A World Bank Group
Flagship Report

JUNE 2017

GlobalEconomic
Prospects
A Fragile Recovery

JUNE 2017© 2017 International Bank for Reconstruction and Development / The World Bank
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Table of Contents
Acknowledgments ......................................................................................................................vii
Abbreviations............................................................................................................................. ix
Chapter 1

Global Outlook: A Fragile Recovery....................................................................... 1
Summary ............................................................................................................ 3
Major economies: Recent developments and outlook ............................................... 6
Global trends..................................................................................................... 10
Emerging market and developing economies: Recent developments and outlook....... 14
Risks to the outlook ........................................................................................... 21
Policy challenges ................................................................................................ 29
References ......................................................................................................... 38
Box 1.1 Low-income countries: Recent developments and outlook .......................... 17
Box 1.2 Regional perspectives: Recent developments and outlook............................ 22

Special Focus 1 Debt Dynamics in Emerging Market and Developing Economies: Time to Act? ....... 47
Introduction...................................................................................................... 49
Evolution of fiscal positions ................................................................................ 50
Fiscal positions in episodes of financial stress ......................................................... 53
Conclusion........................................................................................................ 55
References ......................................................................................................... 56
Special Focus 2 Arm’s-Length Trade: A Source of Post-Crisis Trade Weakness ................................ 59
Introduction...................................................................................................... 61
Characteristics of intra-firm and arm’s-length trade................................................ 63
Evolution of intra-firm and arm’s-length trade since the crisis ................................. 64
Factors contributing to the sharp post-crisis slowdown in arm’s-length trade............. 65
Conclusion........................................................................................................ 67
References ......................................................................................................... 68

iii

Chapter 2

Regional Outlooks............................................................................................. 71
East Asia and Pacific .......................................................................................... 73
Recent developments ................................................................................... 73
Outlook ..................................................................................................... 75
Risks .......................................................................................................... 76
Europe and Central Asia ..................................................................................... 79
Recent developments ................................................................................... 79
Outlook ..................................................................................................... 79
Box 2.2.1 Reversal in 2016 of diverging growth paths ..................................... 80
Risks .......................................................................................................... 81
Latin America and the Caribbean ........................................................................ 85
Recent developments ................................................................................... 85
Outlook ..................................................................................................... 86
Box 2.3.1 Continued growth divergence within Latin America and the
Caribbean ............................................................................................... 86
Risks .......................................................................................................... 88
Middle East and North Africa ............................................................................. 91
Recent developments ................................................................................... 91
Outlook ..................................................................................................... 92
Risks .......................................................................................................... 94
South Asia ......................................................................................................... 99
Recent developments ................................................................................... 99
Outlook ....................................................................................................100
Risks .........................................................................................................101
Sub-Saharan Africa ......................................................................................... 105
Recent developments ..................................................................................105
Outlook ....................................................................................................106
Box 2.6.1 Deteriorating public finances in Sub-Saharan Africa.......................107
Risks .........................................................................................................108
References ........................................................................................................111

Statistical Appendix.................................................................................................................. 115
Selected Topics ........................................................................................................................ 121iv

Figures

1.1

Global prospects........................................................................................ 5

1.2

Global risks and policy challenges................................................................ 6

1.3

Advanced economies.................................................................................. 7

1.4

United States ............................................................................................ 7

1.5

Euro Area ................................................................................................. 8

1.6

Japan ...................................................................................................... 9

1.7

China..................................................................................................... 10

1.8

Global trade............................................................................................ 11

1.9

Financial markets .................................................................................... 12

1.10

Commodity markets ................................................................................ 13

1.11

EMDE activity........................................................................................ 15

1.12

EMDE growth outlook ............................................................................ 21

1.13

Role of the largest EMDEs in the global outlook......................................... 24

1.14

Global risks............................................................................................. 25

1.15

Risks of protectionism.............................................................................. 26

1.16

Financial market risks .............................................................................. 27

1.17

Risks linked to weak productivity and investment growth ............................ 29

1.18

Monetary policy challenges in advanced economies ..................................... 30

1.19

Fiscal policy challenges in advanced economies ........................................... 31

1.20

Structural policy challenges in advanced economies ..................................... 31

1.21

EMDE monetary policy ........................................................................... 32

1.22

EMDE fiscal policy.................................................................................. 33

1.23

EMDE structural domestic policy challenges .............................................. 34

1.24

EMDE structural trade policy challenges.................................................... 35

1.25

Poverty and trade .................................................................................... 36

SF1.1 Evolution of fiscal space in EMDEs ........................................................... 49
SF1.2 Debt relief under the HIPC and MDRI initiatives ...................................... 50
SF1.3 Evolution of sustainability gaps ................................................................. 51
SF1.4 Evolution of fiscal space in EMDE regions ................................................. 52
SF1.5 Debt dynamics around financial stress events and in 2016............................ 53
SF1.6 Debt dynamics in EMDE oil exporters around oil price plunges ................... 54
SF1.7 Vulnerabilities and buffers in EMDEs........................................................ 55
SF2.1 Trade growth .......................................................................................... 61v

SF2.2 Role of the United States in trade and foreign direct investment................... 62
SF2.3 Characteristics of U.S. intra-firm and arm’s-length trade ............................. 63
SF2.4 Regional decomposition of U.S. intra-firm and arm’s-length trade................ 64
SF2.5 Sectoral decomposition of U.S. intra-firm and arm’s-length trade ................. 65
SF2.6 Pre- and post-crisis growth in U.S. trade.................................................... 66

Tablesvi

2.1.1

EAP: Recent developments ...................................................................... 74

2.1.2

China .................................................................................................... 75

2.1.3

EAP: Outlook and risks ........................................................................... 76

2.2.1

ECA: Recent developments ...................................................................... 81

2.2.2

ECA: Outlook and risks........................................................................... 82

2.3.1

LAC: Recent developments ...................................................................... 87

2.3.2

LAC: Outlook and risks........................................................................... 88

2.4.1

MENA: Recent developments .................................................................. 92

2.4.2

MENA: Outlook and risks ....................................................................... 93

2.5.1

SAR: Recent developments .....................................................................100

2.5.2

SAR: Outlook and risks .........................................................................101

2.6.1

SSA: Recent developments ......................................................................106

2.6.2

SSA: Outlook and risks...........................................................................108

1.1

Real GDP ................................................................................................ 4

1.2

List of emerging market and developing economies.................................... 37

2.1.1

East Asia and Pacific forecast summary ...................................................... 77

2.1.2

East Asia and Pacific country forecasts ....................................................... 78

2.2.1

Europe and Central Asia forecast summary ................................................ 83

2.2.2

Europe and Central Asia country forecasts ................................................. 84

2.3.1

Latin America and the Caribbean forecast summary .................................... 89

2.3.2

Latin America and the Caribbean country forecasts..................................... 90

2.4.1

Middle East and North Africa forecast summary......................................... 96

2.4.2

Middle East and North Africa economy forecasts........................................ 97

2.5.1

South Asia forecast summary ...................................................................102

2.5.2

South Asia country forecasts ....................................................................103

2.6.1

Sub-Saharan Africa forecast summary .......................................................109

2.6.2

Sub-Saharan Africa country forecasts........................................................110

Acknowledgments
This World Bank Group Flagship Report is a product of the Prospects Group in the Development
Economics Vice Presidency. The project was managed by M. Ayhan Kose and Franziska Ohnsorge,
under the general guidance of Paul Romer.
Chapters 1 and 2 were led by Carlos Arteta. Chapter 1 (Global Outlook) was prepared by Carlos
Arteta and Marc Stocker, with contributions from
Csilla Lakatos and Ekaterine Vashakmadze. Additional inputs were provided by John Baffes,
Gerard Kambou, Eung Ju Kim, Hideaki Matsuoka, Bryce Quillin, Yirbehogre Modeste Some,and Dana Vorisek. Research assistance was provide
by Xinghao Gong, Liwei Liu, Trang Thi Thuy
Nguyen, Collette Wheeler, and Peter Williams.
Box 1.1 was prepared by Gerard Kambou and Boaz Nandwa. Research assistance was provided by
Trang Thi Thy Nguyen and Xinghao Gong. Box
1.2 was prepared by Carlos Arteta with contributions from Gerard Kambou, Lei Ye, Boaz
Nandwa, Yoki Okawa, Temel Taskin, Ekaterine
Vashakmadze, and Dana Vorisek.
The first Special Focus, on debt dynamics inemerging market and developing economies, wasprepared by M. Ayhan Kose, Franziska Ohnsorge,and Naotaka Sugawara. The second Special Focus,
on arm’s-length trade as a source of post-crisis
trade weakness, was prepared by Csilla Lakatos
and Franziska Ohnsorge.
Chapter 2 (Regional Outlooks) was supervised by
Carlos Arteta, Anna Ivanova, and Franziska Ohnsorge. The authors were Ekaterine Vashakmadze(East Asia and Pacific), Yoki Okawa (Europe andCentral Asia), Dana Vorisek (Latin America andthe Caribbean), Lei Ye with contributions from
Ergys Islamaj (Middle East and North Africa),
Boaz Nandwa and Temel Taskin (South Asia),
and Gerard Kambou (Sub-Saharan Africa). Research assistance was provided by Mai Anh Bui,
Xinghao Gong, Liwei Liu, Trang Nguyen, andShituo Sun.

Modeling and data work were provided by Hideaki Matsuoka, assisted by Mai Anh Bui, Xinghao
Gong, Cristhian Javier Vera Avellan, Liwei Liu,
Trang Thi Thuy Nguyen, Shituo Sun, ColletteMari Wheeler, and Peter Williams.
The online publication was produced by a teamincluding Graeme Littler, Praveen Penmetsa, andMikael Reventar, with technical support from
Marjorie Patricia Bennington. Phillip Hay andMark Felsenthal managed media relations and dissemination. The print publication was produced by
Maria Hazel Macadangdang, Adriana Maximiliano,
and Rosalie Singson Dinglasan, in collaboration
with Aziz Gökdemir and Patricia Katayama.
Many reviewers offered extensive advice and comments. These included: Kishan Abeygunawar dana, Magda Adriani, Abebe Adugna Dadi,
Kiatipong Ariyapruchya, Luca Bandiera, Rafael
Chelles Barroso, Davaadalai Batsuuri, Hans Beck,
Robert Beyer, Fabio Sola Bittar, Monika Blaszkiewicz, Elena Bondarenko, Eduardo Borensztein,
Cesar Calderon, Kevin Carey, Francisco G. Carneiro, Paloma Anos Casero, Jean-Pierre Christophe Chauffour, Derek Hung Chiat Chen, Ajai
Chopra, Ibrahim Saeed Chowdhury, Kevin James
Clinton, Fabiano Silvio Colbano, Andrea Coppola, Tito Cordella, Damir Cosic, Barbara Cunha,
Stefano Curto, Sudyumna Dahal, Somneuk Davading, Simon Davies, Annette De Kleine-Feige,
Agim Demukaj, Allen Curtis Dennis, Shantayanan
Devarajan, Tatiana Didier Brandao, Viet Tuan
Dinh, Ndiame Diop, Quy-Toan Do, Mariam
Dolidze, Jozef Draaisma, Sebastian Eckardt, Kim
Alan Edwards, Christian Eigen-Zucchi, Khalid El
Massnaoui, Olga Emelyanova, Wilfried Engelke,
Marianne Fay, Norbert Matthias Fiess, Fitriavii

Fitrani, Cornelius Fleischhaker, Samuel FreijeRodriguez, Roberta V. Gatti, Adnan Ashraf
Ghumman, Frederico Gil Sander, Fernando Giuliano, Anastasia Golovach, David M. Gould, Gunjan Gulati, Poonam Gupta, Ricardo Alfredo
Habalian, Lea Hakim, Birgit Hansl, Marek Hanusch, Wissam Harake, Fayavar Hayati, Santiago
Herrera, Jeremy Hillman, Sandra Hlivnjak, Bert
Hofman, Sahar Sajjad Hussain, Zahid Hussain,
Elena Ianchovichina, Fernando Gabriel Im,
Yoichiro Ishihara, Sheikh Tanjeb Islam, Mohammad Omar Joya, Kamer Karakurum-Ozdemir,Leszek Pawel Kasek, Vera Kehayova, Tehmina S.
Khan, Mizuho Kida, Youssouf Kiendrebeogo, David Stephen Knight, Jakob Kopperud, Ewa Joanna
Korczyc, Sibel Kulaksiz, Chandana Kularatne,
Christoph Kurowski, Kwabena Gyan Kwakye,
Jean Pierre Lacombe, Lara Alice Victoria Lambert,
Emmanuel K.K. Lartey, Taehyun Lee, Tenzin
Lhaden, John Litwack, Gladys Lopez, Acevedo,
Sodeth Ly, Sanja Madzarevic-Sujster, Sandeep
Mahajan, Facundo S. Martin, Aaditya Mattoo,
Kirsten-Anne McLeod, Gianluca Mele, Martin
Melecky, Dino Merotto, Elitza Mileva, Deepak K.
Mishra, Florian Moelders, Shabih Ali Mohib, Lili
Mottaghi, Rafael Munoz Moreno, Nataliya Mylenko, Evgenij Najdov, Nur Nasser Eddin, Claudia
Nassif, Antonio Nucifora, Harun Onder, Carlos

viii

Orton Romero, Lucy Pan, John Panzer, Catalin
Pauna, Keomanivone Phimmahasay, Samuel Pienknagura, Rong Qian, Bryce Quillin, Habib Rab,
Martin Rama, Nadir Ramazanov, Luiz Edgard
Ramos Oliveira, Sheila Redzepi, Julio Revilla, David John Martin Robinson, Daniel Francisco Barco Rondan, David Rosenblatt, Michele Ruta,
Pablo Saavedra, Miguel Eduardo Sanchez Martin,
Apurva Sanghi, Ilyas Sarsenov, Julie Saty Lohi,
Cristina Savescu, Marc Tobias Schiffbauer, Philip
M. Schuler, Claudia Paz Sepulveda, Smriti Seth,
Sudhir Shetty, Altantsetseg Shiilegmaa, Emily
Sinnott, Gregory Smith, Karlis Smits, Nikola L.
Spatafora, Abdoulaye Sy, Congyan Tan, Fulbert
Tchana Tchana, Shakira Binti Teh Sharifuddin,
Hans Timmer, Emilija Timmis, Yvonne M. Tsikata, Christoph Ungerer, Robert Utz, Ralph Van
Doorn, Carlos Vegh, Julio Velasco, Mathew A.
Verghis, Muhammad Waheed, Jan Walliser, Pinar
Yasar, Ayberk Yilmaz, Hoda Youssef, Albert G.
Zeufack, Luan Zhao, May Thet Zin, andBakhrom Ziyaev.
Regional Projections and write-ups were producedin coordination with country teams, country
directors, and the offices of the regional chief
economists.

Abbreviations
AE
ASEAN
bbl
BEC
BIS
BRICS
CEMAC
CBO
CY
DECPG
EAP
EBRD
ECA
ECB
EECF
EM
EMBI
EMDE
ERR
EU
EPU
FDI
FOMC
FSC
FTA
FY
GCC
GDP
GEP
GNFS
GNI
GSP+
GST
HIPC
IADB
IMF
LAC
LIC
MDRI
NAICS
MENA or MNA
NAFTA

advanced economies
Association of Southeast Asian Nations
barrelBroad Economic Categories
Bank for International Settlements
Brazil, Russian Federation, India, China, and South Africa
Central African Economic and Monetary Community
Congressional Budget Officecalendar year
Development Economics Prospects Group
East Asia and Pacific
European Bank for Reconstruction and Development
Europe and Central Asia
European Central Bank
enhanced elemental chlorine–freeemerging market economies
Emerging Markets Bond Index
emerging markets and developing economies
exchange rate regime
European Union
economic policy uncertainty
foreign direct investment
Federal Open Market Committee
Forest Stewardship Council
free trade agreementfiscal year
Gulf Cooperation Council
gross domestic product
Global Economic Prospects
goods and non-factor services
gross national income
Generalized System of Preferences Plus
goods and services tax
Heavily Indebted Poor Countries
Inter-American Development BankInternational Monetary Fund
Latin America and the Caribbean
low-income country
multilateral debt relief initiative
North American Industry Classification System
Middle East and North Africa
North American Free Trade Agreement

ix

ODA
OECD
OPEC
PCF
PMI
PPP
QQE
RHS
SAR
SF
SSA
TCF
TFP
TPP
UNCTAD
UNIDO
VIX
VAT
WAEMU
WEO
WTO

x

official development assistance
Organisation for Economic Co-operation and Development
Organization of the Petroleum Exporting Countries
processed chlorine–freepurchasing managers’ indexes
purchasing power parity
quantitative and qualitative monetary easing
right-hand side (in figures)South Asia
Special Focus
Sub-Saharan Africa
totally chlorine-free
total factor productivity
Trans-Pacific Partnership
United Nations Conference on Trade and Development
United Nations Industrial Development Organization
Chicago Board Options Exchange (CBOE) Volatility Index
value-added tax
West African Economic and Monetary Union
World Economic Outlook
World Trade Organization

CHAPTER 1

GLOBAL OUTLOOKA Fragile Recovery

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

C H A P TE R 1

Global activity is firming broadly as expected. Manufacturing and trade are picking up, confidence isimproving, and international financing conditions remain benign. Global growth is projected to strengthen to
2.7 percent in 2017 and 2.9 percent in 2018-19, in line with January forecasts. In emerging market anddeveloping economies (EMDEs), growth is predicted to recover to 4.1 percent in 2017 and reach an average of
4.6 percent in 2018-19, as obstacles to growth in commodity exporters diminish, while activity in commodity
importers continues to be robust. Risks to the global outlook remain tilted to the downside. These include
increased trade protectionism, elevated economic policy uncertainty, the possibility of financial market
disruptions, and, over the longer term, weaker potential growth. A policy priority for EMDEs is to rebuild
monetary and fiscal space that could be drawn on were such risks to materialize. Over the longer term,
structural policies that support investment and trade are critical to boost productivity and potential growth.

Summary
Global growth is firming, contributing to an
improvement in confidence. A recovery inindustrial activity has coincided with a pickup in
global trade, after two years of marked weakness(Figure 1.1). In emerging market and developing
economies (EMDEs), obstacles to growth among
commodity exporters are gradually diminishing,while activity in commodity importers remains
generally robust. As a result, and despite
substantial policy uncertainty, global growth isprojected to accelerate to 2.7 percent in 2017, up
from a post-crisis low of 2.4 percent in 2016,
before strengthening further to 2.9 percent in
2018-19, broadly in line with January projections.
Activity in advanced economies is expected to gain
momentum in 2017, supported by an upturn in
the United States, as previously anticipated. In theEuro Area and Japan, growth forecasts have been
upgraded, reflecting strengthening domestic
demand and exports. Investment across advanced
economies has firmed, while private consumption
growth has moderated. As actual growth continues
to exceed potential growth, increasing inflationand narrowing output gaps have raised theprospects of less accommodative monetary policy.
Advanced economy growth is expected toaccelerate to 1.9 percent in 2017, before
moderating gradually in 2018-19. As usual, theNote: This chapter was prepared by Carlos Arteta and Marc
Stocker, with contributions from Csilla Lakatos and Ekaterine
Vashakmadze. Additional inputs were provided by John Baffes,
Gerard Kambou, Eung Ju Kim, Hideaki Matsuoka, Bryce Quillin,
Yirbehogre Modeste Some, and Dana Vorisek. Research assistance
was provided by Xinghao Gong, Liwei Liu, Trang Thi Thuy Nguyen,Collette Wheeler, and Peter Williams.

outlook is predicated only on legislated fiscal andtrade policies.
The recovery in global trade coincides withstrengthening investment, which is more importintensive than other components of aggregate
demand. Nevertheless, structural headwinds, including slower trade liberalization and value chain
integration, as well as elevated policy uncertainty,
continue to weigh on the outlook for trade.
Global financing conditions have been benign andbenefited from improving market expectations
about growth prospects. Financial market
volatility has been low despite elevated policy
uncertainty, reflecting investor risk appetite and,perhaps, some level of market complacency.
Renewed risk appetite has supported EMDE
financial markets and led to a narrowing ofcorporate bond spreads globally. Capital inflows to
EMDEs were robust in the first half of 2017,
partly in a rebound from late-2016 weakness.
Over time, however, a gradual tightening ofinternational financing conditions may weigh on
capital flows to EMDEs. Commodity prices havecontinued to rise moderately, although prospects
for increased U.S. shale oil production are
weighing on the outlook for oil prices.
Against an improving international backdrop,
growth in EMDEs has strengthened from a postcrisis low of 3.5 percent in 2016. It is projected toreach 4.1 percent in 2017 and 4.5 percent in2018. In commodity exporters, firming
commodity prices, recovering industrial activity,
stabilizing investment, and improving confidence
are supporting a gradual recovery, following nearstagnation in the past couple of years. This

3

4

C H A P TE R 1

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

TABLE 1.1 Real GDP1
(percent change from previous year)
2014

2015

2016

2017

Estimates
World
Advanced economies
United States
Euro Area
Japan

2018

2019

2016 2017 2018 2019
Percentage point differencesfrom January 2017 projections

Projections

2.8
1.9
2.4
1.2
0.3

2.7
2.1
2.6
2.0
1.1

2.4
1.7
1.6
1.8
1.0

2.7
1.9
2.1
1.7
1.5

2.9
1.8
2.2
1.5
1.0

2.9
1.7
1.9
1.5
0.6

0.1
0.1
0.0
0.2
0.0

0.0
0.1
-0.1
0.2
0.6

0.0
0.0
0.1
0.1
0.2

0.0
0.0
0.0
0.1
0.2

Emerging and developing economies(EMDEs)

4.3

3.6

3.5

4.1

4.5

4.7

0.1

-0.1

-0.1

0.0

Commodity-exporting EMDEs
Other EMDEs
Other EMDEs excluding China

2.2
6.0
4.5

0.3
6.0
5.0

0.4
5.7
4.5

1.8
5.7
4.6

2.7
5.7
4.9

3.0
5.8
5.1

0.1
0.1
0.2

-0.5
0.1
0.0

-0.3
0.0
-0.1

-0.1
0.0
0.0

6.8
7.3
5.0
0.9
2.3
0.7
5.2
3.3
0.9
0.5
2.3
-2.5
3.4
3.7
4.3
2.9
6.7
7.2
4.0
6.1
4.6
1.6
6.3
4.8

6.5
6.9
4.9
2.9
1.0
-2.8
6.1
3.9
-0.8
-3.8
2.6
2.6
2.8
4.1
-1.8
4.4
6.9
7.9
4.0
6.6
3.1
1.3
2.7
3.0

6.3
6.7
5.0
3.2
1.5
-0.2
2.9
2.8
-1.4
-3.6
2.3
-2.3
3.2
1.4
6.4
4.3
6.7
6.8
4.7
7.1
1.3
0.3
-1.6
0.0

6.2
6.5
5.2
3.2
2.5
1.3
3.5
3.3
0.8
0.3
1.8
2.7
2.1
0.6
4.0
3.9
6.8
7.2
5.2
6.8
2.6
0.6
1.2
1.2

6.1
6.3
5.3
3.3
2.7
1.4
3.9
3.2
2.1
1.8
2.2
3.2
2.9
2.0
4.1
4.6
7.1
7.5
5.5
6.4
3.2
1.1
2.4
0.9

