JANUARY Overview

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Preston McLaughlin
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1 Overview 2014: another disappointing year. The global economy struggled to gain momentum during 2014, as growth increasingly diverged among major high-income economies and slowed on average among developing countries (Table 1). Global growth is estimated at 2.6 percent in 2014, only marginally up from 2.5 percent in 2013, and 0.2 percentage points below previous expectations (Figure 1). Downward revisions were mostly associated with disappointing out turns in the Euro Area, Japan, parts of Latin America and emerging Europe. 2015: a slow-moving recovery. Boosted in part by a stronger U.S. economy, low interest rates and soft oil prices, global growth is expected to accelerate to 3.0 percent in However, this remains 0.4 percentage points below forecasts published in June last year, with the positive impact of declining oil prices overshadowed by sharp adjustments among oil exporters and further growth setbacks among large importers. The downward revision to the global growth forecast this year is mostly accounted for by lingering challenges in four economies: the Euro Area, Japan, Russia and Brazil. On the whole, growth among developing countries should reach 4.8 percent this year, up from 4.4 percent in 2014, but 0.6 percentage points below June 2014 projections (Figure 2). United States: a strong performer. Signs of a robust upturn continued to abound in the United States, with above-trend growth and job creation expected to carry over in US growth is projected to reach 3.2 percent this year, its strongest performance since 2005 and the first time it outpaces global growth since Internal momentum is being supported by labor market improvements, favorable financing conditions and declining oil prices. However, the appreciation of the US dollar, disappointing global growth and declining investment in shale oil production are mitigating factors. Euro Area and Japan: persistent challenges. Headwinds remain significant in the Euro Area and Japan, as these economies continue to grapple with legacies of the crisis, large debt overhangs and excessively low inflation (excluding the one-off impact of the sales-tax hike last April in Japan). Helped by further monetary policy easing and ebbing fiscal consolidation, conditions should gradually improve in 2015 but growth should only reach a modest 1.1 percent in the Euro Area and 1.2 percent in Japan this year. Weak confidence and deflation concerns could hinder the positive impact of declining oil prices. China: an orderly slowdown. Growth in China is expected to slow to 7.1 percent in 2015, from 7.4 percent in 2014 (Figure 3). Central government infrastructure and social housing projects, monetary support measures, lower oil prices and rising exports will moderate the slowdown in the real estate sector and in industries with excess capacity this year. Other emerging markets: mixed prospects. With commodity prices expected to remain low, producers will struggle to maintain high post-crisis growth performances. Current head- Global Monthly was prepared by the Development Economics Prospects Group (DECPG) of the World Bank. This note reflects the views of the group, but is not formally cleared by the World Bank. 1

