro Area inflation
expectations
Global output gap
4
6
8
10
0
2
4
6
19
99
20
02
20
05
20
08
20
11
20
14
20
17
Policy rate
CPI inflation
Unemployment (RHS)
Percent Percent
Policy response in US
10
Trends in Inflation:
EMDEs: Subdued for commodity exporters but rising for commodity
importers
Source: World Bank.
Inflation vs target range Output gaps and policy interest rate
0
20
40
60
80
100
20
11-1
5
20
16
20
17
20
11-1
5
20
16
20
17
Commodity exporters
Commodity importers
Below Within AbovePercent
-2
0
2
4
6
-2
0
2
4
6
20
15
20
16
2017
20
18
20
15
20
16
20
17
20
18
Commodityexporters
Commodityimporters
Policy rate hikes (RHS)Policy rate cuts (RHS)Output gap
Percent of potential GDP Number of actions
11
Four Questions
2What are the major risks?
12
Risks: More Balanced but Still Tilted to the Downside
• Elevated policy uncertainty
and Geopolitical risks
• Protectionism
• Financial stress
• History repeats itself?
Downside risks
Upside risk
• Stronger recovery in large
economies
0
50
100
150
200
Policyuncertainty
Geopoliticaluncertainty
Volatility(VIX)
Index, 100=2000-17 median
Blue bars denote 2017 averages. Orange horizontal line denotes 2000-
17 median. Geopolitical uncertainty is the Geopolitical Risk Index
computed by Caldara and Iacoviello (2017) and is based on the
frequency of words related to geopolitical tensions in international
newspapers. Volatility is measured by the VIX. All indexes are
normalized to equal 100 at their 2000-17 medians. The last observation
is December 2017 for geopolitical uncertainty and volatility (VIX), and
November 2017 for policy uncertainty.
Policy uncertainty and geopolitical risks
13
Four Questions
3What are potential growth prospects?
14
Potential Growth:Persistent and Broad-Based Weakness
Sources: Penn World Table, World Bank.
Note: Based on potential growth derived using production function approach. Left Panel. GDP-weighted averages for a sample of 30 advanced economies and 50 EMDEs. Right Panel. Share of economies among 30 advanced economies
and 50 EMDEs with potential growth in each period below the longer-term average (1998-2017) and these economies’ share in global GDP. The horizontal line indicates 50 percent.
Potential growth below 1998-2017 average(Percent)
Potential growth(Percent)
0
25
50
75
100
2003-07 2013-17 2003-07 2013-17 2003-07 2013-17
World Advanced
economies
EMDEs
Share of countries
Share of GDP
0
2
4
6
8
2003
-07
2008
-12
2013
-17
2003
-07
2008
-12
2013
-17
2003
-07
2008
-12
2013
-17
World Advanced
economies
EMDEs
1998-2017 average
15
Drivers of Potential Growth:Multiple and Pushing Down
Sources: Penn World Table, World Bank.
Note: GDP-weighted averages of production function-based potential growth estimates. Left Panel. TFP stands for total factor productivity. Sample includes 30 advanced economies and 50 EMDEs. Right Panel. Other factors include
declining population growth, convergence-related productivity growth, health and education policy changes, cohort effects, and a slowdown in investment growth relative to output growth. “Factor” refers to contributing factor in
percentage points to changes between 2003-07 and 2013-17.
Potential growth, 2003-17(Percent)
Drivers of potential growth(Percent)
0
2
4
6
8
2003
-07
2013
-17
2003
-07
2013
-17
2003
-07
2013
-17
World Advanced
economies
EMDEs
Labor
Capital
TFP
1998-2017 average growth
0
2
4
6
8
2003
-07
Factor 2013
-17
2003
-07
Factor 2013
-17
2003
-07
Factor 2013
-17
World Advanced
economies
EMDEs
Baseline
Demographic trends
Other factors
16
Productivity Growth:Declining in Many Countries
Sources: Penn World Table, World Bank.
Note: TFP stands for total factor productivity. Based on potential TFP growth. Shaded bars indicate forecasts. Left Panel. GDP-weighted average of TFP growth, based on 80 economies (including 50 EMDEs). Right Panel. Share of
economies among 80 economies (including 50 EMDEs) in which potential TFP growth in each period is lower than the longer-term average (1998-2017) and these economies’ share in global GDP. The horizontal line indicates 50 percent.
TFP growth below longer-term averageAverage TFP growth
0
1
2
3
200
3-0
7
201
3-1
7
201
8-2
7
200
3-0
7
201
3-1
7
201
8-2
7
200
3-0
7
201
3-1
7
201
8-2
7
World AE EMDE
1998-2007 average
Percent
0
20
40
60
80
100
199
8-2
002
200
3-0
7
201
3-1
7
201
8-2
7
199
8-2
002
200
3-0
7
201
3-1
7
201
8-2
7
199
8-2
002
200
3-0
7
201
3-1
7
201
8-2
7
World AEs EMDEs
Percent Share of countriesShare of GDP
17
Investment Growth:Accelerating but Still Weaker than the Long-Term Average in EMDEs
Sources: Penn World Table, World Bank.
Left Panel. Weighted average investment growth. Right Panel. Share of 139 economies in which investment growth in each period is below the longer-term average (1998-2017) and these economies’ share in global GDP. The horizontal
line indicates 50 percent.
Investment growth below longer-term average(Percent share)
Investment growth
0
4
8
12
16
201
0
201
2
201
4
201
6
201
8
201
0
201
2
201
4
201
6
201
8
201
0
201
2
201
4
201
6
201
8
World AEs EMDEs
2003-07 average1998-2017 average
Percent
0
20
40
60
80
100
199
8-2
002
2003
-07
201
3-1
7
199
8-2
002
200
3-0
7
201
3-1
7
199
8-2
002
200
3-0
7
2013
-17
World AEs EMDEs
Percent Share of countriesShare of GDP
18
Demographic Trends:From Tailwinds to Headwinds for Potential Growth
Sources: United Nations, World Bank.
Note: Shaded areas are forecasts. Left Panel. Population-weighted averages. The working-age population is defined as people aged 15-64 years. Right Panel. Simple averages of the shares over the respective periods. For a sample of 38
advanced economies and 148 EMDEs. The horizontal line indicates 50 percent.
Working-age population, by group(Percent of total population)
Share of global GDP(Percent share)
55
60
65
70
1980 1990 2000 2010 2025
World
Advanced economies
EMDEs 0
25
50
75
100
1998
-2002
2003
-07
2008
-12
2013
-17
2018
-27
Countries with rising working-age
population
19
Four Questions
4What are the policy resolutions for the new year?
20
• Reinforce cyclical policy frameworks and buffers
• Employ macroprudential tools to mitigate financial risks
How to mitigate cyclical risks?
Policy Responses:Measures to Boost Potential Growth, Mitigate Cyclical Risks and Address Global Challenges
• Facilitate global policy coordination
• Strengthen multilateral frameworks
How to address global challenges?
• Invest in physical and human capital
• Undertake governance, labor, and business reforms
How to boost potential growth?
21
Four Questions and Answers
1 What is the state of the global economy? A broad-based cyclical upturn underway as global
slack is closing
2 What are the major risks? Financial stress, policy uncertainty, geopolitical
tensions, protectionism, and weaker-than-expected potential growth
4 What are the policy resolutions for the new year? Implement a comprehensive set of
measures to boost potential growth, mitigate risks, and address global challenges
3 What are potential growth prospects? Weakness in potential growth is likely to
persist in the coming decade