6.1
6.3
5.4
3.4
2.8
1.4
4.1
3.2
2.5
2.1
2.5
3.2
3.1
2.1
4.2
5.3
7.3
7.7
5.8
6.7
3.5
2.0
2.5
1.5

0.0
0.0
-0.1
0.1
0.3
0.4
0.4
0.3
0.0
-0.2
0.3
0.0
0.5
0.4
1.8
0.0
-0.1
-0.2
0.0
0.0
-0.2
-0.1
0.1
-0.4

0.0
0.0
-0.1
0.0
0.1
-0.2
0.5
0.2
-0.4
-0.2
0.0
0.0
-1.0
-1.0
-1.2
-0.1
-0.3
-0.4
0.0
0.0
-0.3
-0.5
0.2
0.0

0.0
0.0
-0.2
0.0
-0.1
-0.3
0.4
-0.1
-0.2
0.0
-0.3
0.0
-0.4
-0.5
-0.7
-0.1
-0.2
-0.3
0.0
-0.1
-0.4
-0.7
-0.1
0.0

0.0
0.0
-0.1
0.0
-0.1
-0.4
0.4
-0.2
-0.1
-0.1
-0.3
0.0
-0.3
-0.5
-0.3
-0.1
-0.1
-0.1
0.0
0.0
-0.2
0.2
0.0
0.6

1.9
4.4
6.3
5.1
3.5
4.1

2.2
3.6
4.7
3.9
3.3
2.7

1.7
3.6
4.4
4.2
3.1
2.5

1.9
4.3
5.4
5.0
3.4
4.0

1.9
4.7
5.8
5.2
3.6
3.8

1.7
4.9
5.8
5.4
3.7
3.8

0.1
0.1
-0.3
-0.1
0.1
0.0

0.1
-0.1
-0.2
-0.1
-0.1
0.4

0.1
-0.1
-0.2
-0.2
-0.1
-0.2

0.0
0.0
-0.3
-0.1
0.0
-0.1

-7.5

-47.3

-15.6

23.8

5.7

5.4

-0.5

-4.4

-2.7

0.8

-4.6

-15.0

-2.6

4.0

0.7

1.0

0.0

2.6

-1.5

-1.1

East Asia and Pacific
China
Indonesia
ThailandEurope and Central Asia
RussiaTurkeyPolandLatin America and the Caribbean
BrazilMexicoArgentina
Middle East and North Africa
Saudi Arabia
Iran, Islamic Rep.
Egypt, Arab Rep.2
South Asia
India3
Pakistan2
Bangladesh2
Sub-Saharan Africa
South Africa
Nigeria
AngolaMemorandum items:
Real GDP1
High-income countries
Developing countries
Low-income countries
BRICS
World (2010 PPP weights)
World trade volume4
Commodity prices
Oil price5
Non-energy commodity price index

Source: World Bank.
Notes: PPP = purchasing power parity. World Bank forecasts are frequently updated based on new information. Consequently, projections presented here may differ from those contained inother World Bank documents, even if basic assessments of countries’ prospects do not differ at any given moment in time. Country classifications and lists of emerging market anddeveloping economies (EMDEs) are presented in Table 1.2. BRICS include: Brazil, Russia, India, China, and South Africa.
1. Aggregate growth rates calculated using constant 2010 U.S. dollars GDP weights.
2. GDP growth values are on a fiscal year basis. Aggregates that include these countries are calculated using data compiled on a calendar year basis. Pakistan's growth rates are based on
GDP at factor cost. The column labeled 2017 refers to FY2016/17.
3. The column labeled 2016 refers to FY2016/17.
4. World trade volume of goods and non-factor services.
5. Simple average of Dubai, Brent, and West Texas Intermediate.
For additional information, please see www.worldbank.org/gep.

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

recovery will be broad-based, impacting nearly 70
percent of commodity exporters in 2017.
However, lingering fiscal and external adjustment
needs dampen growth prospects in a number ofcountries. As a result, growth in commodity
exporters is projected to rise from 0.4 percent in2016 to 1.8 percent in 2017 and 2.7 percent in2018—somewhat below January forecasts,
reflecting longer-than-expected adjustment to low
commodity prices in some countries and, to alesser degree, slightly lower oil price projections.
Growth continues to be robust among commodity
importers. Windfalls from the recent decline incommodity prices is waning, but accommodative
policies are supporting domestic demand andexport growth is being bolstered by a recovery inglobal trade. The forecast for growth incommodity importers remains stable, at an averageof 5.7 percent in 2017-19.
In low-income countries, growth is rebounding, as
rising metals prices lift production in metals
exporters and infrastructure investment continues
in non-resource-intensive economies. However,some low-income countries are still struggling
with declining oil production, conflict, drought,
and security and political challenges. Growth in
low-income countries is expected to strengthen
during 2017-19, as activity firms in commodity
exporters.
A number of factors weigh on longer-term EMDE
growth prospects, including structural headwinds
to global trade, worsening demographics, slowing
productivity growth, and governance andinstitutional challenges. Even if the expectedmodest rebound in investment across EMDEs
materializes, slowing capital accumulation inrecent years may already have reduced potential
growth.
Substantial risks cloud this outlook, despite thepossibility of fiscal stimulus in some majoradvanced economies, particularly the UnitedStates (Figure 1.2). Escalating trade restrictions
could derail a fragile recovery in trade and undo
gains from past liberalization efforts. A further
increase in policy uncertainty from already highlevels could dampen confidence and investment
and trigger financial market stress, after a period of

C H A P TE R 1

5

FIGURE 1.1 Global prospects
Growth is projected to gain strength in both advanced economies andemerging market and developing economies (EMDEs). Global trade
growth has firmed and is expected to outpace GDP growth after two yearsof marked weakness. The pickup in global trade partly reflects a bottoming
out of global investment, which is relatively import-intensive. Global
financing conditions remain benign. The projected recovery in EMDEs islargely driven by expectations of diminishing obstacles to activity incommodity exporters.
A. Global growth

B. Global trade

C. Import intensity of demand
components, 2014

D. Corporate bond spreads

E. Growth by country groups

F. Share of EMDE commodity
exporters with accelerating/decelerating growth

Sources: Bloomberg, World Bank, World Input-Output Database.
A.B.E.F. Shaded areas indicate forecasts.
A. Aggregate growth rates calculated using constant 2010 U.S. dollars GDP weights.
B. Global trade is measured as volume of goods and services.
C. Import intensity for each GDP component computed from input-output tables based on Hong et al.
(2016). GDP-weighted average of 25 advanced economies and 7 EMDEs.
D. Spread between yields on non-sovereign debt with at least 18 months to final maturity and U.S.
Treasury yields of equivalent maturity. Individual bonds are weighted by market capitalization. Dottedlines indicate the median values since 2005. Last observation is May 24, 2017.
E. Aggregate growth rates calculated using constant 2010 U.S. dollars GDP weights.
F. Accelerating / decelerating growth are changes of at least 0.1 percentage point in growth rates
from the previous year. Sample includes 86 commodity-exporting EMDEs.

unusually low financial market volatility. Market
reassessment of advanced-economy monetary
policy, or disorderly exchange rate developments,
could contribute to swings in EMDE asset prices

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FIGURE 1.2 Global risks and policy challenges
Downside risks to global growth include rising protectionism, high policy
uncertainty, and the possibility of financial market disruptions. U.S.
monetary policy has tightened gradually so far, but a faster pace would
impact global financing conditions. Inflation has eased among EMDE
commodity exporters, allowing room for cuts in policy interest rates. With
deficits prevailing across EMDEs, and debt on a rising path, especially incommodity exporters, fiscal space remains constrained.
A. Probability of a 1-percentage-point
deviation from one-year ahead global
growth forecasts

B. Global trade and tariffs

C. Economic policy uncertainty (EPU)
and financial market volatility (VIX)

D. U.S. policy interest rates aroundtightening cycles

E. Consumer price inflation in EMDEs

F. Fiscal sustainability gap

Sources: Baker, Bloom, and Davis (2015); Bloomberg; Bown and Irwin (2015); Federal Reserve
Board; Haver Analytics; International Monetary Fund WEO; World Bank.
A. Probabilities computed from forecast distribution of 18-month ahead oil price futures, S&P500
equity price futures, and term spread forecasts. Last observation is April 2017.
B. Global trade is defined as the average of exports and imports in percent of GDP. Applied tariff
rates based on weighted mean for all products.
C. VIX is the implied volatility of option prices on the U.S. S&P 500. EPU is the Economic Policy
Uncertainty index computed by Baker, Bloom, and Davis (2015). Last observation is April 2017 for
EPU and May 24, 2017 for VIX.
D. t=0 refers to the start of U.S. monetary policy tightening cycles (January 1994, June 1999, June
2004, and December 2015 (“current”). Dashed lines show market implied changes. Last observationis May 24, 2017.
E. Sample includes 75 commodity-exporting and 54 commodity-importing EMDEs and shows themedian in each respective group. Last observation is April 2017.
F. Sustainability gap is measured as the difference between the primary balance and the debtstabilizing primary balance, assuming historical average (1990–2016) interest rates and growth rates.
A negative gap indicates that government debt is on a rising trajectory; a positive gap indicatesgovernment debt is on a falling trajectory. Figure shows median in each country group. Sample
includes 44 commodity-exporting and 28 commodity-importing EMDEs.

and capital flows, potentially amplified byvulnerabilities in some countries. Over the longer
term, persistent weakness in productivity andinvestment growth would erode potential growth.
Policymakers face the challenge in nurturing therecovery, confronting downside risks, andfostering longer-term growth. Central banks inadvanced economies will gradually normalize
monetary policy as inflation increases andeconomic slack diminishes. While the U.S.
tightening cycle is well ahead of other majoradvanced economies, it is proceeding at a
substantially slower pace than in the past.
Expansionary fiscal policy could help support therecovery, as long as it is consistent with mediumterm fiscal sustainability. Policy priorities include
measures to support workers most affected by
sectoral shifts in employment through better
training and job search programs, and to share thedividends of growth and gains from globalization
more widely.
Inflation rates in EMDE commodity exporters
and importers are converging. Easing inflation
among commodity exporters since mid-2016 hasallowed a more accommodative monetary policy
stance in some countries. Although the impact of
the earlier drop in commodity prices on thegovernment budgets of commodity exporters is
dissipating, fiscal space remains constrained inmany EMDEs, suggesting the need for continued
fiscal adjustment. EMDEs will need to continue topursue structural reforms to improve their longerterm growth prospects, diversify their economies,
and develop domestic as well as foreign markets.
These efforts include policies to improve thebusiness climate, support investment in humanand physical capital, and enhance regional andglobal trade integration of EMDEs.

Major economies: Recent
developments and outlook
Growth in major advanced economies has strengthened, and their short-term outlook has improved,
despite elevated policy uncertainty. A modest recovery
should continue, with output gaps narrowing andinflation gradually converging toward central bankG L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

targets. U.S. monetary policy normalization is expected to proceed at a measured pace. China’s policyguided gradual transition to slower but moresustainable growth continues as expected.
Advanced economies started the year on a solid
note, with investment and exports regaining
momentum after subdued growth in 2016. Private
consumption decelerated somewhat in early 2017,
but has been supported by labor market
improvements. Import demand has strengthened,further contributing to a recovery in global trade.
In 2017, growth is expected to pick up in the
United States and Japan, and to remain broadly
stable in the Euro Area (Figure 1.3). Forecasts forseveral major economies have been upgraded.
Economic slack continues to diminish, andinflation expectations are rising, albeit at different
rates.
United States
Following a slowdown in 2016 that reflected
investment and export weakness, growth isexpected to recover this year. At the start of 2017,activity was temporarily held back by adeceleration in consumer spending, largely due to
one-off factors and despite high consumer
confidence (Figure 1.4). This was partly offset by
an appreciable pickup in private investment, after
subdued gains in 2016. Capital expenditure in theenergy sector showed signs of bottoming out,
following two years of heavy retrenchment andproductivity gains in the shale oil sector. Labor
market conditions have continued to improve in2017, but wage and productivity growth remain
sluggish. Stagnant productivity partly reflects
diminished firm entry rates, including a decline in
the startup rate in key innovative sectors, as well as
lower job flows (Haltiwanger 2015; Decker et al.
2017). Economic slack remains, as reflected inunderemployment and unused capacity in
manufacturing above levels of earlier cyclical peaks(Yellen 2017). However, slack is diminishing, andthe unemployment rate is close to its estimatedlong-run equilibrium (FOMC 2017). Following
its March 2017 policy rate hike, the U.S. Federal
Reserve is expected to continue to tightenmonetary policy—but at a more gradual pace thanin the past three tightening cycles, reflecting

C H A P TE R 1

7

FIGURE 1.3 Advanced economies
Growth in the United States is expected to recover in 2017 and to continue
at a moderate pace in 2018, as previously envisaged. The forecasts for theEuro Area and Japan have been revised upward, reflecting robust growthat the start of 2017. Inflation expectations have increased from 2016, albeit
from low levels in the Euro Area and Japan.
A. GDP growth

B. Long-term inflation expectations

Sources: Bloomberg, World Bank.
A. Shaded areas indicate forecasts.
B. Long-term inflation expectations are derived from 5-year/5-year forward swap rates. Lastobservation is May 24, 2017.

FIGURE 1.4 United States
Private consumption moderated in early 2017, despite strong consumer
confidence. Private investment strengthened, whereas capital expendituresin the energy sector showed signs of bottoming out. Economic slack isdiminishing, but unused capacity remains above pre-crisis levels. Over thelong run, net migration is expected to account for the bulk of population
growth, assuming no policy change.
A. Consumer confidence andspending

B. Mining investment and oil pricechangesC. Underemployment and capacity
utilization

D. Contribution to total population
growthSources: Board of Governors of the Federal Reserve System, Haver Analytics, U.S. Bureau of Labor
Statistics, U.S. Census Bureau, World Bank.
A. Last observation is April 2017 for consumer confidence and March for real personal consumption.
B. Last observation is 2017Q1.
C. Underemployment is the sum of unemployed, people marginally attached to the labor market, andinvoluntary part-time workers, in percent of the labor force. Ranges denote values of each data series
at cycle peaks. Shaded areas denote U.S. recessions. Last observation is April 2017.
D. Net migration includes the international migration of both native and foreign-born populations.
Based on the 2014 U.S. Census Bureau population projections.

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FIGURE 1.5 Euro Area
Unemployment fell rapidly throughout 2016, but remains slightly above
structural levels. Actual and expected inflation increased somewhat since
the start of the year. Investment is recovering, but remains on a lower
trajectory than in previous upturns. The United States and the United
Kingdom remain the single largest destination of extra-Euro Area exports.
A. Unemployment rate

B. Euro Area inflation

C. Euro Area investment after
recessions

D. Geographic distribution of EuroArea exports and imports

Sources: Bloomberg, European Commission, Eurostat, Haver Analytics, World Bank.
A. Structural unemployment is the non-accelerating wage inflation rate of unemployment (NAWRU)
estimated by the European Commission.
B. Long-term inflation expectations are derived from 5-year/5-year forward swap rates. Lastobservation is April 2017.
D. Share of extra-Euro Area exports and imports in 2016.

persistent legacies from the financial crisis andlower equilibrium interest rates. Thus far, financial
markets have been resilient despite rising U.S.
policy interest rates, possibly because rate increases
were interpreted as a recognition of strengthening
U.S. growth prospects (Arteta et al. 2015). As aresult,financingconditions
remainaccommodative and broadly supportive of acontinued recovery.
Overall, a moderate expansion in activity is
expected to continue. Growth is projected to risefrom 1.6 percent in 2016 to 2.1 percent in 2017and 2.2 percent in 2018, before slowing to 1.9
percent in 2019 as it moves closer to potential.
The remaining output gap could close by 2018
and become positive in 2019. The possibility ofsignificant additional policy changes presents
upside as well as downside risks to the U.S. growthforecast for 2018-19. Tax cuts and infrastructure
programs could lead to stronger-than-expected
growth in the short term, but also to a more rapid
increase in policy interest rates (World Bank
2017a). In contrast, should substantial changes intrade policies emerge, they might trigger
retaliatory measures, damaging activity in both theUnited States and its trading partners. U.S.
multinationals are tightly interconnected inregional and global supply chains and account fora substantial share of exports, domestic sales, andemployment in the United States (Kose et al.
2017a). The impact on trade and activity ofborder tax adjustments in corporate taxation
would largely depend on the reaction of theexchange rate and on associated policy
uncertainties (Auerbach and Holtz-Eakin 2016).
Over time, more restrictive immigration rules
could reduce potential output growth. Net
migration contributes to both employment andproductivity growth, and is expected to accountfor the bulk of population growth in coming
decades (Alesina, Harnoss, and Rapoport 2013;
Borjas 2013; Jaumotte, Koloskova, and Saxena
2016; Peri 2012).1
Euro Area
Growth was robust in 2016 and continued at asustained pace at the start of 2017. Manufacturing
activity and goods exports have been lifted bystrengthening global trade and investment. The
unemployment rate fell throughout 2016 to reach
9.5 percent in the first quarter of 2017, about 2.5
percentage points below its peak in 2013.
However, the jobless rate remains above structurallevels, indicating that some labor market slack
persists (Figure 1.5). Headline inflation has risen
as the energy price decline of early 2016 has
unwound, but core inflation and inflation
expectations remain below the European Central
Bank (ECB) target, pointing to prospects ofcontinued monetary policy accommodation.

1The global implications of possible U.S. policy changes are
discussed in greater detail in the risks and policy challenges sections.

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

Accommodative monetary policy is expected tohelp sustain domestic demand in the near term.
Unconventional measures undertaken by the ECB
since 2014 have helped stimulate credit growth,
lift inflation expectations, and foster a gradual
recovery (Arteta et al. 2016; Andrade et al. 2016).
Fiscal policy is expected to be broadly neutral to
growth in 2017 (European Commission 2017).
The recovery in private investment and export
growth is projected to continue, while private
consumption decelerates on receding tailwinds
from low energy prices. On balance, growth isprojected to remain at 1.7 percent in 2017, better
than anticipated in January. In 2018-19, growth isexpected to moderate to 1.5 percent, as economic
slack diminishes and the ECB gradually unwinds
exceptional policy measures. Nevertheless, growth
should remain well above potential growth,currently estimated at about 1.2 percent(European Commission 2017). Prospects remain
clouded by elevated policy uncertainties, including
election outcomes, the direction of Brexit
negotiations, and financial sector fragilities such as
high levels of non-performing bank loans in some
economies. Policy changes in the United States,
the single largest destination of Euro Area exports,
also remain a source of uncertainty.
Japan
Growth has picked up in 2017, supported by arecovery in external demand. Exports havestrengthened, especially for information technology-related products and capital goods (Figure
1.6). Business investment has gained momentum,
as reflected by a gradual shift from foreign todomestic machinery orders. The pickup in capitalspending has been supported by elevated corporate
profits as well as preparations for the 2020 Tokyo
Olympics (Osada et al. 2016; Brückner and Pappa
2015). Despite some strengthening, consumption
continues to be on a subdued trend, and wage
increases have been weak despite a tight labormarket. While headline inflation has been positivein 2017, inflation expectations remain low, despitea steady increase since the introduction ofquantitative easing measures in 2013 (Bank ofJapan 2016). Administered prices, as well as some
services prices, appear unresponsive to tighterlabor market conditions (Shintani et al. 2016).

C H A P TE R 1

9FIGURE 1.6 Japan
Exports have picked up, especially for information technology-related
products and capital goods. A relative increase in domestic versus foreignmachinery orders is consistent with strengthening investment. Inflation
expectations have risen, but remain below the central bank’s target. The
Bank of Japan policy shift to targeting long-term interest rates around zero
slowed its asset purchases.
A. Goods export volumes

B. Machinery orders

C. 5-year-ahead inflation expectations

D. Bank of Japan government bondpurchases and long-term bond yields

Sources: Bank of Japan, Haver Analytics, Japan Cabinet Office, World Bank.
A. Last observation is 2017Q1.
B. Data represent a 12-month moving average. Last observation is March 2017.
C. Percent of surveyed households.
D. Data for asset purchases are 3-month moving averages. Last observation is April 2017. The
vertical line denotes the start of the Bank of Japan policy of adjusting asset purchases to stabilize
10-year government bond yields at zero.

Continued accommodative monetary and fiscal
policies should support growth, which is projected
to edge up to 1.5 percent in 2017, a significant
upgrade from previous forecasts. Growth isexpected to moderate to 1.0 percent in 2018—arate that remains somewhat above estimatedpotential growth, which has been upgradedfollowing the release of revised capital stock andnational accounts data (Kawamoto et al. 2017).
The Bank of Japan’s policy shift in 2016 totargeting long-term interest rates around zero is
expected to keep interest rates at low levels
throughout
2017.
Supplementary
publicspending, amounting to 1.2 percent of GDP, isexpected to support activity throughout 2017, andto a lesser degree in 2018. In 2019, growth isforecast to slow to 0.6 percent, as a planned
consumption tax hike is implemented.

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FIGURE 1.7 China
Domestic rebalancing from investment to consumption resumed in 2017,reflecting strengthening consumer spending and the waning effect of statedriven infrastructure spending. Import and export growth have rebounded.
Consumer price inflation remains below target, while producer priceinflation has increased sharply, reflecting higher commodity prices andreduced overcapacity in heavy industry. Reserves remain at around $3
trillion, helped by a tightening of capital controls and measures toencourage FDI.
A. Contribution to GDP growth

C. Inflation

B. Export and import growth

D. Foreign currency reserves

Sources: China National Bureau of Statistics, Haver Analytics, World Bank.
A. Investment refers to gross capital formation, which includes change in inventories.
B.-D. Last observation is April 2017.

private sector investment growth. Despite
monetary tightening, credit growth still outpaces
nominal GDP growth. A housing market
correction in the largest (Tier 1 and Tier 2) cities
is unfolding alongside stable growth of both sales
and prices in smaller (Tier 3) cities (Chen andWen 2017; World Bank 2017b). While consumer
price inflation remains below target, producer
price inflation has increased sharply, reflecting
higher commodity prices and reduced overcapacity
in heavy industry. Exchange rate pressures haveeased from late 2016, partly as a result of atightening of capital controls and measures toencourage inward foreign direct investment (FDI),
which are also helping maintain reserves at around
US$3 trillion.
Growth is projected to slow to 6.5 percent in2017, in line with January expectations. This
forecast envisages strengthening trade this year,with a moderate recovery of imports, amid robust
domestic demand, and a gradual acceleration ofexports, reflecting firming external demand.
Intermittent fiscal support will continue to be
used to calibrate growth as monetary policy
tightens further. Growth is expected to moderate
to 6.3 percent on average in 2018-19, as
simulative policies are slowly withdrawn. Key
downside risks to the outlook stem from financial
sector vulnerabilities and increased protectionist
policies in advanced economies.

