World Economic Outlook, October 2016: Subdued Demand: Symptoms and Remedies

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Cover Contents Assumptions and Conventions Further Information and Data Preface Foreword Executive Summary Chapter 1. Global Prospects and Policies Recent Developments and Prospects The Forecast Risks Policy Priorities Scenario Box 1. Tariff Scenarios Box 1.1. World Growth Projections over the Medium Term Special Feature: Commodity Market Developments and Forecasts, with a Focus on Food Security and Markets in the World Economy References Chapter 2. Global Trade: What’s behind the Slowdown? The Implications of Trade for Productivity and Welfare: A Primer The Slowdown in Trade Growth: Key Patterns Understanding the Slowdown in Trade Growth Summary and Policy Implications Box 2.1. Is the Trade Slowdown Contributing to the Global Productivity Slowdown? New Evidence Box 2.2. The Role of Trade Policies in Reinvigorating Trade Box 2.3. Potential Gains from Jump-Starting Trade Liberalization Annex 2.1. Data Annex 2.2. Constructing Disaggregated Import Volume and Price Indices Annex 2.3. Analysis Using an Empirical Model of Import Demand Annex 2.4. Analysis Using a General Equilibrium Model Annex 2.5. Analysis at the Product Level Annex 2.6. Analysis Using Gravity Model of Trade References Chapter 3. Global Disinflation in an Era of Constrained Monetary Policy A Primer on the Costs of Disinflation, Persistently Low Inflation, and Deflation Inflation Dynamics: Patterns and Recent Drivers How Well Anchored Are Inflation Expectations? Summary and Policy Implications Box 3.1. Industrial Slack and Producer Price Inflation Box 3.2. The Japanese Experience with Deflation Box 3.3. How Much Do Global Prices Matter for Food Inflation? Box 3.4. The Impact of Commodity Prices on Producer Price Inflation Box 3.5. A Transparent Risk-Management Approach to Monetary Policy Annex 3.1. Sample and Data Annex 3.2. Model Simulations Annex 3.3. Principal Component Analysis Annex 3.4. Drivers of the Recent Decline in Inflation Annex 3.5. The Effect of Inflation Shocks on Inflation Expectations References Chapter 4. Spillovers from China’s Transition and from Migration Introduction The Challenges and Opportunities of Migration Box 4.1. China’s Ties with Low-Income and Developing Countries Box 4.2. Conflicts Driving Migration: Middle East and North Africa Box 4.3. Migration in Sub-Saharan Africa References Statistical Appendix Assumptions What’s New Data and Conventions Country Notes Classification of Countries General Features and Composition of Groups in the World Economic Outlook Classification Table A. Classification by World Economic Outlook Groups and Their Shares in Aggregate GDP, Exports of Goods and Services, and Population, 2015 Table B. Advanced Economies by Subgroup Table C. European Union Table D. Emerging Market and Developing Economies by Region and Main Source of Export Earnings Table E. Emerging Market and Developing Economies by Region, Net External Position, and Status as Heavily Indebted Poor Countries and Low-Income Developing Countries Table F. Economies with Exceptional Reporting Periods Table G. Key Data Documentation Box A1. Economic Policy Assumptions Underlying the Projections for Selected Economies List of Tables Output (Tables A1–A4) Inflation (Tables A5–A7) Financial Policies (Table A8) Foreign Trade (Table A9) Current Account Transactions (Tables A10–A12) Balance of Payments and External Financing (Table A13) Flow of Funds (Table A14) Medium-Term Baseline Scenario (Table A15) World Economic Outlook, Selected Topics IMF Executive Board Discussion of the Outlook, September 2016 Tables Table 1.1. Overview of the World Economic Outlook Projections Annex Table 1.1.1. Europe: Real GDP, Consumer Prices, Current Account Balance, and Unemployment Annex Table 1.1.2. Asia and Pacific: Real GDP, Consumer Prices, Current Account Balance, and Unemployment Annex Table 1.1.3. Western Hemisphere: Real GDP, Consumer Prices, Current Account Balance, and Unemployment Annex Table 