2 winds are particularly significant in Brazil, with growth expected to average 1.0 percent in However, challenges are most acute among oil exporters. For instance, Russia could see a 2.9 percent contraction in GDP this year, with important regional repercussions. Countries with credible policy frameworks and reform-oriented governments, including India and Mexico, could navigate current global conditions more easily and should see accelerating growth this year. In South Africa, activity has been held back by mining strikes earlier in 2014 but should gradually recover in 2015, albeit at a slow pace. Low income countries: still dynamic. Growth remained robust in low-income countries at about 6 percent in 2014 on the back of rising public investment, strong capital inflows, good harvests, and improving security conditions in a number of conflict countries. Growth is expected to continue at a similar pace in 2015, although soft oil prices could hold the recovery back in some exporting countries. Oil price effect: positive overall but mitigating factors in place. The January 2015 Global Economic Prospects forecasts are based on the assumption of a 30 percent annual decline in oil prices from 2014 to Historical estimates suggest that such a decline, if induced by a supply shock, would be associated with an increase in world GDP of about 0.5 percent in the medium-term. However, a number of cyclical and structural developments could reduce significantly the positive growth impacts to be expected in These include the fact that low confidence and high debt levels may encourage precautionary savings in some large importing countries, that policy interest rates of major central banks are already at or near the zero lower bound, that lower oil prices are themselves partly a symptom of weak global demand, and that some oil exporters are facing acute stress at present. The oil price decline will significantly lower inflation worldwide in 2015, but the effect is expected to be temporary, in most cases (Figure 4). Declining oil prices also present a significant opportunity to reform energy taxes and fuel subsidies, which are substantial in several developing countries (Figure 5). Monetary policy: increasingly divergent. Central banks in the Euro Area and Japan have recently committed to more aggressive stimulus measures and a prolonged period of zero policy interest rates to fend off deflation risks (Figure 6). The US Federal Reserve is expected to move in the opposite direction later this year as it starts hiking policy interest rates, albeit at a very gradual pace. While global interest rates remain at exceptionally low levels, the expectation of divergent monetary policies has already led to a significant appreciation of the US dollar and renewed pressure on emerging and frontier market currencies. Capital flows to developing countries are set to moderate in this context, but unevenly across countries, with investors focusing more on country-specific vulnerabilities and divergent growth prospects. Risks: still mostly downside. Risks to the current slow-moving global recovery are tilted to the downside. Financial market volatility could sharply raise developing countries borrowing costs, an unwelcome development after several years of heavy capital market issuance by some developing countries. Intensifying geopolitical tensions, bouts of volatility in commodity markets, or financial stress in a major emerging market could lead to a reassessment of risk assets. If the Euro Area or Japan slips into a prolonged period of stagnation or deflation, global trade could weaken even further. Although it is a low-probability event given China s substantial policy buffers, a sharper decline in growth could trigger a disorderly unwinding of financial vulnerabilities and would have considerable implications for the global economy. 2

3 Table 1 The global outlook in summary (percentage change from previous year, except interest rate) e 2015f 2016f 2017f REAL GDP 1 World High income Euro Area Japan United States Developing countries East Asia and Pacific Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia Sub-Saharan Africa MEMORANDUM ITEMS World real GDP (2010 PPP weights) World trade volume (GNFS) Commodity Prices Non-oil commodities Oil price International capital flows to developing countries (% of GDP) Developing countries East Asia and Pacific Europe and Central Asia Latin America and Caribbean Middle East and North Africa South Asia Sub-Saharan Africa Source: World Bank. Notes: PPP = purchasing power parity; e = estimate; f = forecast. 1. Aggregate growth rates calculated using constant 2010 dollars GDP weights. 2. World trade volume for goods and non-factor services. 3. Simple average of Dubai, Brent and West Texas Intermediate. 3

4 Figure 1. Contribution to global growth revisions Percent Source: World Bank. Note: Contribution to global growth revisions from June 2014 to January Figure 3. Growth in emerging markets Source: World Bank. Others United States Euro Area and Japan Brazil and Russia Total Figure 5. Fiscal cost of fuel subsidies Percent Percent of GDP 25 Oil exporters Oil importers Iran Libya Venezuela Algeria Saudi Arabai Ecuador Iraq Azerbaijan Kazakhstan Russia Angola Malaysia Nigeria Mexico Egypt Bolivia Ukraine Pakistan Indonesia Bangladesh Argentina India Source: World Bank, IEA. Note: Countries with subsidies below 1 percent of GDP are not shown. Figure 2. World, developing and high income country growth forecasts 11 Percent 6 1 World High-income countries Developing countries Source: World Bank. Figure 4. Oil Prices And Global Inflation Inflation (LHS) Inflation projection (LHS) Oil price changes (RHS) Source: World Bank Note: Inflation : consumption weighted average of inflation rates of 16 members of the G20 (ex. Russia and Argentina). Projections are simulation results from individual country Vector Autoregressive models Figure 6. Policy interest rate expectations Percent Percent 3.5 Dashed line: May 31, Solid line: current United States Euro Area Japan Source: World Bank, Bloomberg Note: Policy rate Expectations are based on forward swap rates