China
GDP expanded 6.7 percent in 2016, as expected.
Domestic rebalancing from investment to
consumption slowed toward the end of 2016, as
infrastructure spending by state-owned companies
and the public sector accelerated, more thanoffsetting a sharp slowdown in private sector
investment (Lardy and Huang 2017). However,rebalancing from industry to services and fromexports to domestic sources of demand continued(Figure 1.7). The current account surplus
narrowed to 1.8 percent of GDP in 2016,reflecting stronger import demand and declining
exports.
Steady growth continued in early 2017. Easingstate-driven investment growth was offset bystrengthening export growth against the backdropof robust consumption growth and still-weakGlobal trends
Global trade has strengthened in 2017, as
manufacturing activity firmed and investment
growth bottomed out, especially in advanced
economies. Appetite for EMDE assets has returned,
reflecting market expectations of strengthening growthand still favorable international financing
conditions. Moderate increases in commodity prices
are expected to continue, although oil priceprojections have been revised slightly down, reflecting
the prospect of increased U.S. shale oil production.
Global trade
Global trade growth has rebounded from a postcrisis low of 2.5 percent in 2016, despite risingtrade policy uncertainty. The recovery, whichbegan in the second half of 2016, has been

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

supported by stronger industrial activity (Figure
1.8). Just as a slowdown in global investment
growth was an important factor behind thedeceleration of global goods trade, strengthening
investment may support trade in 2017 (Freund
2016; Boz et al. 2015; Bussière et al. 2013; WorldBank 2015a). Investment growth in advanced
economies is firming, and the post-crisis
deceleration in capital spending observed in
EMDEs appears to be easing as the earlier termsof-trade shock for commodity exporters wanes. A
recovery in goods trade is supporting an upturn in
China’s exports, which in turn boosts imports ofintermediate products across regional and global
value chains. Policy-induced infrastructure
spending in China has also supported demand forindustrial commodities, benefiting countries
exporting raw materials.
Services trade was resilient throughout 2016,
supported by robust global consumer spending,particularly in major advanced economies. The
ongoing recovery in goods trade may also boost
services exports embodied in traded products(Lanz and Maurer 2015). Overall, trade in services
continues to play a stabilizing role, being lessvolatile and pro-cyclical than goods trade(Borchert and Mattoo 2009; Ariu 2016; WorldBank 2016a).
Global trade growth is expected to rebound to
4 percent in 2017, a faster pace than previously
forecast. The recovery in trade growth in 2017is supported by stronger import demand frommajor advanced economies, increased trade flows
to and from China, and a diminished dragfrom weak import demand from commodityexporting EMDEs. Nevertheless, trade growth willcontinue to be held back by structural
impediments, such as maturing global value chains
and a slower pace of trade liberalization (WorldBank 2015a; ECB 2016).
Protectionist measures do not appear to have beena significant factor behind weak trade since theglobal financial crisis. According to the WTO, thenumber of new trade restrictions in 2016 wasbroadly in line with previous years. And although
the use of non-tariff restrictions appears to haveincreased recently (Evenett and Fritz 2016), theirdampening effect has been limited so far (Ghodsi,

C H A P TE R 1

11

FIGURE 1.8 Global trade
Global goods trade growth has rebounded since mid-2016, supported bya recovery in manufacturing activity, and remained strong in the firstquarter of 2017. The improvement coincided with the bottoming out ofglobal investment, which is relatively trade-intensive. Services trade
continued to play a stabilizing role, outperforming goods trade during aperiod of marked weakness in the first half of 2016. The number of newly
adopted protectionist measures has generally been in line with past years.
A. Global industrial production andgoods trade volume growth

B. Global imports and investment

C. Import intensity of demand
components, 2014

D. Global services trade relative tomerchandise trade

E. Contribution to global import
growthF. Trade restrictions

Sources: CPB Netherlands Bureau for Economic Policy Analysis, World Bank, World Input-Output
Database, World Trade Organization.
A. Last observation is 2017Q1.
B. World investment, imports, and GDP calculated using constant 2010 U.S. dollars weights.
C. Import intensity for each GDP component computed from input-output tables based on Hong et al.
(2016). GDP-weighted average of 25 advanced economies and 7 EMDEs.
D. 12-month moving average of global import and export values. Last observation is February 2017.
E. Aggregate imports calculated using constant 2010 U.S. dollar weights. Shaded area indicates
forecasts.
F. Trade restrictions include trade remedy measures. 2016 data as of October.

Jokubauskaite, and Stehrer 2015). Nevertheless,an expanding stock of restrictions and growing
uncertainty about the direction of trade policy insome major economies could at some point have amaterial negative impact.

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FIGURE 1.9 Financial markets

Financial markets

U.S. long-term yields have stabilized since the start of 2017, following amarked increase around the November 2016 elections. Long-term yields incore Euro Area countries remain low, helping to maintain favorable global
financing conditions. Improved growth prospects and increased investor
risk appetite have led to a benign reaction of emerging-market assets torising U.S. yields, especially when compared with the mid-2013 Taper
Tantrum. Capital inflows and bond issuance in EMDEs continue to berobust.

Global financing conditions have been benign
since the start of 2017. Shortly after the U.S.
elections of November 2016, U.S. long-termyields rose sharply, similar to their surge during
the mid-2013 Taper Tantrum (Figure 1.9).
Unlike the Taper Tantrum, the late-2016 increasereflected market expectations of strengthening
growth and higher inflation in the United States,
and was not accompanied by a sudden andsustained re-pricing of risk, including of emerging
market assets. Since early 2017, U.S. long-termyields have plateaued, even as the Federal Reserve
has continued to raise short-term rates.

A. 10-year bond yields around 2016
elections and 2013 Taper Tantrum

C. Change in EMDE bond spreads
around 2016 U.S. elections and Taper
Tantrum in 2013

E. Portfolio flows to EMDEs

B. U.S. and German 5-year bondyieldsD. Commodity-exporting EMDE bondspreads and exchange rates

F. Cumulative EMDE bond issuance

Sources: Bloomberg, Dealogic, Haver Analytics, J.P. Morgan, World Bank.
A. Day 0 refers to May 22, 2013, and November 8, 2016. Last observation is May 24, 2017.
B. Last observation is May 24, 2017.
C. EMDE bond spreads are market-value weighted spreads between U.S. dollar-denominated EMDE
sovereign bonds and U.S. Treasury bonds. Last observation is May 24, 2017.
D. Medians of a nine-country group of EMDE commodity exporters are shown. Exchange rates arebilateral against the U.S. dollar, with upward movement showing an appreciation. Last observation is
May 24, 2017.
E. Net flows into EMDE bond and equity funds. Last observation is May 24, 2017.
F. Data include both international sovereign and corporate issuances. Last observation is
April 2017.

Euro Area bond yields have remained
exceptionally low, supported by continued monetary policy accommodation by the ECB (Mojon2017). The decoupling of Euro Area and U.S.
long term yields is expected to help maintain low
global interest rates, even as the Federal Reserve
pursues policy normalization. In some Euro Area
countries, however, upcoming political events andrenewed banking sector concerns have contributed
to a rise in risk premiums (De Santis 2017).
In an environment characterized by low market
volatility and robust investor risk appetite,
emerging market bond spreads have narrowed andequity prices have recovered. This provides
another sharp contrast with the Taper Tantrum,
which was accompanied by a substantial
deterioration in financing conditions for EMDEs.
Bond spreads have narrowed most notably among
commodity exporters, while their currencies havegenerally regained ground. Overall, capital inflows
to EMDEs have been robust in the first half of2017, with EMDE bond issuance activity
increasing at a record pace. Corporate bondissuance has been particularly buoyant, notably in
Latin America, as companies aimed at extending
maturity and lowering interest costs. Amid risingfiscal deficits, the Middle East and North Africa
region has accounted for about half of total
EMDE sovereign bond issuances since the start of2017. Fewer credit downgrades and improving
growth prospects have supported a recovery
in capital flows to some commodity-exporting
EMDEs, despite continued weak FDI in resource
sectors.

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

Capital flows are expected to remain steady in2017 and 2018, reflecting the offsetting effects ofgraduallytighterinternational
financingconditions and strengthening growth prospects in
EMDEs (Eichengreen, Gupta, and Masetti 2017).
Commodities
After averaging $53 per barrel (bbl) during thefirst quarter of 2017, oil prices dropped below$50/bbl in early May, amid stubbornly highOECD stocks and rising Libyan production(Figure 1.10). Global oil consumption is expected
to grow at a moderate 1.4 percent in 2017-18
despite global growth gathering momentum. Oil
production declined in early 2017 as a result of
the implementation of cuts agreed in November
2016 by some Organization of the Petroleum
Exporting Countries (OPEC) and non-OPEC oil
producers. However, these cuts were partly offset
by stronger-than-expected shale oil production in
the United States, following steep productivity
improvements. A rebound in drilling activity
doubled the U.S. oil rig count from its 2016 low.
As a result, oil inventories remain high,particularly in the United States—a key factor
behind persistent weakness in oil prices.
Oil prices are expected to average $53/bbl in2017, up 24 percent from 2016, but $2/bbl lessthan January forecasts. Large stocks are expected
to unwind during the second half of the year. This
will support an increase in oil prices to $56/bbl on
average in 2018, down $4/bbl from January
projections. These forecasts reflect expectations ofincreased U.S. shale oil production following
productivity gains that have reduced costs
considerably, as well as an extension of production
cuts by OPEC and non-OPEC producers until
March 2018. Downside risks for oil prices arise
mainly from the resilience of the U.S. shale oil
industry or weak compliance to the production
cuts. Conversely, further disruptions among
politically stressed producers (e.g., Iraq, Libya,
Nigeria, República Bolivariana de Venezuela), as
well as commitments to additional production
cuts into 2018, could temporarily lift prices.
Metals prices continue to increase from their late2015 lows, partly due to China’s policy-driven
increase in infrastructure investment. In addition,C H A P TE R 1

13

FIGURE 1.10 Commodity markets
Oil prices weakened in March and April, reflecting an improved production
outlook in the United States. The resilience of the U.S. shale oil industry
presents a considerable downside risk for oil prices. Metals prices, which
are largely influenced by fluctuations in demand from China, are projected
to rise 16 percent in 2017. Agricultural prices are expected to remain
stable, with global stocks of the three key grains at 15-year highs.
A. U.S. oil rig count and oil prices,
weeklyB. Break-even prices for U.S. shale oilregions

C. World metal consumption growth

D. Stock-to-use ratios

Sources: Baker Hughes, Bloomberg, Rystad Energy, U.S. Department of Agriculture, World Bank,World Bureau of Metal Statistics.
A. Last observation is May 19, 2017 for rig count and May 24, 2017 for WTI.
C. 2016 data are estimates.
D. Stock-to-use ratios denote the ratio of ending stocks to domestic consumption and represent
a measure of how well supplied the market is. The data reflect the April 2017 U.S. Departmentof Agriculture update.

prices rose on supply constraints, including wage
negotiations in large copper mines in Chile,planned shutdowns of nickel mines in thePhilippines, and aluminum capacity reductions in
China. Exhaustion of zinc deposits in Australia
and Canada also played a role. Average annual
metals and mineral prices, which declined 6
percent in 2016, are projected to rise 16 percent in2017 and decline marginally in 2018 as some of
the temporary supply constraints are resolved.
Price forecasts have been lifted from January
projections due to stronger-than-expected demandin China and some unexpected supply constraints.
Agricultural prices are projected to remain broadly
stable in 2017 and 2018. Improved growing
conditions have pushed stocks-to-use ratios of key
grains to 15-year highs. Fears of supply dis-

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C H A P TE R 1

ruptions in the Southern Hemisphere, which
boosted soybean prices earlier in the 2016-17 crop
year, have diminished. Since agricultural
production is energy intensive, lower energy prices(compared to pre-2015 levels) continue todampen grain and oilseed prices. In addition,
lower energy prices reduce the incentive to divert
land use away from food to biofuel commodities.
Indeed, biofuel production has changed very little
in the past two years and is forecast to increase 5
percent in 2017, compared with an annual averagerate of expansion of 15 percent during thepreceding 10 years (World Bank 2017c).

Emerging market anddeveloping economies:
Recent developments
and outlook
From a post-crisis low in 2016, growth isstrengthening in EMDEs. A recovery in commodity
exporters is being led by some large economies where
adjustment to the earlier decline in commodity prices
is well advanced. However, some other economies
still face longer-than-expected adjustment needs,
suggesting that this recovery will be somewhat softer
than previously envisioned. In commodity importers,
growth is projected to remain solid, as stronger
exports offset the impact of diminishingpolicy support. Despite an easing of short-term
macroeconomic pressures in many EMDEs, thelonger-term EMDE outlook is constrained bystructural headwinds to world trade and slowing
productivity growth.
Recent developments
Growth in EMDEs reached a post-crisis low of 3.5
percent in 2016, as commodity exporters
continued to stagnate and idiosyncratic factors
held back growth in some large commodityimporting EMDEs (e.g., India, Turkey). Activity
firmed toward the end of 2016 and into 2017
(Figure 1.11), reflecting a recovery in commodity
exporters, where the contraction in investment iseasing and import growth is bottoming out. This
trend was broad-based across energy, metals, andagricultural commodity exporters. Some largecommodity exporters are beginning to emerge

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

from recession (e.g., Argentina, Brazil, Nigeria,
Russia), while growth in commodity importers
continues to generally be robust.
Industrial production and manufacturing
purchasing managers’ indexes have increased in2017. This increase has been most pronounced
among commodity exporters, where PMIs reachedtheir highest levels since early 2015. In
commodity importers, industrial production
remains robust, with PMIs well into expansionary
territory.
Domestic demand is leading the upturn in 2017,amid improving confidence and, in a number ofcommodity exporters, diminishing drag fromearlier policy tightening. This is mirrored in rising
import demand, which bottomed out in late 2016.
Stronger external demand is also supporting therecent improvement in EMDE conditions, albeit
unevenly.
Commodity-exporting EMDEs
Growth appears to be bottoming out, to varying
degrees, in many of the large commodity exportersthat were in recession or stagnation in 2016 (e.g.,
Angola, Argentina, Brazil, Kazakhstan, Nigeria,
Russia). Activity remains solid in a number ofdiversified, or non-resource-intensive, economies(e.g., Costa Rica, Ethiopia, Indonesia, Malaysia,
Rwanda, Senegal, Sri Lanka, Tanzania). However,remaining adjustment needs, particularly related
to fiscal sustainability, are holding back economic
activity in some economies, especially in those thathave significant domestic vulnerabilities andpolitical challenges (IMF 2017a).
In general, currencies in commodity exporters
have strengthened and inflation has retreated ascommodity prices have stabilized, allowing
monetary policy to be eased in some countries(e.g., Brazil, Chile, Colombia, Ghana, Kazakhstan,
Russia, Ukraine). Fiscal policy adjustment to low
commodity prices is easing in countries wheresuch adjustment started early and is well advanced(e.g., Honduras, Indonesia, Malaysia). Confidence
is generally improving, although it remains fragile(e.g., Argentina, Brazil, Kazakhstan, Nigeria,
Russia, Ukraine). While private consumption
growth appears to have bottomed out, impaired

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

household balance sheets continue to weigh on
consumption in some countries (e.g., Brazil, Kazakhstan, Russia, Ukraine). In resource sectors, corporate profits have picked up and companies havemade progress in repairing their balance sheets.
Russia is emerging from recession, with adiminishing contraction of consumer demandamid increasing price and currency stability, and apositive contribution from exports (World Bank
2017d). Growth in other large commodity
exporters is firming, supported by higher commodity prices and gradual monetary policy easing(e.g., Indonesia, Kazakhstan), as well as improved
confidence (e.g., Malaysia, Ukraine). In Nigeria,
recent indicators point to a recovery in the
manufacturing and non-manufacturing sectors.
Brazil is expected to slowly emerge from recession
in 2017 (Banco Central do Brasil 2017). Activity
indicators have improved, including a resumptionof industrial output growth and a pickup in export
growth, as well as gains in confidence andmanufacturing. However, the country continues
to struggle with rising unemployment and stillsizable fiscal adjustment needs.
In general, growth in energy exporters lags that ofmetal and agriculture exporters. Energy exporters
face more recent, and deeper, adjustment needs.
In addition, they have enacted policy measureslater than other exporters. Oil production cuts andprotracted fiscal consolidation has weighed on
growth of Gulf Cooperation Council (GCC)
countries and other affected energy exporters (e.g.,
Algeria, Angola, Ecuador, Iraq, Kuwait, Qatar,
Saudi Arabia, United Arab Emirates). Realexchange rate appreciation in economies pegged to
the U.S. dollar has curtailed current accountimprovements (Werner, Adler, and Magud 2017).
In contrast to the generally improving trend across
EMDE commodity exporters, activity was weak inearly 2017 in some countries in Sub-SaharanAfrica (e.g., Burundi, Chad, Equatorial Guinea),
Latin America and the Caribbean (e.g., Ecuador,
República Bolivariana de Venezuela), Europe andCentral Asia (e.g., Azerbaijan), and East Asia andPacific (e.g., Mongolia, Papua New Guinea). This
generally reflects sizable and protracted policy
adjustment to low commodity prices. Country-

C H A P TE R 1

15

FIGURE 1.11 EMDE activity
EMDE growth is strengthening, led by commodity exporters, where thecontraction of investment is easing and imports are bottoming out. The
recovery is broad-based among energy, metals, and agriculturalcommodity exporters. Industrial production and manufacturing PMIs arerising. EMDE domestic demand is firming, amid improved confidence.
A. GDP growth

B. Investment and import growth,commodity exporters

C. GDP growth, EMDE commodity
exporters

D. Industrial production growthE. Manufacturing PMI of commodity
exporters and importers

F. Contribution to GDP growth

Sources: Haver Analytics, World Bank.
A. B. Aggregate growth rates calculated using constant 2010 U.S. dollars weights. Last observation is
2017Q1.
C. Simple average of GDP growth. EMDE commodity exporter groups exclude BRICS countries. Grayline indicates interquartile ranges of growth in each group. Shaded areas indicate forecasts.
D. 6-month moving average of year-on-year industrial production growth. EMDE commodity importers
excludes China. Last observation is March 2017. Dotted lines indicate median values from 2012-16.
E. 6-month moving average of country sample. Index values above 50 indicate expansion. EMDE
commodity importers excludes China. Sample includes 5 EMDE commodity exporters (Brazil, Russia,
Indonesia, Malaysia, South Africa) and 7 EMDE commodity importers ex. China (India, Poland,
Philippines, Thailand, Vietnam, Mexico, Turkey). Last observation is April 2017.
F. Shaded areas indicate forecasts. Commodity importers excludes China.

specific domestic challenges have added to thedifficulties, including domestic and external
imbalances, exchange rate misalignments, social
tensions, political challenges, security issues, anddroughts. Recent activity in some metals exporters

16

C H A P TE R 1

has been held back by special factors, including
production bottlenecks (e.g., Papua New Guinea),
policy uncertainty (e.g., Armenia, South Africa),
and mining sector disruptions and natural
disasters (e.g., Chile, Peru).
Commodity-importing EMDEs
Growth in commodity importers remains generally robust. In East Asia and Pacific and in SouthAsia, solid domestic demand, strong infrastructure
spending, FDI-led investment into highly competitive manufacturing sectors and services, and rising
global demand are benefiting many countries (e.g.,
Bangladesh, Cambodia, India, the Philippines,
Vietnam; World Bank 2017b). Asian EMDE
economies are also helped by increased intraregional trade and investment flows, which may
receive a further boost from China’s “One Belt,
One Road” initiative (World Bank 2016b).
Robust domestic demand and stronger imports
from the Euro Area has favored commodity
importers in Europe and Central Asia (e.g.,
Bulgaria, Romania, Serbia). Accelerated implementation of EU-funded projects is lifting otherregional economies (e.g., Hungary, Poland), while
adverse spillovers from recession in Russia andUkraine are fading, benefiting neighboring countries (e.g., Belarus, Georgia, Moldova) (WorldBank 2017e). Activity in commodity importers in
the Middle East and North Africa is improving as
reforms are implemented, as political conditions
normalize, and as harvest conditions recover (e.g.,
Jordan, Lebanon, Tunisia).
Despite an overall solid performance among
commodity importers, special factors are weighingon growth in some large economies. In Mexico,
uncertainty about U.S. trade policy appears to bediscouraging investment. In Turkey, lingering
effects from the failed coup last year and highinflation stemming from a substantial currency
depreciation have hurt confidence. Growth inThailand remains below its long-term trend, as
policy uncertainty and competitiveness challenges
are dampening investment and exports.
Low-income countries
Growth in low-income countries is rebounding
after a slowdown in 2016, supported by bothG L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

global and domestic factors (Box 1.1). Improving
metals prices are stimulating production in metals
exporters (e.g., Democratic Republic of Congo,
Guinea). In many non-resource-intensive lowincome countries, solid growth achieved in 2016 iscontinuing, driven by infrastructure investment.
In countries hit by drought in 2016, above-average
rainfalls are boosting agricultural production.
Elsewhere, reconstruction efforts following natural
disasters (e.g., the earthquake in Nepal) are
picking up pace. However, some low-income
countries remain under significant economic stressdue to declining oil production (e.g., Chad),conflict (e.g., South Sudan), drought (e.g., South
Sudan), security threats (e.g., Afghanistan), or
political instability (e.g., Burundi).
Outlook
EMDE growth is projected to strengthen from 3.5
percent in 2016 to 4.1 percent in 2017 and reachan average of 4.6 percent in 2018-19, reflecting a
recovery in commodity exporters and steady
growth in commodity importers (Figure 1.12).
Commodity prices are expected to rise moderatelyfrom low 2016 levels, although oil prices areprojected to rise slightly less than forecast in
January. A rebound in global trade is expected tooffset the negative effects associated with a gradualtightening of global financing conditions.
Growth in commodity exporters is expected topick up from 0.4 percent in 2016 to 1.8 percent in2017, and to reach 2.8 percent on average in 2018-19. The improvement is expected to be broadbased, with an acceleration of activity predicted in
the majority of commodity exporters both in 2017and in 2018. Aggregate growth in commodity
exporters will be supported by improved
confidence and rising commodity prices, and willsolidify as the adjustment to the earlier terms-oftrade shock runs its course, as exports rebound anddomestic demand firms.
Nevertheless, the expected recovery in commodity
exporters is weaker than envisioned in January,
mainly reflecting longer-than-expected adjustment
to low commodity prices in some countries and, toa lesser degree, weaker energy price prospects.
Special factors contributing to downward revisions
include slowing oil sector growth in the Islamic

