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Main changes in recent months • Advanced economy (AE) performance slightly weaker than expected in April amid weak

investment; monetary policy set to remain accommodative for longer

• Emerging market (EM) growth performance improving; financial market sentiment toward EMs has become more upbeat; commodity prices firmed and capital flows have picked up

• But it’s a heterogeneous world:

o AEs continue to differ significantly in extent of post-crisis repair

o Some of the emerging market and developing economies (EMDE) face challenging conditions; others are expanding very fast

• Growing political discontent and the rise of inward-looking policy platforms is a concern

1

0

20

40

60

80

100

120

140

06 07 08 09 10 11 12 13 14 15 16

APSP crude oil (USD/barrel;rhs) 1/

Feb. 16

Some recovery in commodity prices, especially for oil

Sources: IMF, World Economic Outlook; IMF, Primary Commodity Price System; and International Energy Agency (IEA). 1 Latest available data are for September 15, 2016. 2 APSP (Average Petroleum Spot Price): average of U.K. Brent, Dubai, and West Texas Intermediate, equally weighted.

75

80

85

90

95

100

105

110

06 07 08 09 10 11 12 13 14 15 16

United States OECD exc.United States

Oil inventories1 (days of forward demand)

Commodity price indices1

(Jan. 1, 2014 = 100)

2

20

30

40

50

60

70

80

90

100

110

120

Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16

Metals Food Crude Oil (APSP) 2

20

40

60

80

100

120

140

160

11 12 13 14 15 16

S&P 500

Euro Stoxx 50

Nikkei 225

MSCI emerging market

Financial market volatility1

(index; Jan. 1, 2007=100)

Equity prices1

(index; Jan. 1, 2007=100)

0

50

100

150

200

250

300

350

400

11 12 13 14 15 16

VIX

G7 FX volatility

Emerging market FXvolatility

Sources: Bloomberg, L.P.; Haver Analytics; and IMF staff calculations. 1Latest available data are for September 21, 2016.

Calmer financial markets

-2

0

2

4

6

8

10

11 12 13 14 15 16

U.S.

Euro area

Japan

EMBIG sovereign

Government bond yields1

(percent)

3

Effective Exchange Rate Changes since March 2015

4

-10

-5

0

5

10

15

20

Aug. 2016 relative to Jun. 22, 2016

Jun. 22, 2016 relative to Mar. 2016

Latest relative to Mar. 2016

-12

-9

-6

-3

0

3

6

9

12Aug. 2016 relative to Jun. 22, 2016

Jun. 22, 2016 relative to Mar. 2016

Latest relative to Mar. 2016

Source: IMF staff estimates.

Advanced Economies (Percent)

Emerging Market Economies (Percent)

… capital flows to EMDEs have picked up

Net Capital Inflows to Emerging Market Economies

(2013Q1-2016:Q2, billions of U.S. dollars)

5

-250

-200

-150

-100

-50

0

50

100

150

200

250

Net derivatives Net Other Investment

Net Portf. Debt Net Portf. Equity

Net FDI Reserves

Net inflows excl. reserves

Major global trends

Advanced economies

• Varying degrees of post-crisis repair

• Low inflation

• Demographic trends

• Weak productivity growth

• Low interest rates

• Weak trade

Emerging market and developing economies

• Rebalancing in China

• Adjustment to lower commodity prices

• Demographic trends

• Slowing convergence

• Weak trade

6

World

Advanced

Economies

U.S. U.K. Japan Euro Area Germany Canada

Other

Advanced

Asia

2015 3.2 2.1 2.6 2.2 0.5 2.0 1.5 1.1 2.1

2016 3.1 1.6 1.6 1.8 0.5 1.7 1.7 1.2 2.2

Revision

from Jul.

2016 0.0 -0.2 -0.6 0.1 0.2 0.1 0.1 -0.2 0.0

2017 3.4 1.8 2.2 1.1 0.6 1.5 1.4 1.9 2.5

Revision

from Jul.