5 Economic Calendar Major Data Releases Fri, 19 Dec Jan 2015 Upcoming releases: 21 Jan, Feb 2015 Country Date Indicator Period Actual Forecast Previous Country Date Indicator Period Previous Germany 12/19/2014 PPI (Y/Y) NOV -0.9% -1.1% -1.0% New Zealand 1/20/2015 CPI (Y/Y) Q4 1.0 % Iceland 12/19/2014 CPI (Y/Y) OCT 0.8% 1.0% 1.0% South Africa 1/21/2015 CPI (Y/Y) DEC 5.8 % Mexico 12/19/2015 Unemployment Rate NOV 4.7% 4.4% 4.7% Malaysia 1/21/2015 CPI (Y/Y) DEC 3.0 % Denmark 12/22/2014 Retail Sales (Y/Y) NOV 0.8% 3.1% Eurozone 1/21/2015 House Price Index (Y/Y) Q3 0.0 % Sweden 12/23/2014 Retail Sales (Y/Y) NOV 4.5% 4.5% Spain 1/22/2015 Unemployment Rate Q % Singapore 12/23/2014 CPI (Y/Y) NOV -0.3% 0.1% Italy 1/22/2015 Retail Sales (Y/Y) NOV -1.2 % United States 12/23/2014 GDP (Q/Q) Q3 5.0% 4.2% 4.6% South Korea 1/22/2015 GDP (Y/Y) Q4 3.2 % Poland 12/23/2014 Unemployment Rate NOV 11.4% 11.5% 11.3% Singapore 1/23/2015 CPI (Y/Y) DEC -0.3 % United Kingdom 12/23/2014 GDP (Y/Y) Q3 2.6% 3.0% 2.6% Austria 1/23/2015 Industrial Production (Y/Y) NOV -2.3 % Netherland 12/24/2014 GDP (Y/Y) Q3 1.0% 1.1% 1.1% Poland 1/23/2015 Retail Sales (Y/Y) DEC -0.2 % Japan 12/25/2014 Unemployment Rate NOV 3.5% 3.5% 3.5% Eurozone 1/23/2015 PMI Manufacturing JAN 50.6 Japan 12/25/2014 Industrial Production (Y/Y) NOV -3.8% -1.7% -0.8% United Kingdom 1/23/2015 Retail Sales (Y/Y) DEC 6.4 % India 12/26/2014 Official Foreign Reserves DEC $ 320B $ B Canada 1/23/2015 CPI (Y/Y) DEC 2.0 % Singapore 12/29/2014 PPI (Y/Y) NOV -6.4% -6.0% Argentina 1/23/2015 Industrial Production (Y/Y) DEC -1.2 % Italy 12/29/2014 Consumer Confidence Index DEC Malaysia 1/25/2015 Unemployment Rate NOV 2.7% Spain 12/30/2014 Retail Sales (Y/Y) NOV 1.9% 0.8% 1.0% Mexico 1/26/2015 Retail Sales (Y/Y) NOV 5.6% Italy 12/30/2014 PPI (Y/Y) NOV -1.2% -1.8% -1.1% United Kingdom 1/27/2015 GDP (Y/Y) Q4 2.6% Singapore 1/1/2015 GDP (Y/Y) Q4 1.5% 2.8% Japan 1/28/2015 Retail Trade (Y/Y) DEC 0.4% Indonesia 1/1/2015 CPI (Y/Y) DEC 8.4% 8.0% 6.2% Philippines 1/28/2015 GDP (Q-o-Q) Q4 0.4% Austria 1/2/2015 Unemployment Rate DEC 10.2% 8.7% Germany 1/29/2015 Unemployment Rate DEC 5.0% Thailand 1/5/2015 CPI (Y/Y) DEC 0.6% 