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

C H A P TE R 1

BOX 1.1 Low-income countries: Recent developments and outlook

Growth in low-income countries slowed to 4.4 percent in 2016 but is projected to pick up to 5.4 percent in 2017. Output
in oil and metals-exporting countries will recover gradually, reflecting improvements in commodity prices and global trade,and reforms to remove constraints to growth. Average growth in non-resource-intensive countries is expected to remain solid,
supported by domestic demand and, in particular, public investment. The main downside risks to the outlook include a
weaker-than-expected recovery in commodity prices, a delay in necessary fiscal adjustments, and a deterioration in security
and political conditions.
Growth rebound. Growth in low-income countries isrebounding in 2017 from the 2016 slowdown.1 The
increase in metals prices is stimulating production inmetals exporters (e.g., Democratic Republic of Congo,
Niger). In many non-resource-intensive countries,
including in the West African Economic and Monetary
Union (WAEMU), the rebound is led by infrastructure
investment (IMF 2017b).2 Investor risk appetite forlow-income countries’ assets has improved. In May,
Senegal tapped the Eurobond market to finance its
investment projects. In countries that were hit by an El
Niño-related drought in 2016 (e.g., Malawi,
Mozambique), above average rainfalls are boosting
agricultural production. Elsewhere, reconstruction
efforts following natural disasters (e.g., the earthquake
in Nepal) are picking up pace. However, a number of
low-income countries remain under significant
economic stress on account of declining oil production(e.g., Chad), conflict (e.g., South Sudan), drought (e.g.,
Somalia, South Sudan), security threats (e.g.,
Afghanistan), or political instability (e.g., Burundi).
Elevated current account deficits. Current accountpositions remain weak across low-income countries(Figure 1.1.1). Although current account deficits in oiland metals exporters are declining, they are still
elevated. For oil exporters, the improvement mainlyreflects the recent increase in the price of oil and a
decline in imports resulting from cuts in public
investment. In metals exporters, exports are gradually
increasing as production expands from existing andnew mining projects. Among non-resource-intensive
countries (e.g., Rwanda, Uganda), rising fuel prices andlarge public investment programs are keeping current
Note: This box was prepared by Gerard Kambou and Boaz Nandwa.
Research assistance was provided by Trang Thi Thy Nguyen and Xinghao
Gong.
1For the 2017 fiscal year, low-income countries are defined as thosewith a gross national income (GNI) per capita, calculated using theWorld Bank Atlas method, of $1,025 or less.
2The WAEMU low-income countries are Benin, Burkina Faso,
Guinea-Bissau, Mali, Niger, Senegal, and Togo.

account deficits high. Foreign reserves remain underpressure in many countries, reflecting continued
weakness of current account balances and lower-thanexpected external financing. Reserve levels were lessthan two months of imports of goods and services inseveral countries at end-2016 (e.g., Chad, Democratic
Republic of Congo, South Sudan) (IMF 2016a).
Stabilizing exchange rates, high inflation. The
currencies of commodity exporters are stabilizing,
following sharp depreciations in 2016, although they
continue to weaken in some cases (e.g., Democratic
Republic of Congo). Large exchange rate depreciations,compounded by the impact of drought on food prices,
contributed to a rapid increase in inflation in somemetals exporters. Inflation in Mozambique exceeded 20
percent in the first quarter of 2017. In non-resourceintensive countries, inflationary pressures areintensifying across East Africa, where a drought has
reduced agricultural production, causing a spike infood prices (e.g., Ethiopia, Rwanda). Other cases ofhigh inflation reflect domestic supply disruptions fromnatural disasters (e.g., Haiti). In Chad and WAEMU
low-income countries, inflation has remained generally
low, reflecting the stable peg to the euro. In somecountries where inflation has stabilized, central banks
have reduced policy rates (e.g., Tanzania, Uganda).
Improving fiscal positions. Fiscal positions have
improved somewhat across low-income countries,
reflecting fiscal consolidation efforts. Large drops in oilrevenues have forced sharp spending cuts in Chad.
Some metals exporters (e.g., Mozambique, Sierra
Leone) have revised their spending plans to stabilize
their economies. However, in others (e.g., Liberia,
Niger), fiscal balances remain under pressure, reflecting
delayed fiscal consolidation. Fiscal deficits widened inseveral non-resource-intensive countries (e.g., Togo,
Uganda) due to the continued expansion in public
infrastructure. As a result, government debt ratios in
low-income countries have continued to rise (e.g.,

17

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G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

BOX 1.1 Low-income countries: Recent developments and outlook (continued)

FIGURE 1.1.1 Recent developments
Growth slowed markedly in several low-income countries toward the end of 2016. The impact of low commodity prices was
the dominant factor, although drought and conflict also played a role. Inflationary pressures increased at the start of the year,
reflecting large currency depreciations and the effect of drought on food prices in some countries. While current account andfiscal deficits remain elevated across low-income countries, they are narrowing in oil and metals exporters as commodity
prices improve.
A. GDP growth

B. Consumer price inflation

C. Current account balance

D. Fiscal balance

Sources: Haver Analytics, International Monetary Fund, Tanzania Bureau of Statistics, World Bank.
A. Last observation is 2016Q4.
B. Last observation is March 2016 for Chad, September 2016 for Nepal, November 2016 for Haiti and low-income countries, and April 2017 for Mozambique andUganda.
C.D. Non-resource-intensive countries include agricultural-based economies and commodity importers.

Ethiopia, Liberia, Togo), or stayed elevated (e.g.,
Mozambique, Senegal), exceeding in most cases 50
percent of GDP at end-2016. The rising government
debt levels indicate a need for low-income countries toimprove debt management capacity to manage rolloverrisks (World Bank 2017f).

Weaker-than-expected growth outlook. Growth in
low-income countries is projected to reach 5.4 percent
in 2017 and strengthen to 5.8 percent by 2019 (Figure
1.1.2). The turnaround is predicated on a continued
recovery of commodity prices, as well as on policy
actions to reduce macroeconomic imbalances. TheseG L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

C H A P TE R 1

BOX 1.1 Low-income countries: Recent developments and outlook (continued)
FIGURE 1.1.2 Outlook
GDP growth in low-income countries is projected torecover to 5.4 percent in 2017 and to 5.8 percent in
2018-19. This reflects a moderate recovery in oil andmetals exporters toward their long term average growth.
Growth in non-resource-intensive countries is projected
to remain robust.
A. GDP growth: Low-income country groups

B. GDP growth: Selected countries

Source: World Bank.

forecasts are slightly weaker than those in January, witha more moderate recovery among oil and metals
exporters, where growth will remain well below its
2010-2014 average. The factors underlying the modest
recovery vary. Maturing oil fields (e.g., Chad) or

conflict (e.g., South Sudan) will dampen the growth ofoil production. Among metals exporters, inflation andfiscal tightening will be a greater drag on growth than
expected.
In non-resource-intensive countries, growth should
remain robust. Large low-income countries in SubSaharan Africa (e.g., Ethiopia, Tanzania) will expand at
a rapid pace, helped by buoyant service sectors,
infrastructure investment, and a rebound in agriculture.
However, with elevated debt levels, these countries willneed to increase public savings, contain debt
accumulation, and rebuild policy buffers. Fragile states(e.g., Burundi, Haiti, Zimbabwe) will continue toexpand at a slower pace.
Risks tilted to the downside. External risks include thepossibility of weaker-than-expected growth in advanced
economies. This could reduce demand for low-income
countries’ exports, depress commodity prices, andcurtail foreign direct investment in mining andinfrastructure. Low-income countries in SSA are
particularly vulnerable to this risk because of theirdependence on commodity exports. Other major risks
are a sharp reduction in foreign aid, particularly in viewof the cuts proposed by the U.S. administration; larger
declines in remittances due to stricter immigration
policies (e.g., Haiti); and border closures (e.g.,
Afghanistan). The materialization of these risks would
dampen investment, consumption, and regional tradein many low-income countries.
There are also a number of domestic downside risks.
Failure to implement appropriate macroeconomic
policies, especially in countries where large fiscal
adjustments are needed, would further weaken
macroeconomic stability. Adjustment needs are
particularly large in several low-income countries in
SSA, including Chad and Mozambique. In addition,rising security threats (e.g., Afghanistan), heightenedpolitical uncertainty (e.g., Democratic Republic ofCongo, Burundi), intensification of conflict (e.g.,
South Sudan), and worsening drought conditions (e.g.,
Somalia, South Sudan) would severely affect economic
conditions in fragile countries.

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G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

BOX 1.1 Low-income countries: Recent developments and outlook (continued)
TABLE 1.1.1 Low-income country forecastsa(Real GDP growth at market prices in percent, unless indicated otherwise)
2014

2015

2016

2017

Estimates

Low Income Country, GDP

b

2018

2019

2016

2017

2018

2019

Percentage point differences fromJanuary 2017 projections

Projections

6.3

4.7

4.4

5.4

5.8

5.8

-0.3

-0.2

-0.2

-0.3

Afghanistan

1.3

1.1

2.2

2.6

3.4

3.1

1.0

0.8

0.4

-0.5

Benin

6.4

2.1

4.0

5.5

6.0

6.3

-0.6

0.3

0.7

1.0

Burkina Faso

4.0

4.0

5.4

6.1

6.3

6.3

0.2

0.6

0.3

0.3

Burundi

4.7

-3.9

-0.6

1.5

2.0

2.6

-0.1

-1.0

-1.5

-0.9

Chad

6.9

1.8

-7.0

0.2

3.2

3.1

-3.5

0.5

-1.5

-3.2

Comoros

2.1

1.0

2.2

3.3

4.0

4.0

0.2

0.8

1.0

1.0

Congo, Dem. Rep.

9.0

6.9

2.2

4.7

4.9

4.9

-0.5

0.0

-0.1

-0.1

Ethiopiac

10.3

9.6

7.5

8.3

8.0

7.9

-0.9

-0.6

-0.6

-0.7

Gambia, The

0.9

4.1

2.1

2.5

3.8

4.0

1.6

1.7

1.2

1.4

Guinea

0.4

0.1

4.6

4.4

4.6

4.6

-0.6

-0.2

0.0

0.0

Guinea-Bissau

2.5

4.8

4.9

5.1

5.1

5.1

0.0

0.0

0.0

0.0

Haitic

2.8

1.2

1.4

0.5

1.7

2.3

0.2

1.1

0.2

0.3

Liberia

0.7

0.0

-1.2

3.0

5.3

5.7

-3.7

-2.8

0.0

0.4

Madagascar

3.3

3.8

4.4

3.5

6.4

4.7

0.3

-1.0

1.6

-0.1

Malawi

5.7

2.8

2.5

4.4

4.9

5.3

0.0

0.2

0.4

0.8

Mali

7.0

6.0

5.6

5.3

5.2

5.1

0.0

0.2

0.2

0.1

Mozambique

7.4

6.6

3.3

4.8

6.1

6.7

-0.3

-0.4

-0.5

0.1

Nepalc

6.0

3.3

0.4

7.5

5.5

4.5

-0.2

2.5

0.7

-0.2

Niger

7.0

3.6

4.7

5.2

5.5

5.5

-0.3

-0.1

-0.5

-0.5

Rwanda

7.0

6.9

5.9

6.0

6.8

7.0

-0.1

0.0

-0.2

0.0

Senegal

4.3

6.5

6.6

6.7

6.9

7.0

0.0

-0.1

-0.1

0.0

Sierra Leone

4.6

-20.6

5.0

5.4

5.6

5.9

1.1

-1.5

-0.3

0.0

Tanzania

7.0

7.0

6.9

7.2

7.2

7.4

0.0

0.1

0.1

0.3

Togo

5.9

5.4

5.0

4.6

5.5

5.5

-0.4

-0.4

0.0

0.0

Ugandac

5.6

5.6

4.8

4.6

5.2

5.6

0.2

-1.0

-0.8

-0.4

Zimbabwe

3.8

0.5

0.7

2.3

1.8

1.7

0.3

-1.5

-1.6

-1.7

Source: World Bank.
World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here may differ fromthose contained in other Bank documents, even if basic assessments of countries’ prospects do not significantly differ at any given moment in time.
a. Central African Republic, Democratic People's Republic of Korea, and Somalia are not forecast due to data limitations.
b. GDP at market prices and expenditure components are measured in constant 2010 U.S. dollars.
c. GDP growth based on fiscal year data. For Nepal, the year 2017 refers to FY2016/17, which runs from July 16 to July 15 of the following year.
For additional information, please see www.worldbank.org/gep.

Republic of Iran, the protracted effects ofrestricted access to international financial markets
in Russia, deeper-than-expected oil production
cuts in Saudi Arabia, and a deterioration of
investor confidence in South Africa amid two
recent sovereign rating downgrades to subinvestment grade. More generally, the subdued
long-term outlook for commodity prices is
expected to keep investment rates in commodity

exporters well below the high rates achieved
during the pre-2014 commodity boom. In thiscontext, growth in regions with large numbers ofcommodity exporters will strengthen in 2017, but
at a slower-than-expected pace (Box 1.2).
Growth in commodity importers is projected toremain broadly stable, at around 5.7 percent on
average in 2017-19. In general, stronger exports

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

are expected to offset the impact of diminishingpolicy support and waning windfalls from earlier
commodity price declines. A gradual slowdown in
China will be partly offset by a modest pickup in
the rest of the group. Excluding China, growth incommodity importers will accelerate from 4.6
percent in 2017 to an average of 5.0 percent in
2018-19, partly reflecting the diminishing role ofidiosyncratic factors holding back activity in somelarge economies (e.g., Mexico, Turkey). Relative
to January projections, the outlook for commodity
importers is little changed. In particular, adowngrade to India’s fast pace of expansion,
mainly reflecting a softer-than-expected recovery
in private investment, is accompanied by an
upward revision to Turkey, partly due to signs ofless severe effects of last year’s failed coup and areassessment of potential growth.
In low-income countries, growth is projected torebound to 5.4 percent in 2017, helped by apickup in metals exporters, and strengthen to 5.8
percent in 2018-19, as activity improves in oil
exporters. This turnaround is predicated on policy
actions to tackle macroeconomic imbalances, aswell as on moderately rising commodity prices.
These forecasts are slightly lower than in January.
In oil exporters, oil production will increase at a
slower pace than previously projected due tomaturing oil fields (Chad) or conflict (South
Sudan). In metals exporters, high inflation andtight fiscal policy will be a greater drag on activity
than previously thought in several countries.
Growth should remain robust in non-resourceintensive countries as they continue to benefit
from infrastructure investment (e.g., Ethiopia,
Senegal) and buoyant services sectors (e.g.,
Tanzania).
While the easing of macroeconomic pressures is apositive development in the short term for many
EMDEs, structural obstacles continue to impede
the longer-term outlook. These include structural
headwinds to world trade, such as slower tradeliberalization and value chain integration;
persistently low commodity prices; worsening
demographics in most developing regions; slowing
productivity growth; and governance andinstitutional challenges. In addition, many
economies have experienced trend slowdowns ininvestment growth in recent years (World BankC H A P TE R 1

21

FIGURE 1.12 EMDE growth outlook
EMDE growth is projected to pick up to 4.1 percent in 2017 and accelerate
further in 2018-19. Amid strengthening global trade, EMDE exports andimports are expected to firm. The strengthening EMDE outlook mainlyreflects a recovery in commodity exporters, while growth in commodity
importers is projected to remain robust. However, EMDE investment islikely to remain subdued, with investment recoveries concentrated in a few
large EMDEs.
A. GDP growth

B. Import and export growth, goods
and services

C. Share of EMDEs with accelerating
growthD. Contribution to EMDE investment
growthSource: World Bank.
A.-D. Shaded areas indicate forecasts.
A. Aggregate growth rates calculated using constant 2010 U.S. dollars GDP weights.
B. Export and import volumes include goods and non-factor services.
C. Share of countries in EMDE commodity exporters and importers whose GDP growth is at least 0.1
percentage point higher than the previous year. Sample includes 60 commodity importers and 86
commodity exporters.
D. Averages for 1990-2008 and 2003-08 include all EMDEs.

2017a). Even if the expected modest recovery ininvestment materializes, the slower rate of capital
accumulation in previous years, and the associatedloss of embodied technological progress, may havealready set back potential output growth.
Moreover, the overall EMDE investment recovery
is expected to be concentrated in a few large
economies.

Risks to the outlook
Despite the possibility of more expansionary fiscal
policies than currently assumed in major economies,
the balance of risks remains titled to the downside,although slightly less so than at the start of the year.

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BOX 1.2 Regional perspectives: Recent developments and outlook

Growth in most EMDE regions with a substantial number of commodity exporters is projected to strengthen in 2017,amid modestly rising commodity prices and growing trade. However, this acceleration is weaker than previously
envisioned, mainly due to longer-than-expected adjustment to the weak commodity price outlook and, to a lesser degree, aminor downward revision to oil price forecasts. EMDE regions with large numbers of commodity importers are expected tocontinue to experience solid growth.
East Asia and Pacific. Regional growth is projected toinch down from 6.2 percent in 2017 to 6.1 percent on
average in 2018-19, in line with previous forecasts(Figure 1.2.1). A gradual slowdown in China will be
partly offset by a modest pickup in the rest of theregion. Domestic demand is projected to remainrobust. Firming exports are expected to offset thenegative impact of gradual policy tightening. Downside
risks include heightened policy uncertainty, increased
protectionism in key advanced economies, and an
abrupt tightening of financing conditions. A sharperthan-expected slowdown in China could have adverse
consequences for the rest of the region and continues tobe a low-probability risk.
Europe and Central Asia. Regional activity has picked
up since the end of 2016, and the 2017 growth forecastof 2.5 percent is in line with January projections. Bothcommodity exporters and importers are recovering.
The region is benefiting from modestly rising oil prices,benign global financing conditions, and solid growth in
the Euro Area. Regional growth is expected to edge up
to an average of 2.8 percent in 2018-19, as activity in
Russia and other commodity exporters firms andgrowth in Turkey recovers. The main downside risks
include renewed declines in oil and other commodity
prices, policy uncertainty and geopolitical risks, andinternational financial market disruptions. Domesticbanking system weaknesses are a vulnerability andcould amplify internal and external shocks.
Latin America and the Caribbean. Regional output
contracted 1.4 percent in 2016, pulled down byrecessions in Argentina, Brazil, and República
Bolivariana de Venezuela. Although recent data suggestthat the regional economy is stabilizing after two yearsof contraction, the recovery is expected to be subdued
in the short term. Growth is projected to reach 0.8
Note: This box was prepared by Carlos Arteta with contributions from
Gerard Kambou, Lei Ye, Boaz Nandwa, Yoki Okawa, Temel Taskin,Ekaterine Vashakmadze, and Dana Vorisek. Research assistance was provided by Trang Thi Thy Nguyen.

FIGURE 1.2.1 Regional growth
Growth in most EMDE regions with a substantial numberof commodity exporters is projected to pick up in 2017;
however, this acceleration is weaker than previously
envisioned. EMDE regions with large numbers ofcommodity importers are expected to continue toexperience solid growth.
A. Regional growth (weighted average)

B. Share of countries with increasing growth

Source: World Bank.
A.B. Average for 1990-08 is constructed depending on data availability. For
ECA, data for 1995-2008 are used to exclude the immediate aftermath of thecollapse of the Soviet Union.
A. Bars denote latest forecast; diamonds denote previous forecasts. Since
the largest economies of each region account for almost 50 percent ofregional GDP in some regions, weighted average predominantly reflects thedevelopment in the largest economies in each region.
B. Share of countries that GDP growth exceeds that of the previous year out
of total countries in the region. Horizontal black line denotes 50 percent.

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

C H A P TE R 1

BOX 1.2 Regional perspectives: Recent developments and outlook (continued)

percent in 2017, supported by strengthening private
consumption and an easing contraction in investment,
despite a slowdown in Mexico as uncertainty about
U.S. economic policy dents confidence. Regional
growth is expected to accelerate to an average of 2.3
percent in 2018-19, as the recoveries in Brazil andother commodity exporters advance. The main
downside risks to the outlook arise from domestic
political and policy uncertainty and from possible
policy changes in the United States.
Middle East and North Africa. Regional growth isprojected to decline from 3.2 percent in 2016 to 2.1
percent in 2017. The deceleration reflects slowdowns
in oil-exporting economies, resulting from OPEC-led
oil production cuts agreed in November 2016. In oil
importers, growth is expected to improve this year,
aided by reforms and supply-side factors such as
weather-induced recoveries in agricultural output.
Regional growth is expected to pick up to an average of
3 percent in 2018-19, amid modestly rising oil prices.
The need for additional fiscal consolidation by both oil
exporters and importers remains an important
headwind over the medium term. Key risks include a
weaker-than-expected rise in oil prices, continued
geopolitical conflicts, and social tensions that may delay
implementation of key structural reforms.
South Asia. Regional growth is projected to remainstrong, at 6.8 percent in 2017. India is recovering fromthe temporary adverse effects of the end-2016
withdrawal of large-denomination currency notes.
Elsewhere in the region, growth in Pakistan is

Increased protectionism, persistent policy uncertainty,
geopolitical risks, or renewed financial market
turbulence could derail an incipient recovery.
Financial market stress could be amplified byvulnerabilities in some EMDEs. Over the longer
term, a protracted slowdown in productivity andinvestment growth could further deteriorate thegrowth potential of advanced economies and
EMDEs.
Baseline forecasts point to strengthening
momentum throughout 2017, with global growthreaching 2.7 percent in 2017, helped by aaccelerating this year, largely driven by robust domestic
demand and improved foreign direct investment, while
activity in Bangladesh is moderating, reflecting apullback in domestic demand and in industrial
production. Regional growth is expected to firm in
2018-19, reaching an average of 7.2 percent, supported
by robust domestic demand, an uptick in exports, andstrong foreign direct investment. The regional outlook
has been slightly revised down from January, reflecting
a more protracted recovery in private investment inIndia than previously expected. Risks to the outlook aretilted to the downside and include reforms setbacks,
geopolitical tensions, and policy uncertainty.
Sub-Saharan Africa. Regional growth is projected torecover in 2017 to 2.6 percent, reflecting a modest risein commodity prices, strengthening external demand,and the end of drought in several countries. The
recovery is proceeding at a slightly more moderate pacethan anticipated in January, reflecting in part thelonger-than-expected adjustment among some largecommodity exporters to low commodity priceprospects, as well as heightened political uncertainty inSouth Africa. Solid growth in non-resource-intensive
countries is continuing into 2017, as expected.
However, in some countries, drought continues toweigh on agricultural production. Growth is projected
to pick up to 3.4 percent in 2018-19. Downside risks
to the outlook include insufficient adjustment to low
commodity prices, weaker improvements in commodity
prices, stronger-than-expected tightening of global
financing conditions, and political uncertainty.

moderate investment-led recovery in advanced
economies and diminishing headwinds among
commodity-exporting EMDEs. In 2018 and2019, global growth is predicted to average 2.9
percent, as recoveries in commodity-exporting
EMDEs gain traction.
In particular, aggregate growth in the largest seven
EMDEs (Brazil, China, India, Indonesia, Mexico,
the Russian Federation, and Turkey) is expected
to pick up throughout the forecast horizon,
surpassing its long-term average by 2018 (Figure1.13). Over time, this group has come to play an

23

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FIGURE 1.13 Role of the largest EMDEs in the global
outlook
Aggregate growth in the largest seven EMDEs is expected to pick up
throughout the forecast horizon. Over time, this group has come to play anincreasingly important role in the global economy. Recovering activity inthe largest EMDEs should have notable positive effects for growth in other
EMDEs as well as globally.
A. GDP growth

B. Contribution to global growth

C. Impact of 1-percentage-point
increase in EM7 and G7 growth on
growth in other EMDEs

D. Impact of 1-percentage-point
increase in EM7 and G7 growth on
global growthrisks continue to dominate. Policy uncertainty islikely to remain high in 2017, and there is a riskthat financial market volatility could increase fromcurrent low levels. This could be triggered by
unexpected changes in monetary, trade, or otherpolicies in major economies; heightened financial
sector concerns; electoral outcomes; or risinggeopolitical risks. Over the longer term, a more
prolonged slowdown in investment could further
erode the growth potential and resilience of bothadvanced economies and EMDEs.
Against this backdrop, downside risks remain
above historical averages. This implies a continued
downward skew in the distribution of possible
forecast errors. At present, the estimated 50percent probability range for global growth in2018 is 2.2-3.6 percent. The probability that
global growth could be more than 1 percentage
point below baseline over the next year is currently
estimated at 17 percent. The probability of global
growth being more than 1 percentage point above
the baseline next year is estimated at 15 percent.
Upside risk: fiscal stimulus in advanced
economies