1.1.4. Commonwealth of Independent States: Real GDP, Consumer Prices, Current Account Balance, and Unemployment Annex Table 1.1.5. Middle East, North Africa, Afghanistan, and Pakistan: Real GDP, Consumer Prices, Current Account Balance, and Unemployment Annex Table 1.1.6. Sub-Saharan Africa: Real GDP, Consumer Prices, Current Account Balance, and Unemployment Table 1.SF.1. Used-to-Available Land Suitable for Agriculture by Region, 2013 Table 1.SF.2. Food Exports Table 1.SF.3. Agricultural Yield Table 1.SF.4. Urban Population by Region Table 1.SF.5. Net Export of Food Table 1.SF.6. Share of Food and Beverages in Total Consumption, 2010 Table 1.SF.1.1. Impact of Land Governance and Food Security on Land Deals Table 2.1. Historical Association among Real Import Growth at the Product Level, Trade Policies, and Participation in Global Value Chains Table 2.1.1. Baseline Estimation Results Table 2.2.1. Trade Policy Challenges Vary across Countries Annex Table 2.1.1. Data Sources Annex Table 2.1.2. Sample of Economies Included in the Analytical Exercises Annex Table 2.3.1. Import Content of Aggregate Demand Components Annex Table 2.3.2. Empirical Model of Real Imports of Goods and Services Annex Table 2.3.3. Empirical Model of Real Imports of Goods Annex Table 2.3.4. Empirical Model of Real Imports of Services Annex Table 2.3.5. Residuals: Real Goods Import Growth Annex Table 2.3.6. Residuals: Real Services Import Growth Annex Table 2.3.7. Residuals: Real Goods Import Growth Controlling for Global Uncertainty, Global Financial Conditions, and Financial Stress Annex Table 2.3.8. Decomposing the Decline in Real Goods Import Growth: Full Sample Annex Table 2.3.9. Residuals: Real Goods Import Growth, Corrected for Potential Effect of Trade Policies on Aggregate Demand Annex Table 2.3.10. Decomposing the Decline in Real Goods Import Growth Controlling for Trade Policies Annex Table 2.5.1. Alternative Specifications for Real Imports in Product-Level Regressions Annex Table 2.5.2. Alternative Specifications for Nominal Imports in Product-Level Regressions Annex Table 2.6.1. Link between Global Value Chain Integration and Yearly Nominal Import Growth Using Gravity Model Estimated in Levels Annex Table 2.6.2. Link between Global Value Chain Integration and Yearly Nominal Import Growth Using Gravity Model Estimated in Growth Rates Table 3.3.1. Cross-Country Determinants of Pass-Through of Free-on-Board Food Prices to Food Consumer Price Inflation Annex Table 3.1.1. Sample of Advanced and Emerging Market Economies Annex Table 3.1.2. Data Sources Table A1. Summary of World Output Table A2. Advanced Economies: Real GDP and Total Domestic Demand Table A3. Advanced Economies: Components of Real GDP Table A4. Emerging Market and Developing Economies: Real GDP Table A5. Summary of Inflation Table A6. Advanced Economies: Consumer Prices Table A7. Emerging Market and Developing Economies: Consumer Prices Table A8. Major Advanced Economies: General Government Fiscal Balances and Debt Table A9. Summary of World Trade Volumes and Prices Table A10. Summary of Current Account Balances Table A11. Advanced Economies: Balance on Current Account Table A12. Emerging Market and Developing Economies: Balance on Current Account Table A13. Summary of Financial Account Balances Table A14. Summary of Net Lending and Borrowing Table A15. Summary of World Medium-Term Baseline Scenario Figures Figure 1.1. Global Activity Indicators Figure 1.2. Global Inflation Figure 1.3. Commodity and Oil Markets Figure 1.4. Real Effective Exchange Rate Changes, March 2016–September 2016 Figure 1.5. Emerging Market Economies: Capital Flows Figure 1.6. Advanced Economies: Monetary and Financial Market Conditions Figure 1.7. Advanced Economies: Credit, House Prices, and Balance Sheets Figure 1.8. Emerging Market Economies: Interest Rates Figure 1.9. Emerging Market Economies: Equity Markets and Credit Figure 1.10. Domestic Demand, Output Gap, Unemployment, and Labor Force Participation in Advanced Economies Figure 1.11. Demographics Figure 1.12. Advanced