2016 0.0 0.0 -0.3 -0.2 0.5 0.1 0.2 -0.2 -0.1

Growth projections: Advanced economies (percent change from a year earlier)

Sources: IMF, World Economic Outlook July 2016 Update; and IMF, World Economic Outlook October 2016. 7

World

Emerging

Market and

Developing

Economies China India Brazil Russia

Commodity

Exporting

Economies

Low Income

Developing

Countries

2015 3.2 4.0 6.9 7.6 -3.8 -3.7 0.8 4.6

2016 3.1 4.2 6.6 7.6 -3.3 -0.8 0.9 3.7

Revision from

Jul. 2016 0.0 0.1 0.0 0.2 0.0 0.4 -0.6 -0.1

2017 3.4 4.6 6.2 7.6 0.5 1.1 2.5 4.9

Revision from

Jul. 2016 0.0 0.0 0.0 0.2 0.0 0.1 -0.3 -0.2

Growth projections: Emerging markets and LIDCs (percent change from a year earlier)

Sources: IMF, World Economic Outlook July 2016 Update; and IMF, World Economic Outlook October 2016. 8

Baseline assumptions for the medium term

• A gradual return to growth in stressed economies, and in commodity exporters, albeit to modest rates

• A gradual slowdown and rebalancing of China’s economy, with medium-term growth rates that (at about 6 percent) remain well above the average for other EMDEs

• Resilient growth in other EMDEs (e.g. India)

9

0

1

2

3

4

5

6

7

8

9

10

2000 04 08 12 16 21

October '08 October '11 October '16

-4

-3

-2

-1

0

1

2

3

4

5

2000 04 08 12 16 21

October '08 October '11 October '16

AEs: Real GDP Growth (percent; various WEO forecast vintages)

Sources: IMF Staff estimates.

Growth projections beyond 2017

10

EMs: Real GDP Growth (percent; various WEO forecast vintages)

Downside risks continue to dominate the outlook

• Protectionism. Inward-looking policy approaches could harm trade and integration, leading firms to defer investment and hiring decisions.

• Stagnation in AEs. An extended period of weak demand could lead to persistently lower growth and inflation in advanced economies. An unmooring of inflation expectations could raise real interest rates and weaken demand further.

• China’s transition. China’s rebalancing path could prove bumpier than expected. With continued reliance on credit and slow restructuring, the risk of an eventual disruptive adjustment is growing.

• Financial threats to EMs. Underlying vulnerabilities in some large EMs (high corporate debt, declining profitability, and weak balance sheets) together with the need to build policy buffers still leave EMDEs exposed to sudden shifts in investor confidence.

• Non-economic shocks. A range of factors could hurt sentiment, from the drought in East and Southern Africa; civil was and domestic strife in the Middle East and Africa; the refugee situation in neighboring countries and in Europe; terrorism; and the spread of the Zika virus.

• Upside potential. Comprehensive policy action to repair balance sheets, enact structural reforms, and support near-term demand would foster a stronger path for global growth.

11

0

5

10

15

20

-10 -5 0 5 10 15 20

0

5

10

15

20

-10 -5 0 5 10 15 20

A widespread slowdown in global trade

12 Source: United Nations Comtrade; and IMF staff calculations.

Difference in Average Real Import Growth between 2003-07 and 2012-15 (Percentage points)

Distribution of Average Real Import Growth Across Different Goods (Percent)

Less than –12 –4 to 0

–12 to –7 More than 0

–7 to –4 No data

2003-07

2012-15

ADVANCED ECONOMY TRENDS

13

Uneven progress with recovery

14

-50

-40

-30

-20

-10

0

10

20

30

40

Greece, Italy,Portugal, Spain

Japan Asian AEs Other AEs

Investment Domestic Demand GDP

Deviation from Precrisis Trend and Level (Colored bars show percentage difference from precrisis trend; black squares show percentage differences from 2007 levels)


Output still below potential

15

Output Gap (Percent of Potential Output)


-12

-10

-8

-6

-4

-2

0

2

Maximum output gap (2008-16) 2016

Labor market scars still visible

16

Unemployment Rate (Percent of the Labor Force)

Sources: Organisation for Economic Co-operation and Development labor statistics; and IMF staff estimates.

0

5

10

15

20

25

30

Peak unemployment rate (2008-16)

2007

2016

AE workforce to shrink over the next 5 years

17

Population Growth (Percent)

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

"Old" AEs "New" AEs EMsexcluding

China

China LIDCs

1995-2004 2005-2015 2016-2021

Sources: United Nations Population and Development database; and IMF staff estimates.

Working-age population defined as the population with age between 15 and 64.

Working Age Population Growth (Percent)

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

"Old" AEs "New" AEs EMsexcluding

China

China LIDCs

1995–2004 2005–15 2016–21

Weaker growth, stronger employment: downgraded forecasts of labor productivity…

18

Employment, Fixed Investment, GDP (Percent; average growth rate for 2014-16)

Potential Growth (Percent; average growth rates)

0

1

2

3

4

5

Oct. 2014 Oct. 2015 Oct. 2016

GDP

Investment

Employment

Source: IMF staff calculations.