Source: World Bank.
A.-D. EM7 includes Brazil, China, India, Indonesia, Mexico, the Russian Federation, and Turkey. G7
includes Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.
A. Aggregate growth rates calculated using constant 2010 U.S. dollars GDP weights. Shaded areas
denote forecasts.
C. Cumulative impulse responses of a 1-percentage-point increase in EM7 and G7 growth on growthin other EMDEs. Solid bars represent medians, and error bars represent 16-84 percent confidence
intervals.
D. Cumulative impulse responses of a 1-percentage-point increase in EM7 and G7 growth on global
growth. The impact is the GDP-weighted average of the responses of EM7, other EMDEs, and G7
countries. Solid bars represent medians, and error bars represent 16-84 percent confidence intervals.

increasingly important role in the global economy.
Accordingly, recovering activity in the largest
EMDEs should have notable positive effects for
growth in other EMDEs as well as globally—even
if the largest advanced economies continue to be
the main source of global spillovers (Huidrom,
Kose, and Ohnsorge 2017).
The benign global outlook is little changed since
January 2017, after a sequence of forecast
downgrades in previous years (Figure 1.14). Whilea more expansionary fiscal stance in advanced
economies—particularly the United States—could
lead to stronger-than-expected growth, downside

While the baseline forecast assumes that fiscal
policy in major advanced economies will bebroadly neutral to growth, a more expansionary
fiscal stance could eventually materialize over theforecast period, particularly in the United States.
Fiscal stimulus could provide a boost to U.S.
growth, depending on the nature of the measures(World Bank 2017a). Although this would havepositive effects on global growth, its benefits for
trading partners could be dampened bycountervailing forces—in particular, changes in
U.S. trade policy.
The proposed tax cuts and measures to boost U.S.
infrastructure spending are not included inbaseline projections due to insufficient details andthe unclear timeframe. Suggested tax reforms
include a reduction in marginal tax rates forcorporations and individuals, a simplification of
the tax code, and measures to improve
international tax competitiveness. Large cuts tocorporate and personal income taxes could have apositive short-term effect on growth, but couldG L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

also lead to a substantial increase in fiscal deficits.2
Immediate expensing of business investments
could provide particularly strong support tocapital expenditures, and help spur U.S. growth
above current projections (Auerbach et al. 2017).
Infrastructure investment programs could also
lead to stronger-than-expected U.S. growth in the
short-term, and increase potential output over the
medium term (Bivens 2014; Whalen andReichling 2015). However, the U.S. economy isalready close to full employment, which could
limit the short-term lift from fiscal stimulus, andlead to earlier, and ultimately larger, policy
interestrateincreases(AuerbachandGorodnichenko 2012; Christiano, Eichenbaum,and Rebelo 2011).
In the Euro Area, fiscal stimulus could boost
growth in view of still-high unemployment andlow equilibrium interest rates (European
Commission 2016). Given the high trade intensityof Euro Area activity, positive spillovers of EuroArea stimulus for the rest of the world, and for
EMDEs in particular, could be substantial (WorldBank 2017a). In Japan, additional stimulus
measures in the short term, and further delays inplanned consolidation measures over the medium
term, could lead to a slightly higher growth trajectory in coming years.
Downside risk: increased protectionism andtrade retaliation
Despite the recent improvement in world trade,the possibility of rising trade protectionism has
become a major source of concern (Figure 1.15).
Over the medium term, additional erosion of themultilateral rules-based system that has been built
since the mid-1940s could put downward pressureon economic integration, and ultimately on
growth and job creation.
While the widespread imposition of trade barriers
remains a tail risk in the short term, unilateral
restrictions may be met with retaliatory measures.
2Simulations suggest that a reduction in the statutory corporate
tax rate from 35 percent to 15 percent, along with a reduction in
marginal personal income tax rates by an average of 2.5 percentage
points, could increase GDP by about 1.2 to 1.9 percent above
baseline after 2 years, but also widen fiscal deficits by 1.9 to 2.4
percent of GDP over the same period (World Bank 2017a).

C H A P TE R 1

25

FIGURE 1.14 Global risks
Global growth forecasts have stabilized following sequential downgradesin previous years. However, downside risks remain above historical
averages. The probability that global growth could be more than 1
percentage point below the baseline next year is currently estimated at 17
percent. The probability of global growth being more than 1 percentage
point above the baseline next year is 15 percent.

A. Global growth forecasts over time

B. Downside risks to global growthforecasts

C. Global growth fan chart

D. Probability of 1-percentage-point
deviation from one-year ahead global
growth forecasts

Sources: Bloomberg, Consensus Economics, World Bank.
A. The dates indicate the editions of Global Economic Prospects.
B. Downside risks measured as the time-varying skewness of global growth forecasts, computed fromthe forecast distribution of the three underlying risk factors (oil price futures, the S&P 500 equity pricefutures, and term spread forecasts). Each of the three risk factors’ weight is estimated using thevariance decomposition of global growth forecasts derived from the vector autoregression model
described in Ohnsorge, Stocker, and Some (2016).
C.D. The fan chart and the corresponding probabilities are constructed based on the recovered
standard deviation and skewness, assuming a two-piece normal distribution. Values for 2017 arecomputed from the forecast distribution of 6-month ahead oil price futures, S&P500 equity pricefutures, and term spread forecasts. Values for 2018 are based on 18-month ahead forecast distributions. Last observation is April 2017.

A non-cooperative rise in trade restrictions could
result in retaliatory measures, eventually leading tosubstantial increases in tariffs worldwide (Ossa
2014; Tabakis and Zanardi 2016). This could
result in large income losses for all countries
involved (Broda, Limao, and Weinstein 2008;
Perroni and Whalley 2000).
An upward spiral in beggar-thy-neighborprotectionist measures would put into reverse theprocess of trade liberalization that has been amajor contributor to deepening trade in past
decades. For example, new preferential trade
agreements, and a rising number of WTO

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FIGURE 1.15 Risk of protectionism
Protectionism has become an important source of concern. A spiral ofretaliatory trade restrictions could undo gains from past trade liberalization.
A. Discussion of protectionism

B. Global trade and tariffs

Sources: Bown and Irwin (2015), Google Trends, World Bank.
A. Weekly average Google Trend search for “protectionism,” “trade restrictions,” “trade war,” and“import tariffs.” 2017 average is year-to-date. Latest observation is May 21, 2017.
B. Global trade is defined as the average of exports and imports in percent of global GDP. Applied
tariff rates based on the weighted mean for all products.

members, appear to have increased global trade
growth by an average of more than 1 percentage
point per year (Mattoo, Mulabdic, and Ruta
2017). The unwinding of such agreements would
likely put downward pressure on trade prospects
and jeopardize the effectiveness and viability of themultilateral trading system. Past experiences withprotectionist policies warn of considerable
unintended damage.
In turn, rising protectionism and declining tradeintegration would harm growth. Trade—particularly vertical specialization—tends to boost
productivity, and hence activity (Constantinescu,
Mattoo, and Ruta 2017). In the presence ofcomplex value chain integration, tariffs and otherbarriers to trade are cumulative, as intermediate
goods cross borders multiple times through thestages of production. An increase in barriers totrade may result in cascading trade costs along the
supply chain (Diakantoni et al. 2017; Rouzet andMirodout 2013). Consumers would ultimately
bear these costs, resulting in widespread welfare
losses. Deteriorating trade relationships between
major economies could also increase the risk ofgeopolitical tensions and conflict (Copeland2014).
Downside risk: policy uncertainty andgeopolitical risks
Global economic policy uncertainty has been
particularly elevated since mid-2016. If thisuncertainty persists, it could weigh on confidence
and derail the ongoing recovery in global growth.
Increased uncertainty about policy direction candelay investment and hiring decisions (FernándezVillaverde et al. 2011; Born and Pfeifer 2014;
Kose et al. 2017b). Policy uncertainty can also
constrain the supply of credit to the economy,
which can prolong or amplify economic
downturns (Bordo, Duca, and Koch 2016;
Karnizova and Li 2014). The threat of increased
trade tariffs, even in the absence of actual changes
in trade policies, could negatively impact
investment and trade as well (Crowley, Song, andMeng 2016). Elevated policy uncertainty is
negatively associated with firms’ entry into foreign
markets, and the decision to undertake costly andirreversible investments associated with exporting.
Overall, a 10-percent increase in global policy
uncertainty is associated with a 0.2 percentagepoint reduction in trade growth (Constantinescu,
Mattoo, and Ruta 2017).
The potential sources of economic policy
uncertainty are extensive. In the United States, the
new administration has suggested major shifts infiscal, trade, and immigration policies. Thesechanges could affect investment and hiring
decisions by companies, as well as capital andremittance flows to EMDEs. Even without
concrete changes, uncertainty about the direction
and scope of U.S. policies could affect prospects
for the U.S. economy and its main trading
partners (Kose et al. 2017a; World Bank 2017a).
These effects could be exacerbated by politicaluncertainty. In Europe, the rising influence of
populist parties could impact policies and affecteconomic integration in the European Union.
Negotiation around the exit of the United
Kingdom from the European Union also
carries risks.
Geopolitical risks have also steadily increased, andfragile security conditions could set back activity
in a number of regions. The risk of large-scale
conflict in the Middle East continues, reflecting
persistent unrest in Iraq, the Syrian Arab
Republic, and the Republic of Yemen, as well as
sectarian divisions in the region. A flare-up of
geopolitical risks in the Middle East could lead to
disruptions in global oil supplies and a resurgenceof refugee flows, posing additional challenges forG L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

host countries (Adhikari 2013). Water scarcity andfood insecurity could also contribute to instability
in the Middle East and Sub-Saharan Africa.
Droughts and conflict have already led tointensifying risks of famine in Nigeria, Somalia,
South Sudan, and the Republic of Yemen andcontributed to further unrest in Syria. Finally, thethreat of conflict in the Korean peninsula
represents a significant source of regional andglobal risk.

C H A P TE R 1

27

FIGURE 1.16 Financial market risks
A sudden reassessment of policy-related risks could trigger financial
market volatility and set back global activity. An uptick in the U.S. term
premium from current low levels could raise long-term yields, and worsen
financing conditions for EMDEs. Given elevated private sector debt, somecountries remain vulnerable to a sharp increase in borrowing costs. Somecountries also remain vulnerable to risks associated with further U.S. dollar
appreciation, but foreign reserves are ample and external debt ismanageable in most cases.
A. Economic policy uncertainty (EPU)
and financial market volatility (VIX)

B. Impact of global EPU and VIXshocks on global industrial
production

C. U.S. 10-year term premium

D. EMDE private sector debt

E. EMDE foreign reserves

F. EMDE external debt

Downside risk: financial market stress
A disorderly tightening of financing conditions ora sharp increase in financial market volatility fromcurrent low levels represent significant risks. These
could be triggered by a number of factors.
Repricing of policy-related risks
Since the start of 2017, financial market volatility
has been low, despite elevated policy uncertainty.
This divergence is unusual (Figure 1.16). A
sudden reassessment of policy-related risks could
lead to abrupt adjustments in asset prices and safehaven flows, with adverse consequences for higheryielding assets, including those from EMDEs. In
general, high policy uncertainty is associated withhigher risk premiums as investors seek to hedge
against negative outcomes (Brogaard and Detzel
2015; Pastor and Veronesi 2013). Economic
policy uncertainty is generally a weak predictor of
financial market volatility. However, specific
events, such as the U.S. debt ceiling negotiationsin 2011, have provoked bouts of volatility andsudden repricing of risks on international markets(Hamilton 2017). In turn, both volatility andpolicy uncertainty shocks can lead to adverse short-term effects on activity, with the former generally
having a larger impact (Alexopoulos and Cohen
2015; Baker, Bloom, and Davis 2015; Jurado,
Ludvigson, and Ng 2015). Countries with large
exposures to international financial markets could
be particularly susceptible to these negative effects(Adrian, Stackman, and Vogt 2016).
Sudden increase in borrowing costs
Changes in monetary policy expectations,
including a faster-than-expected normalization in
U.S. policy, or signals of an earlier-thananticipated exit from exceptional easing measures

Sources: Baker, Bloom, and Davis (2015); Board of Governors of the Federal Reserve System;
Bloomberg; Bank for International Settlements; Federal Reserve Bank of New York; Haver Analytics;
World Bank.
A. VIX is the implied volatility of option prices on the U.S. S&P 500. EPU is the Economic Policy
Uncertainty index computed by Baker, Bloom, and Davis (2015). Last observation is April 2017 for
EPU and May 24, 2017 for VIX.
B. Cumulative impulse response of global industrial production growth after 12-months to a onestandard-deviation shock in global Economic Policy Uncertainty (EPU) and VIX. Data are in deviationfrom mean and scaled by the standard deviation. Estimation based on a Bayesian vector
autoregression of global EPU, VIX, and global industrial production growth rate. Blue bars denote
median responses and lines denote 16th-84th percentile confidence intervals. The sample period is
2000M1-2017M2.
C. Term premium estimates from the model in Adrian, Crump, and Moench (2013). Last observationis May 24, 2017.
D.-F. Range indicates minimum to maximum of country sample.
D. Country sample includes Argentina, Brazil, Chile, China, Colombia, Czech Republic, Hungary,
India, Indonesia, Malaysia, Mexico, Russia, Saudi Arabia, South Africa, Thailand, and Turkey. Lastobservation is 2016Q3.
E. F. Country sample includes Brazil, Bulgaria, China, Colombia, Mexico, Peru, India, Indonesia,
Malaysia, Philippines, Thailand, Romania, South Africa, and Turkey. Last observation is April 2017 forforeign reserves and 2015 for external debt.

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C H A P TE R 1

in the Euro Area and Japan, could trigger asudden increase in borrowing costs. A build-up of
inflation fears or the perception of increased
macroeconomic risks could lead to an uptick interm premiums from current exceptionally low
levels. Such events could trigger an abrupt
deterioration in financing conditions for EMDEs
and a slowing of capital inflows—particularly ifhigher yields do not reflect improved advancedeconomy prospects (Arteta et al. 2015). Sizable
external financing needs, limited levels of foreign
reserves, and elevated domestic debt expose
various EMDEs to a sudden rise in borrowing
costs. Rapid deleveraging could potentiallyintensify slowdowns—including in China, where
private indebtedness and financial sector
vulnerabilities remain elevated (Bernardini and
Forni 2017; World Bank 2016a; World Bank
2017b). While vulnerabilities have somewhat
diminished in EMDEs in recent years, thedispersion of vulnerabilities across countries
widened in 2016 as commodity exporters faced
continued challenges.
Further U.S. dollar appreciation
Diverging monetary policies, with the U.S.
Federal Reserve raising policy rates well ahead ofother major central banks, has already contributed
to a significant U.S. dollar appreciation. Fiscal
stimulus measures in the United States could
intensify this trend. Safe-haven flows triggered byincreased investor risk aversion, or unexpectedchanges in trade or fiscal policies in the UnitedStates, could also push up the value of the U.S.
currency. Broad-based U.S. dollar appreciation has
been associated historically with tighter global
financing conditions and balance sheet pressuresfor countries with large U.S. dollar debt exposure(Bruno and Shin 2015). Debt levels in foreign
currency have increased in recent years,
particularly among EMDE corporates. A sudden
strengthening of the U.S. dollar could contributeto rollover and currency risks for companies withunhedged foreign exchange exposures. For
companies in commodity-related sectors, suchpressures can be amplified by the negative
correlation between the U.S. dollar andcommodity prices (Baffes et al. 2015).

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However, there are several mitigating factors. The
bulk of EMDE credit growth over the last decade
has been in domestic currency. The number ofcountries with currency pegs to the U.S. dollar has
declined. The ratio of external debt to exports
remains in most cases markedly lower than in theearly 2000s, despite some recent increases, andforeign reserves are generally ample. Highvulnerability to currency risks is confined to thosecountries that still have elevated short-term
foreign-currency-denominated debt (Chow et al.
2015; Chui, Kuruk, and Turner 2016).
Downside risk: impact of renewed sharp
slide in oil prices on oil exporters
A faster-than-expected rise in unconventional oil
supplies, such as U.S. shale production, or
faltering commitment of OPEC and non-OPEC
producers to additional cuts in output, could keep
oil markets oversupplied. This could lead to an
abrupt slide in oil prices.
For many oil-exporting EMDEs, a renewed sharp
decline in oil prices, after two years of difficult
adjustments to the previous plunge, could
substantially weigh on growth prospects.
Financially constrained exporters with depleted
fiscal buffers could be forced into additional
consolidation measures, while deteriorating
current account positions could increase externalfinancing pressures. This could lead to renewed
currency depreciation and trigger a re-pricing ofcredit and sovereign risks (Baffes et al. 2015).
As highlighted by the early-2016 oil price drop,
which heightened concerns about default risks in
oil and gas companies, an abrupt decline in oil
prices could also intensify corporate balance sheetpressures among energy companies, which areamong the most leveraged in EMDEs(IMF 2016b, Bank for International Settlements
2016, World Bank 2016a). Although banking
systems in most oil-exporting EMDEs havebecome more resilient to oil price changes,
financial strains could intensify in the face of
persistently depressed prices.
In principle, these negative effects on oil producers
would be accompanied by real income gains for oil
importers, offsetting the overall impact on global

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growth. This offsetting effect is most likely whenoil price declines are due to abundant supply, as
opposed to weakening demand (Cashin,
Mohaddin, and Raissi 2014; Cerdeiro andPlotnikov 2017). However, renewed weakness andfinancial stress in large oil-exporting EMDEs
could have adverse contagion effects on othereconomies through trade, financial market, andremittance flows (Huidrom, Kose, and Ohnsorge
2017; World Bank 2016c). Moreover, oil pricemovements could have asymmetric effects—with
declines having a smaller positive effect on oil
importers than increases having a negative one—due, for instance, to frictions associated with therelocation of activity across sectors (Engemann,
Kliesen, and Owyang 2011; Hamilton 2011; Jo
2014).
Downside risk: slowdown in potential output
growthPotential output growth has softened appreciably
in both advanced economies and EMDEs in
recent years, reflecting the combined decelerationin productivity and investment growth, albeit todifferent degrees. While baseline projections forboth advanced economies and EMDEs assume
some cyclical recovery in productivity andinvestment, risks to long-term growth remain
predominantly on the downside.
The trend deceleration in total factor productivity
growth largely predated the global financial crisis,
and it has been particularly pronounced in
EMDEs since 2010 (Figure 1.17). This pattern
has been broad-based and is seen in more than 60
percent of EMDEs. Weak productivity trends
could be associated with a slower rate ofinnovation among companies and countries
operating at the technological frontier, and aslower pace of diffusion to companies andcountries operating below that frontier (Buera andOberfield 2016; Andrews, Criscuolo, and Gal
2015; Gordon 2014).
The anticipation of lower future growth may leadto a decrease in current investment, depressing
aggregate demand in the short term and slowing
capital accumulation over the longer term(Blanchard, L’Huillier, and Lorenzoni 2013).

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FIGURE 1.17 Risks linked to weak productivity andinvestment growth
A key factor behind the slower growth potential in both advanced
economies and EMDEs has been a deceleration in total factor productivity.
Investment growth slowed considerably in EMDEs, reducing thecontribution of capital accumulation to growth.
A. Total factor productivity growth

B. Investment growth

Sources: Penn World Table, World Bank.
A. TFP growth measured at constant national prices and aggregated using 2011 U.S. dollars GDP
weights. Sample includes 28 advanced economies and 68 EMDEs.
B. Aggregate growth rates calculated using constant 2010 U.S. dollars gross fixed investment
weights.

Demographic pressures in advanced economies,
and in some large EMDEs, could also contributeto a lower rate of return on capital (Baker, De
Long, and Krugman 2005; Rachel and Smith
2015). Over time, capital deepening, which has
been an important engine of growth in EMDEs
over the last two decades, could further decelerate,
adding downward pressure to productivity andpotential output growth.

Policy challenges
Challenges in major economies
Advanced economies have begun to shift away from a
mix of exceptionally supportive monetary policy andrestrictive fiscal policy. Central banks in majoradvanced economies face the challenge of normalizing
monetary policy without disrupting a fragile recovery
or triggering financing market disruptions.
Expansionary fiscal policy would be appropriate in a
number of economies, provided it is complemented
with measures to bolster medium-term fiscal
sustainability. Globalization and technologicalprogress have changed the demand for jobs and skills;
accordingly, there is a need to support the adjustment
process for workers that are adversely affected. In
China, avoiding a sharp slowdown and a disorderly
unwinding of financial vulnerabilities will require acareful balancing of policy objectives.

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FIGURE 1.18 Monetary policy challenges in advanced
economies
U.S. monetary policy normalization has been significantly slower than inpast tightening episodes. Large central bank balance sheets might
constrain monetary policy actions in the case of a renewed downturn.
A. U.S. policy interest rates aroundtightening cycles

B. G3 central bank public debt
holdings

Sources: Bank of Japan, Bloomberg, European Commission, Federal Reserve Bank of St. Louis,
Federal Reserve Board, Haver Analytics, World Bank.
A. t=0 refers to the start of U.S. monetary policy tightening cycles. Percentage point change from t=0
in monthly effective federal funds rates. Previous tightening cycles refer to those beginning in January 1994, June 1999, and June 2004, with the current cycle having begun in December 2015.
Dashed lines show market implied changes in the given rates over the next four months. Last observation is May 24, 2017.
B. Public debt held by the European Central Bank is calculated as the ratio of the Eurosystem's
holdings of general government debt to general government debt outstanding. The Federal Reserve’s
debt holding is in percent of publicly held U.S. Treasury securities. Data as of December 31, 2016.