1.1% 1.3% South Africa 1/29/2015 PPI (Y/Y) DEC 6.5% Turkey 1/5/2015 CPI (Y/Y) DEC 8.2% 9.2% United States 1/29/2015 Interest Rate Decision % Germany 1/5/2015 CPI (Y/Y) DEC 0.2% 0.1% 0.6% Janpan 1/29/2015 CPI (Y/Y) DEC 2.4% South Africa 1/6/2015 PMI Manufacturing DEC Spain 1/30/2015 GDP (Y/Y) Q4 1.6% Luxembourg 1/7/2015 CPI (Y/Y) DEC -0.6% 0.1% Eurozone 1/30/2015 Unemployment Rate DEC 11.5% Germany 1/7/2015 Unemployment Rate NOV 5.0% 4.8% Indonesia 2/1/2015 CPI (Y/Y) JAN 8.4% Eurozone 1/7/2015 Unemployment Rate NOV 11.5% 11.5% 11.5% Turkey 2/3/2015 CPI (Y/Y) JAN 8.2% China 1/7/2015 CPI (Y/Y) DEC 1.5% 1.5% 1.4% Brazil 2/3/2015 Industrial Production (Y/Y) DEC -5.8% Turkey 1/8/2015 Industrial Production (Y/Y) NOV 0.7% 2.4% Philippines 2/5/2015 PPI (Y/Y) DEC -0.6% Canada 1/9/2015 Unemployment Rate DEC 6.6% 6.7% 6.6% Germany 2/6/2015 Industrial Production (Y/Y) DEC -0.5% South Africa 1/12/2015 Manufacturing Production (Y/Y) NOV -1.3% 3.0% 2.2% Indonesia 2/8/2015 GDP (Y/Y) Q4 5.0% India 1/12/2015 Industrial Production (Y/Y) NOV 3.8% 1.2% -4.2% Turkey 2/9/2015 Industrial Production (Y/Y) DEC 0.7% Sweden 1/13/2015 CPI (Y/Y) DEC -0.3% -0.6% -0.2% China 2/9/2015 CPI (Y/Y) JAN 1.5% United Kingdom 1/13/2015 CPI (Y/Y) DEC 0.5% 2.0% 1.0% South Africa 2/10/2015 Unemployment Rate Q4 25.4% Japan 1/13/2015 M3 Money Supply (Y/Y) DEC 2.9% 3.0% 2.9% Norway 2/11/2015 GDP (Q/Q) Q4 0.4% France 1/14/2015 CPI (Y/Y) DEC 0.1% -0.05% 0.3% Brazil 2/11/2015 Retail Sales (Y/Y) DEC 1.0% Eurozone 1/14/2015 Industrial Production (Y/Y) NOV -0.4% -0.20% 0.8% Malaysia 2/11/2015 GDP (Y/Y) Q4 5.6% Brazil 1/14/2015 Retail Sales (Y/Y) NOV 1.0% -1.8% 1.8% Eurozone 2/12/2015 Industrial Production (Y/Y) DEC -0.4% United States 1/14/2015 Retail Sales (M/M) DEC -0.9 % 0.0% 0.4% United States 2/12/2015 Retail Sales (Y/Y) JAN 3.2% Spain 1/15/2015 CPI (Y/Y) DEC -1.0% -1.1% -0.4% Eurozone 2/13/2015 GDP (Y/Y) Q4 0.8% Eurozone 1/16/2015 CPI (Y/Y) DEC -0.2% -0.1% 0.3% Japan 2/15/2015 GDP (Y/Y) Q1-1.9% Japan 1/18/2015 Industrial Production (Y/Y) NOV -3.7% -0.8% Thailand 2/15/2015 GDP (Y/Y) Q4 0.6% China 1/19/2015 GDP (Y/Y) Q4 7.3% 7.2% 7.3% United Kingdom 2/17/2015 CPI (Y/Y) JAN 0.5% 5