0.0

0.5

1.0

1.5

2.0

2.5

Oct. 2014 Oct. 2015 Oct. 2016

2010-15 2016-21

… and expected interest rates

19

WEO Long-Term Nominal Interest Forecasts (Percent)


0

1

2

3

4

5

2005 2007 2009 2011 2013 2015 2017 2019 2021

Oct-16 Apr-16 Oct-15 Apr-15 Oct-14

EMERGING MARKET AND DEVELOPING ECONOMY TRENDS

20

A slowdown and rebalancing in China

The share of industry in GDP is shrinking… …as is the share of investment

38

40

42

44

46

48

50

52

0

2

4

6

8

10

12

14

16

07 08 09 10 11 12 13 14 15

Share of Gross Value Added(percent of GDP)

Real GDP growth (percent; year-over-year)

Industry (including construction: RHS)

Services (RHS)

35

40

45

50

55

60

05 06 07 08 09 10 11 12 13 14 15 16 17

Consumption:Nominal Investment: Nominal

Consumption: Real Investment: Real

Share of Gross Value added by Expenditure (Percent of GDP)

21

22

-250

-200

-150

-100

-50

0

50

100

150

Outflow pressures have abated (Net capital flows, billion USD)

Acute anxiety earlier in the year has faded…

-1,000

-500

0

500

1,000

1,500

2,000

5.9

6.0

6.1

6.2

6.3

6.4

6.5

6.6

6.7

6.8

en

e/1

5

mar/

15

may/1

5

jul/15

sep/1

5

no

v/1

5

en

e/1

6

mar/

16

may/1

6

jul/16

sep/1

6

Onshore CNY spot (RMB/USD)

Offshore CNH spot (RMB/USD)

CNH-CNY basis (pips; rhs)

Spread between Onshore and Offshore exchange rates has narrowed

23

6

6.1

6.2

6.3

6.4

6.5

6.6

6.7

6.886

88

90

92

94

96

98

100

102

104

106

108

Jan-1

5F

eb-1

5M

ar-

15

Apr-

15

May-1

5Jun-1

5Jul-1

5A

ug-1

5S

ep-1

5O

ct-

15

Nov-1

5D

ec-1

5Jan-1

6F

eb-1

6M

ar-

16

Apr-

16

May-1

6Jun-1

6Jul-1

6A

ug-1

6S

ep-1

6

CFETS Index (Dec. 31,2014)

RMB/USD daily central parity fixing (RHS)

Onshore CNY/USD (RHS)

Daily Exchange Rate (Jan. 1, 2015-today)

…even as the exchange rate has steadily depreciated

24

0

20

40

60

80

100

120

140

160

180

0

5

10

15

20

25

30

35

2006 2008 2010 2012 2014 2016:Q2

Real Credit Growth

Credit to GDP Ratio(right axis)

Rising Dependence on Credit (Percent)

But vulnerabilities continue to accumulate with continued reliance on credit

Reinvigorate growth, improve its distribution, and make it durable

Continue comprehensive and consistent three-pronged approach to growth

• Accommodative monetary policy alone is not enough

• Fiscal support—calibrated based on available fiscal space—remains crucial for lifting economic activity

• Structural reforms—prioritized to maximize impact and combined with macroeconomic policies—are essential

Also need to enhance financial stability

• Complete and implement regulatory reform

• Monitor macroprudential and systemic aspects of capital flows

• Improved global financial safety net

Reinvigorate multilateral cooperative efforts

• Sustainably higher and inclusive growth needs more forceful, comprehensive, and well-communicated policies

• Refocus the trade discussion towards the benefit of integration

• Recognize need to address cooperatively other public-good problems, including refugees, between-country

inequality, epidemics, and extreme weather

13 25

Thanks

26

Additional slides

27

What explains the pick up in global growth between 2016 and 2021?

• Shifting weights contribute one-third of the 0.70 percentage point increase

• Projected growth recoveries in six stressed EMs contribute slightly more (0.36 percentage point)

• Small increases in growth for other EMDEs and AEs explain the rest

28

Increase in World Growth (Percentage points)

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

Other EMDEs

Selected EMDEs

AEs

Change in country weights


Note: Selected EMDEs: Argentina, Brazil, Nigeria, Russia, South Africa, Venezuela.

Forecast for 2016-17

Subdued growth in 2016 followed by a recovery in 2017:

• AEs: Growth projected at 1.6 percent in 2016 and 1.8 percent in 2017, down from 2.1 in 2015

• A weak second quarter in the United States

• Impact of Brexit on the UK

• EMDEs: Slight improvement to 4.2 percent in 2016 (from 4.0 in 2015); a more meaningful pick up in 2017 (4.6 percent).

