Even with the sharp oil price declinea net positive for
global growththe world economic outlook is still subdued, weighed down by
underlying weakness elsewhere, says the IMF's latest WEO Update.
Global growth is forecast to rise moderately in 2015-16,
from 3.3 percent in 2014 to 3.5 percent in 2015 and 3.7 percent in 2016,
revised down by 0.3 percent for both years relative to the October 2014 World
Economic Outlook (WEO).
Recent developments, affecting different countries in
different ways, have shaped the global economy since the release of the October WEO,
the report says. New factors supporting growthlower oil prices, but also
depreciation of euro and yenare more than offset by persistent negative forces,
including the lingering legacies of the crisis and lower potential growth in
many countries.
At the country level, the cross currents make for a
complicated picture, says Olivier Blanchard, IMF Economic Counsellor and
Director of Research. It means good news for oil importers, bad news for oil exporters.
Good news for commodity importers, bad news for exporters. Continuing struggles
for the countries which show scars of the crisis, and not so for others. Good
news for countries more linked to the euro and the yen, bad news for those more
linked to the dollar.
Cross currents in global economy
In advanced economies, growth is projected to rise to 2.4
percent in both 2015 and 2016. Within this broadly unchanged outlook, however,
is the increasing divergence between the United States, on the one hand, and
the euro area and Japan, on the other.
For 2015, the U.S. economic growth has been revised up to
3.6 percent, largely due to more robust private domestic demand. Cheaper oil is
boosting real incomes and consumer sentiment, and there is continued support
from accommodative monetary policy, despite the projected gradual rise in
interest rates.
In contrast, weaker investment prospects weigh on the euro area
growth outlook, which has been revised down to 1.2 percent, despite the support
from lower oil prices, further monetary policy easing, a more neutral fiscal
policy stance, and the recent euro depreciation. In Japan, where the economy
fell into technical recession in the third quarter of 2014, growth has been
revised down to 0.6 percent. Policy responses, together with the oil price
boost and yen depreciation, are expected to strengthen growth in 2015-16.
In emerging market and developing economies, growth is
projected to remain broadly stable at 4.3 percent in 2015 and to increase to
4.7 percent in 2016a weaker pace than forecast in the October 2014 WEO. Three
main factors explain this downward shift.
First, the growth forecast for China, where investment
growth has slowed and is expected to moderate further, has been marked down to
below 7 percent. The authorities are now expected to put greater weight on
reducing vulnerabilities from recent rapid credit and investment growth and
hence the forecast assumes less of a policy response to the underlying
moderation. This lower growth, however, is affecting the rest of Asia.
Second, Russia's economic outlook is much weaker, with
growth forecast downgraded to -3.0 percent for 2015, as a result of the
economic impact of sharply lower oil prices and increased geopolitical tensions.
Third, in many emerging and developing economies, the
projected rebound in growth for commodity exporters is weaker or delayed
compared with the October 2014 WEO projections, as the impact of lower oil and
other commodity prices on the terms of trade and real incomes is taking a
heavier toll on medium-term growth. For many oil importers, the boost from
lower oil prices is less than in advanced economies, as more of the related
windfall gains accrue to governments (for example, in the form of lower energy
subsidies).
Risks to recovery
The distribution of risks to global growth is more balanced
than in October, notes the WEO Update. On the upside, lower oil prices could
provide a greater boost than assumed. Other risks that could adversely affect
the outlook involve the possible shifts in sentiment and volatility in global
financial markets, especially in emerging market economies. The exposure to
these risks, however, has shifted among emerging market economies with the
sharp fall in oil prices. It has risen in oil exporters, where external and
balance sheet vulnerabilities have increased, while it has declined in oil
importers, for whom the windfall has provided increased buffers.
Policy priorities
The weaker global growth forecast for 2015-16 underscores
the need to raise actual and potential growth in most economies, emphasizes the
WEO Update. This means a decisive push for structural reforms in all countries,
even as macroeconomic policy priorities differ.
In most advanced economies, the boost to demand from lower
oil prices is welcome. It will also lower inflation, however, which may
contribute to a further decline in inflation expectations, increasing the risk
of deflation. Monetary policy must then stay accommodative to prevent real
interest rates from rising, including through other means if policy rates
cannot be reduced further. In some economies, there is a strong case for
increasing infrastructure investment.
In many emerging market economies, macroeconomic policy
space to support growth remains limited. But lower oil prices can alleviate
inflation pressure and external vulnerabilities, giving room to central banks
to delay raising policy interest rates.
Oil exporters, for which oil receipts typically contribute a
sizable share of fiscal revenues, are experiencing larger shocks in proportion
to their economies. Those that have accumulated substantial funds from past
higher prices can let fiscal deficits increase and draw on these funds to allow
for a more gradual adjustment of public spending to the lower prices. Others
can resort to allowing substantial exchange rate depreciation to cushion the
impact of the shock on their economies.
Lower oil prices also offer an opportunity to reform energy
subsidies and taxes in both oil exporters and importers. In oil importers, the
saving from the removal of general energy subsidies should be used toward more
targeted transfers to protect the poor, lower budget deficits where relevant,
and increase public infrastructure if conditions are right.
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