6 Table A.1 Global industrial production growth (constant prices; percent; seasonally adjusted annual rates except monthly figures which are in percent change over previous month Weigh ts Q3 Q4 Q1 Q2 Q3 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov World High -income countries Industrial countries United States Japan Euro Area United Kingdom Other high income Singapore Taiwan (China) Developing countries East Asia and Pacific China Indonesia Thailand Malaysia Europe and Central Asia Russian Federation Turkey Poland Czech Republic Latin America and Caribbean Brazil Mexico Argentina Colombia Middle East and North Africa Saudi Arabia Egypt Algeria Sou th As ia India Pakistan Bangladesh Sri Lanka Su b-sah aran Africa South Africa Memo: OECD Developing excl. China Developing oil exporters Dev. non-oil exporters a In general, series refer to industrial production excluding construction (e.g. manufacturing, mining and utilitites). Where this is not available the closest proxy is used, often manufacturing output or oil output, if the country is a major oil producer. 6

7 Table A. 2 Demand conditions in high-income countries (US dollar values unless otherwise indicated; percent change; seasonally adjusted annual rates except monthly figures, which are m/m change) Real GDP Q3 Q4 Q1 Q2 Q3 May Jun Jul Aug Sep Oct Nov High - income countries Industrial countries United States Japan Euro Area United Kingdom Other high income Hong Kong (China) Singapore Taiwan (China) Real merch an dis e imports High - income countries Industrial countries United States Japan Euro Area United Kingdom Other high income Hong Kong (China) Singapore Taiwan (China) I mport Prices High - income countries Industrial countries United States Japan Euro Area United Kingdom Other high income Hong Kong (China) Singapore Taiwan (China) Real effectiv e ex ch an ge rates a Euro Area United States Japan United Kingdom Canada Singapore Switzerland a/ JP Morgan Trade Weighted Indices (Real, Broad basis). Data are averages of monthly data for the period in 7

8 Table A.3 Global credit conditions (percent unless otherwise indicated a/) Q3 Q4 Q1 Q2 Q3 Q4 May Jun Jul Aug Sep Oct Nov Dec Policy Rates High -income countries United States Japan Euro Area United Kingdom Ten year bond United States Japan Euro Area United Kingdom JPMorgan EMBI I n dex b Developing countries East Asia and Pacific China Indonesia Phillippines Malaysia Europe and Central Asia Russian Federation Turkey Poland Ukraine Latin America and Caribbean Brazil Mexico Argentina Peru Middle East and North Africa Egypt Iraq Jordan Lebanon Sou th As ia d India Pakistan Bangladesh Sri Lanka Su b-sah aran Africa South Africa Nigeria Ghana Gros s in flow s e Developing countries East Asia and Pacific Europe and Central Asia Latin America and Carribean Middle East and North Africa South Asia Sub-Saharan Africa a/monthly figures are simple averages of daily figures. Quarterly and Annual figures are simple averages of monthly figures. b/aggregates as defined by JP Morgan. d/east Asia and Pacific including South Asian countries. e/in billions of US dollars. 8

9 Table A.4 Commodity price indices Q2 Q3 Q4 Q1 Q2 Q3 May Jun Jul Aug Sep Oct Nov Dec Energy Coal, Australia Crude oil, average Natural gas, Europe N o n-energy A griculture B everages Cocoa Coffee, arabica Coffee, robusta Food F ats and o ils Palm oil Soybean meal Soybeans Grains M aize Rice, Thailand, 5% Wheat, US, HRW Other fo o d Bananas, US Sugar, world R aw materials Cotton ("A" Index) Rubber, Singapore Sawnwood, M alaysia F ertilizers Triple superphosphate M etals and minerals Aluminum Copper Gold Nickel M emo: C rude Oil (US$ ) a/ The World Bank primary commodity price indices are computed from export values in US dollars for low- and middle-income economies, rebased to b/ Energy and gold prices are not included in the index. 9