Monetary policy in advanced economies
A gradual pickup in inflation across advanced
economies has raised the prospects of lessaccommodative monetary policy. In the UnitedStates, inflation and employment are already near
central bank objectives, justifying continued policy
normalization (Yellen 2017). A more expansionary
fiscal policy stance could accelerate the pace ofinterest rate increases, but the materialization ofdownside risks to growth, due to policy changes orother factors, could have the opposite effect.
Historically low equilibrium interest rates will
likely result in a lower terminal point for policy
rates during this tightening cycle compared withprevious episodes (Figure 1.18). Over the longer
term, this could increase the frequency andduration of periods when nominal policy interest
rates are constrained by the zero lower bound(Kiley and Roberts 2017). Such constraints have
led to calls for higher central bank inflation
targets, which would create additional space forinterest rate cuts in the future (Ball 2014; Ball et
al. 2016).
In the Euro Area and Japan, large-scale unconventional policies continue to be in operation andare helping to maintain supportive borrowing
conditions. In the Euro Area, quantitative easing is
expected to be gradually unwound, as economic
slack narrows and inflation moves toward policy
objectives. However, a prolonged period of low
inflation has made expectations more susceptible
to negative shocks, encouraging the ECB tomaintain a highly accommodative stance over asustained period of time (Ciccarelli et al. 2017).
The Bank of Japan has so far been successful instabilizing long-term interest rates around zero,but this policy may only deliver a slow increase ininflation (Cecchetti and Schoenholtz 2016).
Looking forward, the exceptionally large balance
sheets and elevated government bond holdings ofmajor central banks might constrain their ability
to undertake further unconventional policies incase of a renewed downturn. Fiscal policy would
need to stand ready to implement counter-cyclicalmeasures in the event of future growth setbacks.
Fiscal policy in advanced economies
Fiscal policy in advanced economies stopped beinga drag on growth in 2016, for the first time since2010 (Figure 1.19). This shift was visible in the
United States, Euro Area, and Japan, and it isexpected to continue to a lesser degree in 2017. In
the United States, where fiscal stimulus is underconsideration, a priority could be infrastructure
spending in view of large unmet needs and of theelevated fiscal multipliers of such spending (Bivens
2014). Improving public sector efficiency,
regulation, and private sector participation could
also increase economic returns from infrastructure
investment. As the U.S. economy is alreadyoperating close to full capacity, growth windfalls
from fiscal stimulus measures could be short lived
and might be offset over time by pressuresassociated with deteriorating public finances.
Under unchanged policies, public debt is alreadyexpected to significantly increase over the next
decade (CBO 2017). Unfunded tax cuts could add
to the upward trajectory (Page 2017). In contrast,
tax and spending reforms that enhance
productivity and are consistent with medium-term
fiscal sustainability could deliver lasting benefits.
In the Euro Area, a more expansionary fiscal
policy stance to absorb remaining slack would beappropriate for the region as a whole (European

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Commission 2016). However, countries withfiscal space are generally not those in the greatest
need of stimulus. The absence of a more
centralized fiscal capacity and strong coordination
makes it more difficult to implement supportive
fiscal policies in a monetary union (Eyraud,
Gaspar, and Poghosyan 2017; European
Commission 2014; Bańkowski et al. 2017). In
Japan, the government is debating whether fiscal
consolidation should be implemented before theinflation target is reached, with some arguing that
fiscal policy should help complement monetary
policy in stabilizing inflation (Sims 2016).

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FIGURE 1.19 Fiscal policy challenges in advanced
economies
Fiscal policy in advanced economies was no longer a drag on growth in2016, a first since 2010. A more expansionary fiscal stance in the EuroArea would be warranted, but countries with fiscal space are generally not
those in most need of stimulus.
A. Change in structural fiscal balanceand growth in advanced economies

B. Structural fiscal balance andunemployment across Euro Area
countries

Structural policy in advanced economies
In advanced economies, rising income inequality
and stagnant median wages have fueled thepolitical debate on the benefits of globalizationand trade liberalization, amid a trend decline in
the share of manufacturing jobs. This has led tocalls for unwinding past trade liberalization efforts,
and for increased protection for domestic industry.
The last three decades have seen a decline ofmanufacturing employment across most advanced
economies (Wood 2017). For instance, the shareof manufacturing jobs in total private employment
in the United States, Germany, and Japan has
fallen by 10 percentage points since 1985 (Figure1.20). Over that period, the United Statesaccumulated large goods trade deficits, but Japanand especially Germany registered substantial
trade surpluses. Since 2000, the drop in
manufacturing jobs has accelerated, particularly in
the United States, but productivity gains havemore than offset the decline, leading to acontinued rise in output. These common trends
highlight
complexinteractions
betweentechnologicalchangeandglobalization.
Automation, shifts in production patterns, andtrade policies all played a role in driving labormarket outcomes (Wood 2017; De Long 2017;
Felipe and Mehta 2016; Autor, Dorn, andHanson 2016).
Measures to support workers directly affected by
sectoral shifts in employment, and to more widely
spread the benefits of technological progress andglobalization, should be reinforced. This includes
vocational training, life-long learning, better

Sources: Eurostat, International Monetary Fund WEO, World Bank.
A. Structural fiscal balance is the cyclically-adjusted primary balance in percent of potential GDP.
B. Last observation is 2016.

FIGURE 1.20 Structural policy challenges in advanced
economies
The last three decades have seen a decline in the share of manufacturing
employment across major advanced economies. Since 2000, this decline
has accelerated, particularly in the United States. Productivity gains,nevertheless, resulted in rising manufacturing output.
A. Manufacturing as a share of total
employment

B. Advanced economies
manufacturing productivity
and employment

Sources: Federal Reserve Bank of St. Louis, Haver Analytics, Organisation for Economic Cooperation and Development, U.S. Bureau of Labor Statistics.
A. U.S. data measures total employment on nonfarm payrolls. Last observation is 2016.
B. Cumulative changes from 2000 to 2015. Manufacturing productivity is the gross value added
per person employed.

employment services,protection systems.

andeffectivesocialChallenges in China
The key policy challenge for China remains tomanage a gradual deceleration to a sustainablegrowth rate in the medium term. Avoiding a sharp
slowdown and a disorderly unwinding of financial

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FIGURE 1.21 EMDE monetary policy
Inflation rates in commodity exporters and importers are converging.
Declining inflation has enabled some central banks in commodity-exporting
EMDEs to reduce policy rates.
A. Consumer price inflation in EMDEs

B. Policy rate changes in EMDEs

Sources: Haver Analytics, National central banks, World Bank.
A. Sample includes 75 commodity-exporting and 54 commodity-importing EMDEs and shows medianin each respective group. Last observation is April 2017.
B. Commodity importers include China, Hungary, India, Mexico, Philippines, Poland, Romania,
Thailand, and Turkey. Commodity exporters include Brazil, Chile, Colombia, Indonesia, Malaysia,
Peru, Russia, and South Africa. Last observation is April 2017.

vulnerabilities accumulated during years of rapid
credit growth will require a careful balancing ofpolicy objectives.
China has initiated a wide range of reforms inrecent years. Efforts have focused on excess
capacity reduction and re-employment of affected
workers. Measures to improve the viability of state-owned enterprises include the promotion ofstronger participation of the private sector, moremarket discipline, and competition. In the oil andgas sector, these efforts are being accompanied bya reorganization of the industry to separate
functions in the value chains. Considerable
progress has been made in household registration
reforms. Fiscal reform initiatives have focused on
addressing imbalances in revenue and expenditure
responsibilities across different levels ofgovernment, the conversion of business taxes tovalue-added tax (VAT), tax cuts for small and high-tech firms, and reform of the personal income tax
system. In addition, measures to improve localgovernment debt management have been
implemented, such as revisions of the budget law,market-based conversion of debt to bonds, andmore effective monitoring and classification of
local government debt. Financial regulation has
been tightened to contain financial sector
vulnerabilities, including through broader
regulatory oversight of off-balance sheet items

such as wealth management products. Exchange
rate flexibility has been enhanced, with the use ofa basket of currencies rather than the U.S. dollar
to determine the reference rate. The relaxation offoreign institutional investor rules and the openingof the bond and currency derivatives market
should help promote foreign participation (IMF
2016c).
Despite considerable progress, there is a need tofurther contain financial and fiscal vulnerabilities,
including rapid credit growth and high levels ofdebt. Financial and corporate sector reforms,
including appropriate budget constraints on stateowned enterprises, could improve the allocation ofcapital. They would also help reallocate factors of
production toward more productive sectors andaway from stagnating sectors with excess capacity,which would spur productivity.
Additional structural reforms could help China
shift its growth model from manufacturing toservices, from investment to consumption, andfrom exports to domestic spending. China hassignificant potential for rapid urban development
and technological transformation. Land andhukou (labor market) reforms could significantly
lift urban growth and employment. Productivity
in rural areas could be bolstered by reorienting
subsidy and price support programs toward thedevelopment of more efficient and sustainableagricultural production systems. During thereform period, counter-cyclical fiscal measures tosupport consumption and private investment
could smooth the transition, as long as they are
consistent with medium-term fiscal sustainability.
The economic and social dislocations that mightarise from enterprise restructuring could be
addressed by targeted temporary income support
and by robust social protection programs.
Challenges in emerging and developing
economies
Inflation rates in commodity exporters and importers
are converging. Easing inflation is allowing
policymakers in some commodity exporters to adopt a
more accommodative policy stance. Although theimpact of the drop in commodity prices on
government revenues in commodity exporters is

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beginning to wane, fiscal space remains generally
constrained across EMDEs. Policies that improve thebusiness climate and support investment are criticalto boost long-term growth. In addition, policies that
promote trade integration and address structural
impediments to trade will help counteract thenegative effects of trade policy uncertainty and risingprotectionism.

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FIGURE 1.22 EMDE fiscal policy
The impact of the sharp drop in commodity prices on government revenues
in commodity-exporting EMDEs is beginning to fade. But with fiscal space
still constrained across EMDEs, consolidation will need to continue to set
debt on a sustainable path, particularly in commodity exporters.
A. Revenue and expenditure growth:commodity exporters

B. Fiscal balance

C. Change in structural fiscal balance

D. Fiscal sustainability gap

Monetary and financial policies
Headline inflation in commodity exporters andimporters is converging (Figure 1.21). Stabilizing
or appreciating exchange rates account for muchof the decline in inflation in commodity exporters
since mid-2016, and inflation is already within thetarget bands in some countries (e.g., Brazil,
Indonesia, Russia). In commodity importers, themore recent increase in inflation reflects the lagged
impact of rising energy prices in 2016. Easing
inflation and subdued growth have led monetary
policymakers in several major commodity
exporters to cut policy rates (e.g., Brazil,
Colombia, Kazakhstan), despite rising interest
rates in the United States (IMF 2017c).
Meanwhile, some commodity importers facing
currency pressures have tightened policy amid
rising inflation (e.g., Mexico, Turkey).
Market concerns about financial stability in
EMDEs have receded relative to late 2016, when atightening of global financing conditions led tomarket volatility. This highlights the need to shore
up buffers of liquidity and capital to mitigate
future encounters with financial stress. In theevent of bouts of financial market stress,
depending on country-specific circumstances,appropriate policy actions could include providing
liquidity support to markets or implementing
macro-prudential measures (e.g., Israel in August
2013; the Republic of Korea in July 2014; IMF
2014a). In conjunction with other appropriatemonetary and financial policies, there could be arole in some countries for the temporary andtargeted use of capital controls (e.g., Colombia’s
unremunerated reserve requirements during 200708), if needed and transparently implemented(Baba and Kokenyne 2011; Baffes et al. 2015;
IMF 2014b).

Sources: International Monetary Fund, World Bank.
A. Figure shows median in each country group. Sample includes 35 energy exporters and 56 metal
and agricultural product exporters. Shaded areas indicate forecasts.
B. Figure shows median in each country group. Sample includes 35 energy exporters, 34 agricultural
product exporters, 20 metals exporters, and 62 commodity importers.
C. Structural balance is the fiscal balance adjusted for the economic cycle and for one-off effects.
Figure shows median in each country group. Sample includes 17 commodity exporters and 22
commodity importers. Shaded areas indicate forecasts.
D. Sustainability gap is measured as the difference between the primary balance and the debtstabilizing primary balance, assuming historical average (1990–2016) interest rates and growth rates.
A negative gap indicates that government debt is on a rising trajectory; a positive gap indicatesgovernment debt is on a falling trajectory. Figure shows median in each country group. Sample
includes 44 commodity-exporting and 28 commodity-importing EMDEs.

Fiscal policy
Fiscal consolidation continues in commodityexporting EMDEs. Revenue losses from the sharp
drop in commodity prices since 2014 deepened
already large deficits in some countries (e.g.,
Mongolia, República Bolivariana de Venezuela)
and turned large surpluses into large deficits inothers (e.g., Oman, Saudi Arabia). More generally,
many commodity exporters still face substantial
consolidation needs to ensure fiscal sustainability
in the medium term (Figure 1.22). In energy
exporters, slowing expenditure growth andstrengthening oil revenues in the second halfof 2016 have helped stabilize deficits (e.g., Algeria,

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FIGURE 1.23 EMDE structural domestic policy
challenges
Policies directed at improving the overall business environment are criticalto boosting investment, productivity, and long-term growth of output andemployment. Well-managed public investment raises aggregate investment
directly and can crowd-in private investment.
A. Factors influencing foreign
investors’ location choice

B. Cumulative impact on private
investment of a 1 percent increasein public investment

foreign-currency debt could consider shifting todomestic currency financing, if feasible, to reduce
the risks from currency depreciation.
Building credibility—for instance, by setting
achievable fiscal targets and implementing themconsistently, or establishing fiscal councils—willcontinue to be a policy priority (Debrun andKinda, forthcoming). Replenishing or establishingstabilization
funds,and improving
tax
administration, will help rebuild fiscal space andincrease resilience to shocks (World Bank 2015a).
Structural policy

Sources: UNIDO (2011), World Bank.
A. Average rankings according to a business survey of 7,000 companies in 19 Sub-Saharan Africancountries conducted from 2010-2011.
B. Cumulative impulse responses of private investment to a positive shock to public investment,
based on a sample of 8 EMDEs for the period 1998Q1-2016Q2. The model includes, in this order,
real public investment, real GDP, real private investment, current account balance, and real effective
exchange rate. The shock size is such that public investment increases by 1 percent from the baseline on impact. Blue bars represent median values and red error bars 16-84 percent confidence
intervals.

Azerbaijan, Iraq, Kazakhstan). Among commodity-importing EMDEs, slowing revenue
growth in 2016 contributed to a modest
worsening of fiscal balances (e.g., China,
Dominican Republic, Egypt, Turkey).

Despite signs of pickup in EMDE activity in thenear term, these economies continue to facevarious structural challenges to boost growth overthe longer run. On the domestic front, potential
output growth in EMDEs is likely to further
decline as a result of weak productivity growth anddemographic pressures (IMF 2015). As the current
global context illustrates, notable structural
challenges to trade growth and growing
protectionist pressures are likely to weigh on therecovery in global trade flows. This highlights theimportance of efforts to further promote tradeintegration.
Domestic policy challenges

With average oil and metals prices expected to risein 2017, and amid ongoing fiscal consolidation,
deficits in most commodity exporters are expected
to narrow this year. Structural budget balances inthis group are projected to improve only
marginally. With deficits predominating across
EMDEs, and debt on a rising path, especially incommodity exporters, fiscal space remains
constrained (Special Focus 1). In such anenvironment, careful consideration of revenue andexpenditure reforms needed to support bothactivity and long-term fiscal sustainability is key(Cordes et al. 2015). In particular, reallocating
spending toward investment would help reduce
the trade-off between the need for fiscal
consolidation and the goal of boosting growth.
EMDE policymakers could also take advantage ofstill benign financing conditions to lengthen thematurity and duration of public debt as aprecaution against a further tightening ofborrowing conditions. Countries with elevatedModest growth rates in advanced economies,
structural impediments to trade, and increasingprotectionist sentiment suggest that EMDEs mayneed to become less reliant on external demand.
Addressing domestic bottlenecks would help boost
growth prospects in EMDEs. Policy measures that
improve infrastructure, encourage innovation,
promote labor market and education reform, anddeepen within-country integration will foster
potential growth (OECD and World Bank 2017;
World Bank 2017g). EMDEs can reap substantial
benefits from upgrading institutions andimproving the overall business environment
through more efficient regulations.
In light of the sharp investment growth slowdown
in recent years across EMDEs, structural policies
to boost fixed capital formation are crucial.
Policies that reduce economic and politicaluncertainty, improve the transparency ofG L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

regulations through the elimination of
bureaucratic obstacles, streamline regulatory
practices, and increase the availability of skilledlabor are critical to enhance a country’s
attractiveness for investors (Figure 1.23). Measuresdirected at enhancing the overall businessenvironment through improved access to credit,
fewer obstacles to start a business, and enhanced
contract enforcement would encourage greater
market entry for new firms, job creation, andinvestment (World Bank 2017h; Dabla-Norris,
Ho, and Kyobe 2016). In addition, reforms that
help level the playing field between private andstate-owned enterprises and promote theparticipation of private investors in public-private
partnerships can play an important role infostering capital formation (G20 2015).
Under the right circumstances—including thepresence of economic slack and a strong
institutional and legal environment—wellmanaged public investment directly raises
aggregate investment and also crowds-in private
investment. This effect can be boosted byaccommodative financial conditions, as well asreforms that reduce barriers to trade and foreign
investment and strengthen property rights (WorldBank 2017a; Bruno, Campos, and Estrin 2017).

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FIGURE 1.24 EMDE structural trade policy challenges
Deep trade agreements—those that contain substantial provisions beyond
the mere liberalization of border measures—have become more common
in recent years, although they still lag behind in EMDEs.
A. Depth of trade agreements

B. Depth of trade agreements bycountry group

Sources: Hofman, Osnago, and Ruta (2017); World Bank.
A. Includes provisions outside the mandate of the WTO. Low depth refers to free trade agreements(FTAs) with less than 10 provisions. Medium depth refers to FTAs with between 10 and 20 provisions. High depth refers to FTAs with more than 20 provisions.
B. Depth of trade agreements measured by average number of enforceable provisions for FTAs in
1958-2015. “AE” denotes advanced economies.

Policy measures aimed at removing domestic trade
bottlenecks and improving the availability ofcredit for exporters, along with increased tradefacilitation efforts, may help counteract thenegative effects on EMDEs of trade policy
uncertainty. In addition, measures to address theadverse distributional consequences of tradeliberalization could counteract rising protectionist
sentiments.

Trade policy challenges
Trade has been a catalyst for economic growth andstability. It boosts aggregate demand, enhances
productivity, and fosters job creation. However,rising protectionist pressures, coupled witheconomic and trade policy uncertainty and various
structural factors, are weighing on the outlook for
trade growth (Constantinescu, Mattoo, and Ruta
2017).
Economic policy uncertainty is negatively
associated with trade growth as it impacts
exporters’ entry into foreign markets and thedecision to undertake costly investments
associated with exporting (Special Focus 2).
Exporting firms in EMDEs—in particular, lowincome
countries—arelikelytobedisproportionately affected, as they rely more on
imports of capital equipment and intermediate
goods, and their costs associated with exporting
account for a larger share of total costs.

35

The withdrawal from existing trade agreements or
unilateral increases in protectionist measures bysome major economies could spiral into
widespread trade retaliation involving many
countries, including EMDEs. This in turn could
result in substantial income losses (Ossa 2014;
Perroni and Whalley 2000), as well as reverse thegains from the last seven decades of tradeliberalization (Figure 1.24). Such protectionist
measures would likely hurt countries that rely
heavily on trade, including the poorest EMDEs.
In the current environment, a renewed
commitment by EMDE policymakers to tradeliberalization through bilateral and regional trade
agreements, coupled with commitments under the
WTO system, could act as a first line of defense
against a potential uptick in protectionism (IMF,
World Bank, and WTO 2017; Bown et al. 2017).
The temptation for governments to resort tounilateral increases in tariffs to improve their

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FIGURE 1.25 Poverty and trade
Protectionist measures could hurt EMDEs in general, and low-income
countries (LICs) in particular, especially if they emanate from major
economies, which are the main destination of their exports. Countries that
graduated from low to middle income status generally had a higher degreeof trade openness.
A. Destination of EMDE exports

B. Trade-to-GDP ratio in low-income
countries, 2000-15

Sources: IMF Direction of Trade Statistics; World Development Indicators, World Bank.
A. Data reflect 2012-16 averages.
B. Simple averages. Graduated LICs include 31 countries. Current LICs include 29 countries.

terms of trade can be reduced by an efficient andrule-based trading system and trade agreementsthat promote inclusive and sustained growth.
Deep trade agreements—i.e., those that include
substantial provisions beyond the mere
liberalization of border measures, such as theremoval of tariffs—are becoming more common
in EMDEs, although they still lag those inadvanced economies. They cover an extensive setof provisions, including those that regulatecompetition and investment policy, consumer
protection, worker and environmental standards,
and the protection of intellectual property rights.
Recent agreements concluded by the European
Union and some EMDE trading partners (such as
Georgia, Ukraine, and Central America) have avery comprehensive set of provisions—above 30,
compared to the average of 20 for advanced
economies.
Deep trade agreements are associated with moretrade than shallow trade accords. The
harmonization or mutual recognition of standards,
improved competition policy, and streamlinedlabor and capital market regulations can boost theregional and global integration of EMDEs(Hofmann, Osnago, and Ruta 2017). Provisions
that improve the contractibility of inputs provided
by suppliers are associated with increased FDI(Ahcar and Siroën 2014; Osnago, Rocha, andRuta 2015). By addressing a number ofdimensions that are crucial for well-functioning
supply chains—such as investment policy, services,
standards, and customs procedures—deep trade
agreements have had a positive impact on theformation of global value chains.
Poverty and trade
The poorest EMDEs rely heavily on trade for
economic growth. Many are highly dependent on
imports of capital goods. In addition, advanced
economies are important export destinations forpoor EMDEs (Figure 1.25). Protectionist trade
policies could impact the most vulnerable
populations in EMDEs and would curtail efforts
to reduce global poverty.
Greater trade openness has been associated withlower poverty and inequality in EMDEs—with
the important proviso that appropriate supporting
policies accompany it. Trade expansion appears tohave been an important factor in the transition ofcountries out of low-income status. Declines intariffs have been estimated to lead, on average, toproportionate increases in incomes of the poor
(Dollar and Kraay 2004; Sachs and Warner 1995).
Income inequality fell in many EMDEs after theextensive trade liberalization of the 1990s (WorldBank 2017i).
Measures that promote trade openness need to beaccompanied by other policies to be effective in
addressing associated adjustment costs andimproving the welfare of the population(Goldberg and Pavckik 2004; Winters,
McCulloch, and McKay 2004). These include
measures to encourage savings and investment in
human and physical capital, as well as reforms to
improve governance and alleviate intra-national
frictions associated with market imperfections andtransport costs (Bartley Johns et al. 2015).
Without these accompanying policies, increased
trade openness might have an adverse impact onpoverty and inequality (World Bank 2015b; Le
Goff and Singh 2013). This suggests the need fora multi-pronged agenda to pair trade liberalization
with improved human capital development andinstitutional reforms to ensure that the gains fromincreased trade contribute effectively to poverty
reduction and the promotion of shared prosperity.

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C H A P TE R 1

37

TABLE 1.2 List of emerging market and developing economies1
Commodity Exporters2

Commodity Importers3

Albania*

Madagascar

Afghanistan

Philippines

Algeria*

Malawi

Antigua and Barbuda

PolandAngola*Malaysia*

Bahamas, The

Romania

Argentina

Mali

Bangladesh

Samoa

Armenia

Mauritania

Barbados

SerbiaAzerbaijan*

Mongolia

Belarus

Seychelles

Bahrain*

MoroccoBhutanSolomon Islands

BelizeMozambique

Bosnia and Herzegovina

St. Kitts and Nevis

Benin

Myanmar*

Bulgaria

St. Lucia

Bolivia*

Namibia

Cabo Verde

St. Vincent and the Grenadines

Botswana

Nicaragua

Cambodia

SwazilandBrazil

Niger

China

ThailandBurkina Faso

Nigeria*

Comoros

Tunisia

BurundiOman*

Croatia

TurkeyCameroon*

Papua New Guinea

Djibouti

TuvaluChad*Paraguay

Dominica

Vanuatu

Chile

Peru

Dominican Republic

Vietnam

Colombia*

Qatar*

Egypt, Arab Rep.

Congo, Dem. Rep.