Economies: Growth, Investment, and Employment in Recent WEO Vintages Figure 1.13. Emerging Markets: Terms-of-Trade Windfall Gains and Losses and Real Exchange Rates Figure 1.14. Real per Capita Growth Rates and Convergence (1995–2020) Figure 1.15. Fiscal Indicators Figure 1.16. External Sector Figure 1.17. Creditors versus Debtors Figure 1.18. Current Account Gaps and Real Exchange Rates Figure 1.19. Risks to the Global Outlook Figure 1.20. Recession and Deflation Risks Scenario Figure 1. Unilateral and Bilateral Imposition of Tariffs on Imported Goods Scenario Figure 2. A Worldwide Increase in Protectionism Figure 1.1.1 World Growth Projections over the Medium Term Figure 1.SF.1. Commodity Market Developments Figure 1.SF.2. Producer Support Estimate Figure 1.SF.3. World Food Production and Consumption by Country, 2015 Figure 1.SF.4. Population and World Food Consumption Figure 1.SF.5. Maize Yield Figure 1.SF.6. Food Prices and Violent Events Figure 1.SF.7. Global Food Security Index, 2016 Figure 1.SF.1.1. Evolution of Deals over Time by Target Region Figure 2.1. World Real Trade and GDP Growth in Historical Perspective Figure 2.2. World Trade in Volumes, Values, and across Countries Figure 2.3. Trade Dynamics across Broad Country Groups Figure 2.4. Trade Dynamics across Types of Trade and Products Figure 2.5. Empirical Model: Actual and Predicted Evolution of Real Import Growth Figure 2.6. Empirical Model: Difference between Actual and Predicted Growth of Real Goods Imports Figure 2.7. Empirical Model: Decomposing the Slowdown in Real Goods Import Growth Figure 2.8. Structural Model: Actual and Model-Implied Evolution of Nominal Import-to-GDP Ratio Figure 2.9. Trade Costs in Historical Perspective: A Top-Down Approach Figure 2.10. Trade Policies in Historical Perspective Figure 2.11. Logistics and Transportation Costs of Trade in Historical Perspective Figure 2.12. Global Value Chains in Historical Perspective Figure 2.13. Contribution of Trade Policies and Global Value Chains to the Slowdown in Real Goods Import Growth Figure 2.14. Gravity Model: Global Value Chain Participation and Bilateral Sectoral Trade Growth Figure 2.1.1. The Evolution of Trade across Industries in Major Economies Figure 2.2.1. Potential Gains from Tackling Traditional Trade Barriers Figure 2.2.2. Trade Policy Frontier Areas Figure 2.3.1. Gains from Eliminating Tariffs and Implementing the World Trade Organization Trade Facilitation Agreement Annex Figure 2.1.1. Nominal Import Growth across Categories of Services Annex Figure 2.2.1. Real Import Growth Annex Figure 2.5.1. Trade Finance Availability Annex Figure 2.5.2. Contribution of Trade Policies and Global Value Chains to the Slowdown in Real and Nominal Goods Import Growth Figure 3.1. Oil Prices and Consumer Price Inflation Figure 3.2. Share of Countries with Low Inflation Figure 3.3. Medium-Term Inflation Expectations and Oil Prices Figure 3.4. Effect of Disinflationary Shocks in Advanced Economies under Constrained Monetary Policy and Unanchored Inflation Expectations Figure 3.5. Consumer Price Inflation Figure 3.6. Share of Consumer Price Inflation Variation Explained by First Common Factor Figure 3.7. Core Consumer Price Inflation Figure 3.8. Wage Inflation in Advanced Economies Figure 3.9. Sectoral Producer Prices in Advanced Economies Figure 3.10. Sectoral Consumer Prices in Advanced Economies Figure 3.11. Estimated Phillips Curve Parameters Figure 3.12. Contribution to Inflation Deviations from Targets: Advanced Economies Figure 3.13. Contribution to Inflation Deviations from Targets: Emerging Market Economies Figure 3.14. Correlation of Manufacturing Slack in China, Japan, and the United States with Import Price Contribution to Inflation in Other Economies Figure 3.15. Survey- and Market-Based Inflation Expectations Figure 3.16. Sensitivity of Inflation Expectations to Inflation Surprises Figure 3.17. Sensitivity of Inflation Expectations to Inflation Surprises and Monetary Policy Frameworks Figure 3.18. Sensitivity of Inflation Expectations to Inflation