10 Table A.5 Developing countries' merchandise export growth (US dollar values unless otherwise indicated; percent change; seasonally adjusted annual rates except monthly figures, which are m/m change /a) Q3 Q4 Q1 Q2 Q3 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Export values Developing countries East Asia and Pacific China Indonesia Thailand Europe and Central Asia Russian Federation Turkey Poland Latin America and Caribbean Brazil Mexico Argentina Middle East and North Africa Saudi Arabia Iran Egypt Sou th As ia India Pakistan Bangladesh Su b-sah aran Africa South Africa Nigeria Ex port prices b,c Developing countries East Asia and Pacific China Indonesia Thailand Europe and Central Asia Russian Federation Turkey Poland Latin America and Caribbean Brazil Mexico Argentina Middle East and North Africa Saudi Arabia Iran Egypt Sou th As ia India Pakistan Bangladesh Su b-sah aran Africa South Africa Nigeria /a Merchandise export (F.O.B), customs basis. /b Implicit export unit values, U.S. Dollar basis. /c In many cases countries are very late in reporting trade prices. To estimate more timely figures individual trade prices were updated using the median (mean) regional trade price for developing (developed) countries whenever 60% or more of reporters by trade weight reported. 10

11 Table A.6 Developing countries' merchandise import growth (US dollar values unless otherwise indicated; percent change; seasonally adjusted annual rates except monthly figures, which are m/m change /a) Q3 Q4 Q1 Q2 Q3 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Import values Developing countries East Asia and Pacific China Indonesia Thailand Europe and Central Asia Russian Federation Turkey Poland Latin America and Caribbean Brazil Mexico Argentina Middle East and North Africa Saudi Arabia Iran Egypt Sou th As ia India Pakistan Bangladesh Su b-sah aran Africa South Africa Nigeria I mport prices b,c Developing countries East Asia and Pacific China Indonesia Thailand Europe and Central Asia Russian Federation Turkey Poland Latin America and Caribbean Brazil Mexico Argentina Middle East and North Africa Saudi Arabia Iran Egypt Sou th As ia India Pakistan Bangladesh Su b-sah aran Africa South Africa Nigeria /a Merchandise import (C.I.F.), customs basis. /b Implicit import unit values, U.S. Dollar basis. /c In many cases countries are very late in reporting trade prices. To estimate more timely figures individual trade prices were updated using the median (mean) regional trade price for developing (developed) countries whenever 60% or more of reporters by trade weight reported. 11

12 Table A.7 Merchandise trade balances (Billion US dollars; annual rates) Q3 Q4 Q1 Q2 Q3 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov World High -in come cou n tries a Industrial countries United States Japan Euro Area United Kingdom Other high income Hong Kong (China) Singapore Taiwan (China) Developing countries ####### ####### East Asia and Pacific China Indonesia Thailand Malaysia Europe and Central Asia Russian Federation Turkey Poland Czech Republic Latin America and Caribbean Brazil Mexico Argentina Colombia Middle East and North Africa Saudi Arabia Iran Egypt Algeria Sou th As ia India Pakistan Bangladesh Sri Lanka Su b-sah aran Africa South Africa Nigeria Memo: OECD Developing excl. China Developing oil exporters Developing non-oil exporters a/ Seasonally adjusted 12

13 Table A.8 Exchange Rates (USD/LCU) (annual percent change except monthly data which is change over previous month a/) Q3 Q4 Q1 Q2 Q3 Q4 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec World High -income countries Industrial countries United States (SDR/USD) Japan Euro Area United Kingdom Other high income Hong Kong (China) Singapore Taiwan (China) Developing countries East Asia and Pacific China Indonesia Thailand Malaysia Europe and Central Asia Russian Federation Turkey Poland Czech Republic Latin America and Caribbean Brazil Mexico Argentina Colombia Middle East and North Africa Iran Egypt Algeria Sou th As ia India Pakistan Bangladesh Sri Lanka Su b-sah aran Africa South Africa Nigeria Memo: OECD

NOVEMBER Overview

NOVEMBER Overview Overview Another disappointing year for the global economy. Global growth in 2014 is currently estimated at about 2.6 percent, almost unchanged from the slow pace seen in 2012 and 2013. The recovery in