Russia*El Salvador

Congo, Rep.*

RwandaEritrea

Costa Rica

Saudi Arabia*

Fiji

Côte d'Ivoire

SenegalGeorgia
GrenadaEcuador*

Sierra Leone

Equatorial Guinea*

South Africa

Haiti

Ethiopia

Sri Lanka

Hungary

Gabon*

Sudan*

India

Gambia, The

Suriname

Jamaica

Ghana*

Tajikistan

JordanGuatemalaTanzania

Kiribati
LebanonGuineaTimor-Leste*

Guinea-Bissau

Togo

LesothoGuyanaTonga

Macedonia, FYR

Honduras

Trinidad and Tobago*

Maldives

Indonesia*

Turkmenistan*

Marshall Islands

Iran, Islamic Rep.*

Uganda

Mauritius

Iraq*

UkraineMexicoKazakhstan*

United Arab Emirates*

Micronesia, Fed. Sts.

Kenya

Uruguay

Moldova, Rep.

KosovoUzbekistan

Montenegro

Kuwait*Venezuela, RB*

Nepal

Kyrgyz RepublicWest Bank and Gaza

Pakistan

Lao PDR

ZambiaPalau

Liberia

Zimbabwe

PanamaEmerging Market and Developing Economies (EMDEs) includes all those that are not classified as advanced economies. Advanced economies include Australia; Austria; Belgium; Canada;
Cyprus; the Czech Republic; Denmark; Estonia; Finland; France; Germany; Greece; Hong Kong SAR, China; Iceland; Ireland; Israel; Italy; Japan; the Republic of Korea; Latvia; Lithuania;
Luxembourg; Malta; Netherlands; New Zealand; Norway; Portugal; Singapore; the Slovak Republic; Slovenia; Spain; Sweden; Switzerland; the United Kingdom;
and the United States.
2 Energy exporters are denoted by an asterisk. An economy is defined as commodity exporter when, on average in 2012-14, either (i) total commodities exports accounted for 30 percent ormore of total goods exports or (ii) exports of any single commodity accounted for 20 percent or more of total goods exports. Economies for which these thresholds were met as a resultof re-exports were excluded. When data were not available, judgment was used. This taxonomy results in the classification of some well-diversified economies as importers, even if they
are exporters of certain commodities (e.g., Mexico).
3 Commodity importers are all EMDE economies that are not classified as commodity exporters.
1

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SPECIAL FOCUS 1
Debt Dynamics in Emerging Market andDeveloping Economies: Time to Act?

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S P E C I AL FO C U S 1

49

Debt Dynamics in Emerging Market and Developing
Economies: Time to Act?
Since the global financial crisis, rising private sector debt and deteriorating government debt dynamics have made someemerging market and developing economies (EMDEs) more vulnerable to financing shocks. Specifically, at end-2016,
government debt exceeded its 2007 level by more than 10 percentage points of GDP in more than half of EMDEs and thefiscal balance worsened from its 2007 level by more than 5 percentage points of GDP in one-third of EMDEs. Althoughmany EMDEs have strengthened their monetary policy frameworks and accumulated significant reserve buffers over the past
two decades, they now need to shore up their fiscal positions to prevent sudden spikes in financing cost from forcing them into
fiscal tightening.

Introduction
As growth becomes more durable and inflation
rates get closer to central banks’ targets, monetary
policy in advanced economies is expected tonormalize. While this normalization is likely toproceed smoothly, there is a possibility that it
could stir financial market volatility with adverse
implications for EMDEs (Arteta et al. 2015). In
many EMDEs, both public and private sector
vulnerability to financing cost spikes has risen
since the global financial crisis.
Government debt dynamics in EMDEs havedeteriorated since the global financial crisis(Huidrom, Kose, and Ohnsorge 2016; WorldBank 2015a). On average across EMDEs,
government debt has risen by 12 percentage points
of GDP since 2007 to 47 percent of GDP by
2016, and fiscal deficits have widened to about 5
percent of GDP in 2016 from a surplus of roughly
1 percent of GDP in 2007 (Figure SF1.1). At end2016, government debt exceeded its 2007 level bymore than 10 percentage points of GDP in morethan half of EMDEs. In addition, the fiscal
balance worsened from 2007 levels by more than 5
percentage points of GDP in one-third of
EMDEs.
Benign financing conditions have contributed toshifts in the composition of government balance
sheets, but not always to strengthen its resilience(Kose et al., forthcoming). In the median EMDE,

Note: This Special Focus was prepared by M. Ayhan Kose,
Franziska Ohnsorge, and Naotaka Sugawara.

FIGURE SF1.1 Evolution of fiscal space in EMDEs
In many EMDEs, both government and private sector debt has risen
sharply since the global financial crisis. During periods of severe financial
stress, private sector debt can burden public balance sheets.
A. Overall fiscal balance andgovernment gross debt in EMDEs

B. Overall fiscal balance, by EMDE
regionC. Credit to the private sector in
EMDEs

D. Government gross debt in selectedbanking crises in EMDEs

Sources: International Monetary Fund, World Bank.
A.-C. GDP-weighted averages.
A.C. The year of global recession (2009) is shaded in gray.
B. EAP, ECA, LAC, MNA, SAR, and SSA stand for, respectively, East Asia and Pacific, Europe
and Central Asia, Latin America and the Caribbean, Middle East and North Africa, South Asia,
and Sub-Saharan Africa.
D. The year of the onset of banking crises is in parentheses. Bars show average general government
gross debt-to-GDP ratios in the two years before and the two years after the onset of crises.

for example, the share of short-term components
of debt securities held by nonresidents has beensmaller since 2007. However, the share ofnonresident-held debt itself has risen and thematurity of government debt has been on a

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FIGURE SF1.2 Debt relief under the HIPC and MDRI
initiatives
Debt relief from both multilateral and bilateral creditors has helped
significantly reduce debt in recipient countries.
A. Government and external debt
in HIPC

B. Total HIPC and MDRI debt relief by
multilateral creditors as of 2015

Sources: IMF (2016a), International Monetary Fund, World Bank.
Note: There are a total of 36 Heavily Indebted Poor Countries (HIPC) that have reached completion
points as of April 2017: 5 from Latin America and the Caribbean (LAC), 1 from South Asia (SAR), and30 from Sub-Saharan Africa (SSA).
A. GDP-weighted average general government gross debt and external debt in 36 HIPC. The year of
global recession (2009) is shaded in gray.
B. Blue bars refer to median, red lines to interquartile range. Both HIPC assistance committed (under
the assumption of full participation of creditors) and MDRI (multilateral debt relief initiative) deliveredby multilateral creditors as of end-August 2015 are included. GDP data are for 2015.

Long-term government debt dynamics depend on
debt and deficits but also on the macroeconomic
context, especially the paths of GDP growth andinterest rates. This Special Focus examines theevolution of EMDE fiscal positions since theglobal financial crisis as well as during typicalepisodes of financial stress. To do so, it combines
fiscal indicators and macroeconomic factors into asingle measure of government debt dynamics: thefiscal sustainability gap, defined as the difference
between the actual fiscal balance and the debtstabilizing fiscal balance.1 Specifically, this Special
Focus addresses the following questions:•

How have fiscal positions in EMDEs evolved
since the global financial crisis?

•

How do fiscal positions typically evolve
during episodes of financial stress?

Evolution of fiscal positions
declining path. The share of government debt inforeign currency has increased in the median
EMDE since the late 2000s.
In addition, private sector debt in EMDEs has
risen sharply since 2007, reflecting a combinationof financial deepening and credit booms. Since
2007, domestic bank credit to the private sector
has risen by 12 percentage points of GDP to 52
percent of GDP in 2016 (excluding China) and by
more than 20 percentage points of GDP in onefifth of EMDEs. Firm-level data also suggest thatthe corporate sector has become more financiallyfragile since the global financial crisis as solvency
positions weakened (Alfaro et al. 2017). During
episodes of severe financial stress, private sector
debt may become a contingent liability for the
public sector. For example, before 2008, some
EMDEs suffered systemic banking crises that
required governments to provide substantial
financial support. Though typically not fullyreflected in deficits, such outlays significantly
increased public debt above and beyond increases
attributable to an accumulation of fiscal
imbalances (Laeven and Valencia 2013). As theseexperiences show, the fiscal space implicit in low
debt levels can shrink rapidly during periods ofelevated financial stress.

Definitions. A simple summary metric of theevolution of government debt dynamics is the
fiscal sustainability gap (Blanchard 1993; Buiter
1985; Cottarelli and Escolano 2014; Escolano2010). The fiscal sustainability gap compares acountry’s actual fiscal balance with its debtstabilizing balance. The debt-stabilizing balance
captures the long-term, cumulative impact ofsustained fiscal deficits on debt stocks underassumed macroeconomic and financial conditions.
For example, the debt burden generated bysustained fiscal deficits will be easier to service ifinterest rates are lower and growth (and, hence,the potential for tax revenue raising) is stronger.
Specifically, the sustainability gap (pbsusgap) for
country c in year t is defined (in Kose et al.,forthcoming) as:,
where p is the primary balance (in percent ofGDP), i is the nominal interest rate, γ the

1The analysis in this Special Focus is based on a new database on
fiscal space, which includes a wide range of indicators of fiscal space
for a large number of countries over the period of 1990-2016 (Koseet al., forthcoming).

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nominal GDP growth, and d* the target debt ratio(in percent of GDP) defined as the countryspecific historical median ratio. The interest rate
and nominal GDP growth are evaluated at their
fixed long-term averages.2 Implicitly, this assumes
that future trends will not deviate materially fromtheir long-term averages and that the historical
median debt level is an appropriate reference point
for future sustainable debt levels. This approachyields similar results to that of a common benchmark: the median debt ratio across all EMDEs
over 1990-2016 (about 45 percent of GDP). A
positive gap indicates a primary balance thatwould, over time, diminish government debt
below its historical median, if sustained. Conversely, a negative gap shows a primary balancethat would increase the stock of debt above its
historical median.3 These sustainability gaps arecalculated for 72 EMDEs for 1990-2016.4
Evolution. Since 2000, debt sustainability in
EMDEs has steadily improved as debt stocks
declined and deficits narrowed or turned into
surpluses. Among low-income countries, thispartly reflected major debt relief initiatives such as
the Highly Indebted Poor Countries (HIPC)
initiative and the Multilateral Debt Relief
Initiative (MDRI). The largest beneficiaries ofthese initiatives were EMDEs in Sub-SaharanAfrica (SSA) and Latin America and the
Caribbean (LAC) (Figure SF1.2; IMF 2016a).
Between the HIPC decision and completion dates,
government debt in recipient countries fell by up
to 150 percentage points of GDP.
Following a steady pre-crisis improvement,
government debt dynamics have deteriorated
sharply since the global financial crisis (Figure
2This assumption implies that variations over time in thesustainability gap are only attributable to changes in debt and deficits.
It also implies that sharp exchange rate swings do not affect thebenchmark stock of debt, although they affect fiscal balances throughhigher interest cost.
3Depending on country specifics, some countries may be able tosupport debt above historical medians (i.e., run negative sustainabilitygaps) for extended periods of time, whereas financial markets may
force others to reduce debt below its historical median (i.e., runpositive sustainability gaps).
4Sustainability can also be defined as the difference between thelevel of government debt and the debt limit, defined as the value atwhich debt becomes unsustainable (Ostry et al. 2010). The existing
literature employs different analytical frameworks to examine fiscal
sustainability (e.g., Bohn 1998; Kose et al., forthcoming).

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51

FIGURE SF1.3 Evolution of sustainability gaps
In EMDEs, fiscal sustainability has deteriorated materially from pre-crisis
averages. The deterioration was largest among commodity-exporting
EMDEs.
A. Sustainability gap

B. Fiscal balance, growth, andsustainability gap in EMDEs

C. Share of EMDEs with sizable
negative sustainability gap

D. Sustainability gap, bycommodity exporter status

Sources: International Monetary Fund, World Bank.
Note: A sustainability gap is defined as the difference between the actual fiscal balance
and the debt-stabilizing balance. The year of global recession (2009) is shaded in gray.
A.B.D. GDP-weighted averages.
B. Figure shows overall fiscal balance.
C. Share of EMDEs with negative sustainability gaps of 1 percent of GDP or more. Sample includes
72 EMDEs, consisting of 44 commodity-exporting economies and 28 commodity-importing
economies.
D. Samples include 44 commodity-exporting EMDEs and 28 commodity-importing EMDEs.

SF1.3). In EMDEs, debt-reducing fiscal positions(i.e., positive sustainability gaps of, on average,
almost 2 percent of GDP) in 2007 turned into
debt-increasing fiscal positions (i.e., negative gapsof more than 2 percent of GDP, on average) by
2016. In the two-thirds of EMDEs that arecommodity-exporting, this deterioration partly
reflected the sharp growth slowdown that
accompanied the steep post-crisis slide incommodity prices. In commodity-importing
EMDEs, fiscal positions remain weak as a result offiscal stimulus implemented during the global
financial crisis, chronic primary deficits, and, insome EMDEs, anemic post-crisis growth.
By 2016, fiscal positions in most EMDEs set
government debt on clearly rising trajectories.
Negative sustainability gaps exceeded 1 percent of
GDP in roughly 80 percent of commodity-

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FIGURE SF1.4 Evolution of fiscal space in EMDE regions
Sustainability gaps are particularly wide in MENA, LAC, and SSA, whichhost a large number of commodity-exporting EMDEs, whereas rapid
growth supported sustainability in EAP and SAR.
A. Government gross debt

B. Sustainability gap

C. Share of EMDEs with sizable
deterioration in fiscal space during
2007-16

D. Contribution to deviation ofregional sustainability gap
from median EMDE, 2016

Sources: International Monetary Fund, World Bank.
Note: GDP-weighted averages. EAP, ECA, LAC, MNA, SAR, and SSA stand for, respectively, East
Asia and Pacific, Europe and Central Asia, Latin America and the Caribbean, Middle East and North
Africa, South Asia, and Sub-Saharan Africa.
C. For government debt, a sizable deterioration refers to an increase, between 2007 and 2016, by atleast 10 percentage points of GDP in government gross debt (about top quarter of nine-year changes
in all the EMDEs since 1990). For sustainability gaps, a sizable deterioration refers to a decline by atleast 1 percentage point of GDP over 2007-16.
D. Bars show the contribution of each factor to the deviation of the region’s GDP-weighted averagesustainability gap from the hypothetical median sustainability gap in 2016 assuming the medianprimary deficit (1.9 percent of GDP), median stock of debt (45 percent of GDP), median long-term
interest rate (9 percent), and median growth (7.4 percent). For example, MNA has, on average, about
9.2 percentage points of GDP wider negative sustainability gaps than the median EMDE, eventhough growth is higher than and interest rates are the same as in the median EMDE. Of this, about
9.9 percentage points is attributed to wider-than-median fiscal deficits that are only partially offset by
faster-than-median growth (by 0.9 percentage points of GDP).

exporting EMDEs and in about 40 percent ofcommodity-importing EMDEs. In more than 70
percent of EMDEs, debt dynamics had worsenedmaterially (i.e., sustainability gaps had deteriorated by more than 1 percentage point of GDP)
from 2007. In principle, temporary negative
sustainability gaps that are quickly reversed would
be of limited concern; however, sustainability gaps
and fiscal deficits in EMDEs have worsened
steadily since 2012. That said, in 27 percent of
EMDEs, debt dynamics in 2016 were still morefavorable than in 2000, when a period of steady
improvement began that lasted until the global
financial crisis.

Regional dimensions. Pre-crisis improvements
and post-crisis deteriorations in government debt
dynamics were most pronounced in regions
hosting large numbers of commodity-exporting
countries (LAC, Middle East and North Africa(MENA), and SSA; Figure SF1.4). In Europe andCentral Asia (ECA), falling commodity prices inthe eastern part of the region and private sector
deleveraging in the western part following the
global financial crisis slowed growth from precrisis rates. This aggravated the challenges of debt
sustainability despite fiscal consolidation efforts
that kept fiscal deficits the smallest among EMDE
regions. Sustainability gaps have remained positivesince the global financial crisis in East Asia andPacific (EAP) but narrowed to below-zero in2016. In South Asia (SAR), sizable primary
deficits contributed to persistently negative
sustainability gaps through most of the 2000s,
although deficits and negative sustainability gaps
have narrowed since the global financial crisis.
In 2016, the drivers of fiscal sustainability gaps
differed across regions. In MENA, EAP, LAC and
SSA, above-median fiscal deficits widened
sustainability gaps.5 In EAP, and to a much lesser
extent in MENA, this was mitigated by abovemedian growth and below-median interest rates(in EAP). In LAC and to a lesser extent in SSA, in
contrast, weak growth (in LAC) and elevatedinterest rates (in both) compounded fiscal sustainability concerns. In SAR, strong growth was themain source of above-median sustainability gaps.
Deep fiscal deteriorations have taken placethroughout SSA and LAC (IMF 2016b; WorldBank 2017a, 2017b). On average, fiscal
sustainability gaps widened between 2007 and2016—by 4 percentage points of GDP (to -3
percent of GDP) in SSA and by 5 percentage
points of GDP (to -4 percent of GDP) in LAC.
This deterioration reflects both rising debt levels,
especially in SSA, and widening fiscal deficits,
especially in LAC. The erosion of fiscal
sustainability was widespread in both regions: In
SSA, the share of EMDEs with sizable
5For comparison, the median sustainability gap is defined as that
implied by the median primary deficit (1.9 percent), median stock ofdebt (45 percent of GDP), median growth (7.4 percent) and medianlong-term interest rate (9 percent).

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deterioration in sustainability gaps (i.e., worsenedby 1 percentage point of GDP or more) over
2007-16 was 80 percent; in LAC, 85 percent of
economies in the region experienced sizable
deteriorations over the same period. In bothregions, improvements in government debt
dynamics that occurred in the early 2000s were
unwound by 2016.
Weakening government debt dynamics in thoseregions were also accompanied by a rapid increasein private sector debt, although from modest
initial levels, reflecting a combination of financial
deepening and credit booms (World Bank 2016).
In 2016, private credit by domestic banks
averaged 48 percent of GDP in LAC and 29
percent of GDP in SSA. In one-third of EMDEs
in SSA and more than one-quarter of EMDEs in
LAC, private sector credit rose by more than 10
percentage points of GDP between 2007 and2016.

Fiscal positions in episodesof financial stress
The deterioration in government debt dynamics
since the global financial crisis is considerably
more persistent than after previous episodes offinancial stress. For EMDE commodity exporters,such episodes of financial stress can also be
associated with terms-of-trade shocks. EMDEs
typically emerge within two years of such episodes
with restored government debt dynamics. After
adverse terms-of-trade shocks, a deterioration ingovernment debt dynamics is typically rapidly
reversed.
Financial stress episodes. To analyze theevolution of fiscal debt sustainability around
financial stress events since 1990, 117 episodes are
identified in 94 EMDEs for which data on
government debt, fiscal balance, sustainability
gaps, and private sector credit are available(Gourinchas and Obstfeld 2012; Laeven andValencia 2013). Figure SF1.5 presents theevolution of debt sustainability around these stressepisodes, including banking, currency and debt
crises, and compares these events against recent
developments.

S P E C I AL FO C U S 1

53

FIGURE SF1.5 Debt dynamics around financial stressevents and in 2016
Within two years of financial stress episodes in EMDEs, government debt
typically returns to a stable path.
A. Sustainability gap

B. Government gross debt

C. Overall fiscal balance

D. Credit to the private sector

Sources: International Monetary Fund, World Bank.
Note: Year t refers to the year of onset of financial stress episodes. The solid blue lines are simple
averages for all episodes, while the dashed blue lines show the interquartile range. The red line isshown for reference and based on all EMDEs, although it is not a stress episode. Financial stressepisodes are taken from Gourinchas and Obstfeld (2012) and Laeven and Valencia (2013). Whenconsecutive events are identified within a five-year period in a country, the one associated with thelowest real GDP growth is used.
A.-C. Separately, the statistical significance of restored government debt dynamics in two and three
years after financial stress events, from deteriorations during stress events, is confirmed in a linear
regression of each fiscal indicator on dummy variables for financial stress events (with up to threelags and leads), with country- and year-fixed effects.
C. Samples are restricted to episodes where data on sustainability gaps are available.

In the run-up to and during these stress episodes,
debt dynamics typically deteriorated somewhat as
fiscal balances and sustainability gaps weakened,
government debt increased, in part because of
support to banking systems (Tagkalakis 2013),
and (often) exchange rate depreciation raised the
local currency value of government debt.
However, within two years of financial stressepisodes, fiscal debt sustainability improved anddebt returned to a stable path. This improvement
may have partly reflected debt restructuring andthe loss of access to financing that forces
governments to rein in spending or raise revenues.
Oil price plunges. Some of the sharpest post-crisis
deteriorations in fiscal positions have been among

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FIGURE SF1.6 Debt dynamics in EMDE oil exporters
around oil price plunges
Oil price plunges are historically accompanied by deteriorating fiscal debt
sustainability in oil exporters, reflecting shrinking oil revenues, and weaker
growth, but fiscal positions recover quickly after the initial shock.
A. Sustainability gap

B. Government gross debt

C. Overall fiscal balance

D. Credit to the private sector

Sources: International Monetary Fund, World Bank.
Note: Year t refers to the year of oil price plunges. Past oil price plunges include collapses in global oil
prices in 1991, 1998, 2001, and 2008 (World Bank 2015b). Simple averages of 36 EMDE oil exporters
in all episodes. The red lines are for the latest plunge starting in 2014.
C. Samples are restricted to episodes where data on sustainability gaps are available.

energy exporters. Energy-exporting EMDEs rely
heavily on fiscal revenues from the resource sector.
For example, in 2014, on the eve of the mostrecent plunge in oil prices, hydrocarbon revenues
accounted for more than half of fiscal revenues inAngola, Algeria, Azerbaijan, Iraq, Kuwait,
Nigeria, Saudi Arabia, and the United ArabEmirates, and more than one-quarter of revenues
in Mexico, the Islamic Republic of Iran,Kazakhstan, and the Russian Federation. The
subsequent plunge in oil prices has forced someenergy-exporting economies into severe fiscal
adjustment and reserve losses (Danforth, Medas,
and Salins 2016). Fiscal positions have deteriorated sharply in energy-exporting EMDEs, butless sharply than in earlier episodes of oil priceplunges, albeit from a weaker starting position.
Figure SF1.6 illustrates fiscal developments inenergy-exporting EMDEs during the five majorcollapses in global oil prices (in 1991, 1998, 2001,
2008, and 2014), as identified in World Bank
(2015b).6
Fiscal positions deteriorated sharply during past
oil price plunges but subsequently rebounded as aresult of a pro-cyclical fiscal tightening. Initiallydebt-reducing fiscal positions (i.e., positive
sustainability gaps of 3 percent of GDP) in theyear before the average oil price plunge turned
into debt-increasing fiscal positions (i.e., negative
sustainability gaps of 1 percent of GDP), on
average, in the year following the plunge as
resource revenues declined. Within two years after
the oil price plunge, however, sustainability gaps
and fiscal balances were restored close to their preplunge levels. After a steep increase in the wake ofthe oil price plunge, government debt returned toa stable path. Depending on country
circumstances and the depth of the growth
slowdown triggered by the oil price plunge, private
credit may rise (Miyajima 2017) or decline(Barajas et al. 2010). On average, a small increasein private credit in the year following the oil priceplunge is mostly reversed in the subsequent years.
Comparison of current fiscal positions withhistorical experience. In 2016, despite lower
government debt levels on average, government
debt dynamics compared unfavorably with thoseon the eve of typical financial stress episodes andoil price plunges. At -3.5 percent of GDP,sustainability gaps in 2016 were weaker than thoseprior to the average financial stress episode(although still within the range of such episodes).
This mainly reflected the rapid deterioration in
fiscal balances in commodity-exporting EMDEs.
Notwithstanding weaker fiscal positions, nonfiscal buffers have strengthened in EMDEs overthe 2000s. Monetary policy frameworks have
improved. A growing share (more than one-

6The most recent oil price decline resembles that of 1985-86. The
1985-86 oil price slump was also associated with changing supply
conditions, as OPEC reverted to its production target of 30 million
barrels per day despite rising unconventional oil supply from theNorth Sea and Mexico (World Bank 2015b). Prices dropped 60
percent from January to July 1986, ringing in two decades of low oil
prices—in contrast with other similarly sharp oil price drops thatwere quickly reversed.