Surprises before and after Adoption of Inflation Targeting Figure 3.19. Sensitivity of Inflation Expectations to Inflation Surprises over Time Figure 3.20. Change in Sensitivity of Inflation Expectations to Inflation Surprises Figure 3.21. Average Sensitivity of Inflation Expectations to Inflation Surprises in Countries at the Effective Lower Bound Figure 3.22. Sensitivity of Longer-Term Inflation Expectations to Changes in Oil Prices Figure 3.1.1. Producer Price and Consumer Price Inflation in China, Japan, and the United States Figure 3.1.2. Industrial Slack in China, Japan, and the United States Figure 3.1.3. Decomposition for Total Producer Price Inflation for China, Japan, and the United States Figure 3.2.1. Inflation Dynamics Figure 3.2.2. Cyclical and Structural Indicators in Japan Figure 3.2.3. Policy Indicators in Japan Figure 3.3.1. Food Weights in Consumption and per Capita GDP Figure 3.3.2. World Food Prices and Consumer Food Prices Figure 3.3.3. Food Prices Relative to Nonfood Prices Figure 3.3.4. Food Pass-Through Coefficients for Various Country Groups Figure 3.3.5. Distribution of Food Pass-Through Coefficients Figure 3.4.1. Commodity Prices and Producer Prices Figure 3.4.2. Contribution to Cumulative Producer Price Inflation Figure 3.5.1. Forecast as Envisaged at 2009:Q2: Loss-Minimization versus Linear Reaction Function Annex Figure 3.2.1. Effect of Disinflationary Shocks on Core Inflation in Advanced Economies under Constrained Monetary Policy Annex Figure 3.2.2. Effect of Disinflationary Shocks on Core Inflation in Advanced Economies under Constrained Monetary Policy and Unanchored Inflation Expectations Annex Figure 3.3.1. Share of Consumer Price Inflation Variation Explained by Different Factors Annex Figure 3.3.2. First Common Factor and Commodity Prices Annex Figure 3.4.1. Contribution to Inflation Deviations from Targets Using Various Measures of Inflation Expectations Annex Figure 3.4.2. Contribution to Inflation Deviations from Targets Using Various Measures of Cyclical Unemployment 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 Annex Figure 3.4.4. Correlation of China Manufacturing Slack with Import Price Contribution to Inflation in Other Economies: Results from Panel Regressions Annex Figure 3.5.1. Change in Inflation Expectations and Inflation Shocks Annex Figure 3.5.2. Sensitivity of Inflation Expectations when Controlling for Slack: Advanced Economies Figure 4.1. China: GDP and Trade Growth Figure 4.2. Number of International Migrants and Refugees Figure 4.3. China: Global Clout and Rebalancing Figure 4.4. Spillovers from China over Time Figure 4.5. Impact on Exports of a 1 Percent Shock to China’s Demand after One Year Figure 4.6. Decline in Average Export Growth Rate Attributed to China Demand, 2014:Q1–2015:Q3 Figure 4.7. China: Processing Trade Figure 4.8. A Large Footprint in Commodity Markets Figure 4.9. Cumulative One-Year Price Impact from a 1 Percent Shock to China’s Industrial Production Figure 4.10. China: Slowdown Scenario Figure 4.11. Spillovers from China Figure 4.12. Transmission of Spillovers through Financial Channels Figure 4.13. China: Cyclical Slowdown Scenario Figure 4.14. International Migrants and Refugees Figure 4.15. Migration by Age and Skill Figure 4.16. Determinants of Migration Figure 4.17. Females: Low Education versus High Skilled, 2000 Figure 4.18. Labor Market Performance Figure 4.19. Germany: Present Value of Expected Future Net Fiscal Contribution by Age Group Figure 4.20. Estimated Impact of Migration in More Developed Economies, 2100 Figure 4.21. Migration: Positive Longer-Term Growth Effects Figure 4.22. Contributions of Outward Migration to Population Growth Figure 4.23. Migration of Population with Tertiary Education Figure 4.24. Remittances and Diasporas Figure 4.1.1. China’s Ties with Low-Income and Developing Countries Figure 4.3.1. Migration in Sub-Saharan Africa Figure 4.3.2. Age and Education of Migrants and Origin Country Population Figure 4.3.3. Top Receivers of Remittances in Sub-Saharan Africa, 2013–15