• Wide diversity in growth rates:

• Conditions beginning to normalize in some stressed economies (Russia, Brazil)

• Incipient or deepening recessions in others (Nigeria, Venezuela)

• Continued fast growth in India, ASEAN, some economies in Sub-Saharan Africa

29

Shifting weights have an important bearing on the medium term global growth forecast

• 2021 Real GDP growth is lower than its 1995-15 average for both AEs and EMDEs.

• But 2021 world growth is roughly equal to its 1995-2015 average, since the weight of faster-growing EMDEs has increased.

30

World GDP Growth (Percent)


0.0

1.0

2.0

3.0

4.0

5.0

6.0

1995-2007 1995-2015 2016 2021

World AEs EMDEs

2016 growth unambiguously weak 2021 forecast broadly in line with past averages

31

World Growth in GDP per Capita (Percent)

Sources: IMF Staff estimates.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1995-2007 1995-2015 2016 2021

World AEs EMDEs

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

1995-2007 1995-2015 2016 2021

Growth in GDP per Worker in Advanced Economies (Percent)

Winners and losers from lower commodity prices

32 Source: IMF staff estimates.

Terms-of-Trade Windfall Gains (Percent of GDP)

Terms-of-Trade Windfall Losses (Percent of GDP)

-35

-30

-25

-20

-15

-10

-5

0

5

2015

2016-17 (Aug. 2016 commodity prices)

2016-17 (Apr. 2016 commodity prices)

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

42015

2016-17 (Aug. 2016 commodity prices)

2016-17 (Apr. 2016 commodity prices)

Exchange rate changes correlated with the terms of trade


Terms of Trade Windfall and Real Exchange Rate

TUR ZAF

BRA

CHL

COL

CRI

MEX

PER

URY

IND

IDN

MYS

PAK

PHL

THA MAR

TUN

KAZ

RUS

HUN

POL

ROM

y = 2.90x + 1.11

R² = 0.14

-10

-5

0

5

10

15

20

-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0

Change in R

EE

R b

etw

een M

arc

h a

nd J

uly

2016 (

perc

ent)

Percentage change in expected ToT windfall gains/losses for 2017-17 between

March and July 2016 (percentage points)

EMDEs: Slower convergence


Growth in Real per Capita Income (Percent)

0

2

4

6

8

10

"Old" AEs "New" AEs EMexcluding

China

China LIDCs

1995-2005 2005-15 2015-20

Real per Capita Income (Percent of per capita income in “Old” AE)

0

20

40

60

80

100

"New" AEs EM excludingChina

China LIDCs

1995 2005 2015 2020

Decomposing the weakness in real goods imports growth

35 Source: IMF staff calculations.

Contribution of Demand (Percent)

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

From Import-Intensity-AdjustedDemand Regression: Full Sample

(panel 2, B)

Unpredicted

Predicted by own and partners' domestic import-intensity-adjusted demand

-1.8

-1.6

-1.4

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

From Product-level Regression (5)

Unpredicted

Global value chain participation

Trade policies

GVC Participation and Trade Policies (Percent)

36

Large share of countries with low inflation

0

10

20

30

40

50

60

70

80

90

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Below zero Below 1 percent Below 2 percent Below target /1

Share of Countries with Low Inflation (Percent)

Sources: Consensus Economics; and IMF staff calculations.

Note: The figure is based on an unbalanced sample of 120 countries. 1Target refers to long-term inflation expectations from Consensus Economics (10-year inflation expectations) or inflation forecasts from the World Economic

Outlook database (5-year inflation expectations).

Disinflation in AEs and selected EMDEs

37 Sources: Consensus Economics; Haver Analytics; Organisation for Economic Cooperation and Development; and IMF staff calculations.

Note: Emerging Market Economies include those economies with inflation below long-term expectations in 2015: Bulgaria, China, Hungary, Malaysia, Mexico,

Philippines, Poland, Romania, and Thailand.

Advanced Economies (Percent)

Emerging Market Economies (Percent)

-2

-1.5

-1

-0.5

0

0.5

2000–07 08–12 13 14 15

-5

-4

-3

-2

-1

0

1

2

3

4

5

2000–07 08–12 13 14 15

Longer-term inflation expectations more sensitive to news once inflation approaches the ELB

38 Source: Consensus Economics; Haver Analytics; and IMF staff calculations.

Note: ELB = effective lower bound. ***,**,* denote that the differences in the change in sensitivity of inflation expectations between countries at the ELB and the rest

are significant at the 1, 5, and 10 percent confidence level, respectively, using Mood’s median test.

Change in Sensitivity of Inflation Expectations to pre-2008 trend (3 years ahead)

-0.01

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

Before 2007 2008–2015 ***

2010–2015 ***

2015**

Countries at the ELB Countries not at the ELB

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