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quarter) of EMDEs with sizable negative
sustainability gaps in 2016 anchored monetary
policy in inflation-targeting regimes and allowed
greater exchange rate flexibility (Figure SF1.7).
International reserves in these economies rosefrom 8 percent of GDP in 2000 to 20 percent of
GDP in 2016, on average. Before the oil pricecollapse of mid-2014, some energy exporters had
accumulated sovereign wealth funds with assets
amounting to more than one-third of GDP (e.g.,
Algeria, Azerbaijan, Botswana, Iraq, Kazakhstan,
Kuwait, Norway, Saudi Arabia, the United ArabEmirates; World Bank 2015a). Their use helped
ease exchange rate and fiscal adjustments to the
sharp drop in oil prices since mid-2014.

Conclusion
Weak post-crisis growth and, for commodity
exporters, sharp commodity price declines haveeroded fiscal positions in many EMDEs. Thesedevelopments have limited their ability toeffectively employ fiscal policy to weather
financing shocks (Huidrom et al. 2016). Morethan 70 percent of EMDEs—and more than fourfifths of those in SSA and LAC—now possess
considerably worse government debt dynamics(with a deterioration in sustainability gaps of morethan 1 percentage point of GDP) than in 2007.
If fiscal positions are weak on the eve of financial
stress episodes or, in the case of commodity
exporters, commodity price plunges, a sharp
increase in financing costs may force governments
into a pro-cyclical fiscal tightening. This—as well
as debt restructurings or rapid inflation—may
have bolstered fiscal sustainability during typicalfinancial stress episodes in the past; however, inthe current environment such pro-cyclical fiscal
tightening might further retard the recovery.
Weakening government debt dynamics have beenaccompanied by mounting private sector debt.
While most post-crisis credit booms in EMDEs
have subsided, they have left a legacy of elevateddebt in some EMDEs (World Bank 2016). By
2016, almost two-thirds of EMDEs with highprivate sector debt also had sizable negative
sustainability gaps; conversely, two-thirds of

S P E C I AL FO C U S 1

55

FIGURE SF1.7 Vulnerabilities and buffers in EMDEs
In several EMDEs, weak fiscal positions coincide with elevated private
debt. However, improved external buffers and monetary policy frameworks
could help mitigate risks.
A. Sustainability gap, by level ofprivate debt, 2016

B. Private debt, by level ofsustainability gap, 2016

C. International reserves, excluding
gold

D. EMDEs with floating exchange rate
regimes

E. Sovereign wealth fund assets
under management, 2015

F. EMDEs with inflation-targeting
frameworks and central bankindependence

Sources: Dincer and Eichengreen (2014), Hammond (2012), International Monetary Fund, Sovereign
Wealth Fund Institute, World Bank.
A.B. Sample includes 70 EMDEs where data on sustainability gaps and private debt are available in2016. Sustainability gaps are considered to be “sizable negative” when negative gaps are in excess
of 1 percent of GDP and “moderate negative” when negative gaps are below 1 percent of GDP.
“High” private debt is defined as private sector credit in the top quartile of the distribution among 70
EMDEs during 2000-16 (53 percent of GDP). “Elevated” private debt is defined as private sector
credit in the second highest quartile (32-53 percent of GDP). Charts show the share of EMDEs withrespective levels of sustainability gaps out of those with high or elevated private debt (A), and theshare of EMDEs with respective levels of private debt out of those with “sizable negative” or“moderate negative” sustainability gaps (B).
C.-F. Sample includes 46 EMDEs with “sizable negative” sustainability gaps (in excess of 1 percent
of GDP) in 2016.
C.F. The year of global recession (2009) is shaded in gray.
C. GDP-weighted average.
D. Floating exchange rate regimes are those classified as floating, free floating, or independently
floating. Excluding countries with no separate legal tenders, currency boards, conventional fixedpegs, stabilized arrangements, crawling pegs, crawl-like arrangements including crawling bands,
pegged exchange rates within horizontal bands, other managed (floating) arrangements (IMF 2016c).
E. For countries with multiple sovereign wealth funds, the sum of all funds’ assets is presented.
Countries where the size of assets under management in their funds is less than 3 percent of GDP
are not shown.
F. Central bank independence is a simple average and measured as an index ranging from 0 to 15,
showing the independence and transparency of central banks, based on multiple criteria in central
bank objectives, institutions, operations, and policies.

56

S P E C I AL FO C U S 1

EMDEs with sizable negative sustainability gaps
had above-median private debt. In these countries,
bouts of financial stress could curtail both private
and public sector activity, with weaknesses in both
amplifying each other.
While monetary policy normalization in majoradvanced economies will, in all likelihood, proceedsmoothly, there remains a risk of episodes offinancial market volatility. These episodes could
be accompanied by sharp increases in financing
cost for EMDEs. Against this backdrop, thesimultaneous weakening of government andprivate sector balance sheets underscores the needto shore up fiscal positions.
In the short term, while global financial
conditions remain benign, measures to strengthen
the resilience of government balance sheets can beprioritized. In particular, some EMDE
governments with ample market access can takeadvantage of still-low borrowing costs to lengthen
the maturity profile of their debt or shift its
currency composition toward domestic currency(World Bank 2015a). Such immediate steps canbe complemented with broader public debt
management reform measures. Depending on
country circumstances, these range from better
coordination between debt management, cash
management and fiscal policy to legislation andregulation to streamline responsibilities andimproved recording and reporting systems (WorldBank 2007).
Several measures are also available to shore up
fiscal sustainability directly. In many commodity
importers, where growth has generally been robust
since the global financial crisis, unexpected
revenue windfalls can be set aside to reduce fiscal
deficits and debt. Across EMDEs, structuralreforms can be implemented that support fiscal
credibility and generate long-term fiscal gains withlimited short-term growth impact (e.g., pension
reforms).
Across EMDEs, revenue collection efforts can beenhanced to raise spending envelopes. Suchrevenue measures could include broadening tax
bases to remove loopholes for higher-income
households or profitable corporates. In addition, a

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

reallocation of expenditures away from lessefficient expenditures (often subsidies) towards
more growth-enhancing or better-targeted ones
(such as public spending or means-tested income
support) can be considered. In low-income
countries, strong revenue bases and improvementsin spending efficiency are essential to financeinvestment needed to achieve their development
goals (Baum et al. 2017).
In addition to fiscal positions, improved policy
frameworks and reserve buffers can mitigate theimpact of terms of trade shocks (Adler, Magud,and Werner 2017). A growing number of EMDEs
employ inflation targeting and allow greater
exchange rate flexibility to absorb shocks. On
average, reserve buffers have strengthened
significantly and allowed, especially, energyexporting EMDEs to soften the adjustment toprospects of lower commodity prices.

References
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Adjustment.” Working Paper 17/29, International
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Blanchard, O. J. 1993. “Suggestions for a New Set
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Danforth, J., P. Medas, and V. Salins. 2016.
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Hammond, G. 2012. “State of the Art of Inflation
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Huidrom, R., M. A. Kose, J. J. Lim, and F. L.
Ohnsorge. 2016. “Do Fiscal Multipliers Dependon Fiscal Positions?” World Bank Policy
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“Heavily Indebted Poor Countries (HIPC)
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Kose, M. A, S. Kurlat, F. Ohnsorge, and N.
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World Bank. 2007. Managing Public Debt: From
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SPECIAL FOCUS 2
Arm’s-Length Trade: A Source ofPost-Crisis Trade Weakness

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S P E C I AL FO C U S 2

61Arm’s-Length Trade:
A Source of Post-Crisis Trade Weakness
Trade growth has slowed sharply since the global financial crisis. Based on U.S. trade data, arm’s-length trade—trade
between unaffiliated firms—accounts disproportionately for the overall post-crisis trade slowdown. This is partly because
arm’s-length trade depends more heavily than intra-firm trade on sectors with rapid pre-crisis growth that boosted arm’slength trade pre-crisis but that have languished post-crisis, and on emerging market and developing economies (EMDEs),
where output growth has slowed sharply from elevated pre-crisis rates. Unaffiliated firms may also have been hindered morethan multinational firms by constrained access to finance during the crisis, a greater sensitivity to adverse income andexchange rate movements, heightened policy uncertainty, and their typical firm-level characteristics.

Introduction
Global trade volume growth reached a post-crisis
low of 2.4 percent in 2016—significantly below
the pre-crisis average of 7.6 percent. Cyclicalfactors, such as weak global demand, lowcommodity prices, and slower growth in China
have all contributed to the trade deceleration. In
addition, structural factors have lowered trade’s
responsiveness to global output expansion (WorldBank 2015a; Constantinescu, Mattoo, and Ruta
2015).
The maturing of global value chains is a key
structural factor contributing to the recent trade
slowdown.1 Global value chains often involve
numerous cross-border operations, conducted
either “intra-firm,” that is, between firms related
through ownership or control, or between
unaffiliated firms at “arm’s-length.” A firm’s
decision between arm’s-length and intra-firmtransactions has its roots in the underlying
motivation for vertical integration (or lackthereof) and foreign direct investment. Firms
choose to internalize transactions if the cost of
performing these through the market is higher
than internal costs (Coase 1937). In particular,
contract enforcement imposes costs whencontracts are incomplete (Williamson 1985;
Note: This Special Focus was prepared by Csilla Lakatos andFranziska Ohnsorge.
1The expansion of global value chains contributed significantly tothe rapid rise in trade growth during 1985-2000. However, during
2000-16, growth in value chains has stabilized (Haugh et al. 2016;
Constantinescu, Mattoo, and Ruta 2015).

FIGURE SF2.1 Trade growth
Since the global financial crisis, trade growth between unaffiliatedcompanies (“arm’s-length”) has slowed considerably more steeply, andfrom more elevated pre-crisis rates, than between related firms (“intrafirm”). The resilience of multinationals was also reflected in the robust
value added growth of their foreign affiliates.
A. U.S. export growth

B. U.S. import growth

C. Global GDP and foreign affiliates
value added

D. Top 5 multinationals, 2015

Sources: U.S. Census Bureau, UNCTAD.
A.B. U.S. exports and imports of goods based on data from the U.S. Census Bureau. Global data
is not available.
C. Nominal terms. Value added of foreign affiliates is based on estimates from various editionsof UNCTAD’s World Investment Report.
D. Ranked by foreign assets in 2015. Excludes multinational companies in the financial sector.
AEs stands for advanced economies. BRA=Brazil, CHN=China, FRA=France, JAP=Japan,
MEX=Mexico, MYS=Malaysia.

Grossman and Hart 1986). When contracts areincomplete and their enforcement is costly, firms
may prefer vertical integration and internal

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FIGURE SF2.2 Role of the United States in trade andforeign direct investment
The United States plays an important role in global trade and foreign direct
investment and is deeply integrated into global value chains.
A. Global trade

B. U.S. trade

C. U.S. share of global trade and FDI

D. Countries for which the UnitedStates is the largest export
destination and import source

E. Share of U.S. multinationals inlargest 100 non-financial
multinationals

F. U.S. firms participation in global
value chains

Sources: UNCTAD, World Bank, WTO.
A.B. Includes merchandise and services imports.
C. Total of merchandise exports and imports and total of inward and outward FDI stocks.
D. The sample includes 190 countries, of which 139 EMDEs, for exports and 189 countries, of which
139 EMDEs, for imports.
F. VA refers to value added.

ownership of assets (Hart and Moore 1990;
Antras 2015).2

Incomplete contracts can result in underinvestment when firms
undertake significant relationship-specific investments. Parties to acontract may underinvest in expectation of their counterpart notcomplying with the terms of a contract. As suppliers often customize
their products to fit the needs of a specific buyer and buyers
undertake significant investment specific to a particular supplier,such cost could be significant.
2

In cross-border trade transactions, additional
considerations come into play. Firms may favor
arm’s-length transactions when they seek access toexport markets similar to their home markets andwhen technology, knowledge, or resource transfers
are not required (Dunning and Lundan 2008;
Lanz and Miroudot 2011). As a result, arm’slength transactions are more prevalent in lowskilled sectors and among less productive firms(Corcos et al. 2013).
In practice, multinationals employ intra-firm andarm’s-length transactions to varying degrees. In
2015, intra-firm transactions are estimated tohave accounted for about one-third of global
exports (UNCTAD 2016). Vertically integrated
multinational companies, such as Samsung Electronics, Nokia, and Intel, trade primarily intrafirm. Samsung, the world’s biggest communications equipment multinational, has 158
subsidiaries across the world, including 43
subsidiaries in Europe, 32 in China and 30 in
North and South America (Samsung 2014).
Other multinationals, such as Apple, Motorola,and Nike, rely mainly on outsourcing, and hence
on arm’s-length trade with non-affiliated suppliers(Lanz and Miroudot 2011).
Multinational companies and their affiliates
accounted for one-tenth of global GDP and theirsales amounted to about half of global GDP in2015 (UNCTAD 2016; Figure SF2.1). The
world’s largest multinationals (Shell, Toyota, andGeneral Electric in advanced economies; China
National Offshore Oil, Vale SA, and Petronas in
EMDEs) are systemically important in both theirhome and host economies. Post-crisis, foreign
affiliates of multinational companies have fared
better than their domestic counterparts andcontributed more significantly to the recovery of
global GDP. For example, during 2010-14, thevalue added of multinationals grew faster-thanaverage, at 6.6 percent—well above global GDP
growth of 4.4 percent.
Unfortunately, data on global intra-firm trade are
not available. However, a unique dataset on
bilateral U.S. exports and imports can provide anindication of developments in intra-firm trade
growth. The United States plays an important rolein global trade (Figure SF2.2): it accounts forG L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

about 11 percent of global goods trade and 23
percent of global foreign direct investment (FDI)
stocks. It is the largest export destination for onefifth of the world’s countries and the largest
import source for one-tenth. U.S. multinationals
account for about 30 percent of the employment
and sales of the world’s largest 100 non-financial
multinational companies.
Most of the post-crisis slowdown in U.S. trade
growth can be attributed to the sharp slowdown inarm’s-length rather than intra-firm trade. By
2014, intra-firm trade growth had returned tonear pre-crisis rates while arm’s-length trade
growth has lagged significantly below elevated precrisis rates.
This Special Focus addresses the following
questions:•

What are the characteristics of intra-firm andarm’s-length trade?

•

How have intra-firm and arm’s-length trade
evolved since the crisis?

•

What accounts for the sharp post-crisis
slowdown in arm’s-length trade?

S P E C I AL FO C U S 2

63

FIGURE SF2.3 Characteristics of U.S. intra-firm andarm’s-length trade
Just over half of total U.S. trade is conducted at arm’s-length. Arm’s-lengthtransactions account for a larger share of U.S. trade with EMDEs than withadvanced countries and are more common in final goods trade. U.S. tradewith EMDEs has slightly shifted towards intra-firm transactions since theglobal financial crisis.
A. Share of intra-firm exports in total
U.S. exports

B. Share of intra-firm imports in total
U.S. imports

C. Structure of U.S. exports

D. Structure of U.S. imports

E. Evolution of intra-firm exports intotal U.S. exports

F. Evolution of intra-firm imports intotal U.S. imports

Characteristics of intra-firm
and arm’s-length tradeData. There is only one publicly available dataset
on international intra-firm trade with a comprehensive set of partner economies. This unique
U.S. trade dataset from the U.S. Census Bureau
uses customs declarations to distinguish arm’slength trade from intra-firm transactions.3 At themost detailed level, the data contain exports andimports at the 6-digit North American Industry
Classification System (NAICS) level as well as
information on countries of origin and destination, covering annual bilateral trade flows with
234 partner economies for 2002-14. Similar data

The U.S. Bureau of Economic Analysis collects similar data with aconfidential dataset on intra-firm trade data based on firm surveys.
The Organisation for Economic Co-Operation and Development(OECD) database on the Activities of Multinational Enterprises
covers trade between OECD countries.
3

Source: U.S. Census Bureau.
Note: AE stands for advanced economies.
A.B.E.F. U.S. exports and imports of goods, average for 2002-14. The residual to 100 percent is theshare of arm’s-length trade in total U.S. goods exports or imports with the world, advanced economies(AEs) or EMDEs. The shares are broadly stable over the period.
C.D. 2014 averages. The classification into intermediates, capital, and final goods is according to the
Broad Economic Categories (BEC) rev.4 classification of goods according to their use. Category 51—
passenger motor cars—has been excluded.

are unavailable at the global level; hence, theanalysis here relies on this U.S. trade dataset.
Definition of arm’s-length and intra-firm trade.
Intra-firm trade consists of cross-bordertransactions between firms linked by a degreeof control and ownership whereas arm’s-length
trade is defined as cross-border transactions

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FIGURE SF2.4 Regional decomposition of U.S. intra-firm
and arm’s-length trade
Canada is the largest destination of U.S. intra-firm exports and the largest
source of U.S. intra-firm imports, followed by Mexico. China is more
important as a source of U.S. arm’s-length imports. In general, intra-firmtrade is more prevalent with higher-income trading partners.
A. Main destinations for U.S. exports

C. Share of intra-firm trade in U.S.
exports

B. Main sources for U.S. imports

D. Share of intra-firm trade in U.S.
imports

Source: U.S. Census Bureau.
Note: Top 10 trading partners, averages for 2002-14.
A.B. Residual to 100 percent is the share of all other countries in total U.S. arm’s-length or intra-firm
exports (A) or imports (B).
C.D. Residual to 100 percent is the share of arm’s-length transactions in bilateral U.S. exports (C) or
imports (D) with each trading partner. BEL=Belgium, NLD=Netherlands, CAN=Canada,
MEX=Mexico, MYS=Malaysia, SGP=Singapore, PHL=Philippines, DEU=Germany, JAP=Japan,
IRL=Ireland, SVK=Slovak Republic, CRI=Costa Rica, SAU=Saudi Arabia, MLT=Malta,
HUN=Hungary, SWE=Sweden, DNK=Denmark.

between unrelated firms. The U.S. Census Bureau
records transactions between related-parties.
Related-party imports are defined as shipments
between “any person directly or indirectly,
owning, controlling or holding power to vote 6
percent of the outstanding voting stock or sharesof any organization.” The ownership threshold for
related-party exports is set at 10 percent (U.S. Cen-sus Bureau 2014). For notational convenience,
related-party and intra-firm trade are hereinafter
interchangeably referred to as intra-firm trade.4
Quantitative importance of arm’s-length andintra-firm trade. Just over half (about 57 percent)of total U.S. trade is conducted at arm’s-length
4Technically, the two terms imply different ownership shares.
Intra-firm trade is defined as trade between firms with control andownership shares of at least 50 percent.

between unrelated firms. The share of arm’slength trade is much lower for U.S. imports (50percent) than exports (70 percent), for U.S. tradein capital goods (50 percent) than final goods (60percent), and for U.S. trade with advanced
economies (51 percent) than with EMDEs (64percent). In general, a higher per capita income ofa trading partner is associated with a lower share ofarm’s-length trade. The share of intra-firm trade of
total U.S. trade has remained broadly stable from2002 until the global financial crisis but
subsequently increased, especially for U.S. tradewith EMDEs (Figure SF2.3).
Country composition of arm’s-length and intrafirm U.S. trade. Geographical proximity and theNorth American Free Trade Agreement (NAFTA)
favor intra-firm transactions with two of theUnited States’ largest trading partners, Mexico andCanada. About half of all U.S. exports to, andmore than half of all U.S. imports from, Canada
and Mexico are intra-firm transactions. Canada is
the single largest destination of U.S. intra-firm
exports (almost one-third of total U.S. intra-firm
exports) and imports, followed by Mexico (about
one-fifth of total U.S. intra-firm exports; Figure
SF2.4). More than half of U.S. imports from its
main non-NAFTA trading partners (with the
exception of China and Italy) are also intra-firmtransactions. In contrast, U.S. exports to its main
non-NAFTA trading partners are predominantly
arm’s-length—53-65 percent of U.S. exports tolarge European Union and Asian countries(France, Germany, Japan, Korea, Netherlands,
and United Kingdom; Figure SF2.4) fit thisdescription.

Evolution of intra-firm
and arm’s-length tradesince the crisis
Global trade growth has slowed sharply since theglobal financial crisis, from an average of 7.6
percent during 2002-08 to an average of 4.3
percent during 2010-14. During the 2007-09
global financial crisis, global trade volumes
contracted by 11 percent, as domestic demand
dropped and trade finance was curtailed(Levchenko, Lewis, and Tesar 2010; Chor andG L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

Manova 2012). The contribution of global value
chains to propagating the negative effects of the
global financial crisis remains unsettled.5
The U.S. trade data highlight that arm’s-length
trade accounted disproportionately for the overall
post-crisis trade slowdown. This reflected a higher
pre-crisis average and a weaker post-crisis reboundin arm’s-length trade growth compared with intrafirm trade. During the crisis itself, the U.S. datasuggest a broad-based trade collapse in which intra-firm and arm’s-length trade contracted to similar
degrees.
By 2014, intra-firm trade growth had returned
close to its pre-crisis average (4.3 percent ofexports and 5.0 percent for imports). In contrast,
arm’s-length trade growth remained significantly
below its high pre-crisis average: its growth slowed
to a post-crisis annual average of 4.7 percent
compared to 11.3 percent during 2002-08 (Figure
SF2.1).

S P E C I AL FO C U S 2

65

FIGURE SF2.5 Sectoral decomposition of U.S. intra-firm
and arm’s-length trade
Intra-firm trade is concentrated in sectors such as transportationequipment, electronics, and chemicals, while arm’s-length transactions are
more common in textiles, apparel and leather products, and food andbeverages.

A. Share of sector in intra-firm andarm’s-length exports

B. Share of sector in intra-firm andarm’s-length imports

C. Share of sector in intra-firm andarm’s-length trade

D. The share of intra-firm transactions
in sectoral exports and imports

Factors contributing to the
sharp post-crisis slowdown
in arm’s-length trade
On average, arm’s-length U.S. trade growth
exceeded U.S. intra-firm trade growth by 1.6
percentage point pre-crisis (2002-08), but fell
short of U.S. intra-firm trade growth by 1.7
percentage point post-crisis (2010-14). This sharp
slowdown in arm’s-length trade reflected in partcompositional effects in response to global macroeconomic trends. In addition, several other factors
may have disadvantaged firms trading at arm’slength, raised the cost of arm’s-length transactions,and hence discouraged arm’s-length trade.
Compositional effects. First, a greater share ofarm’s-length exports than intra-firm exports isshipped to EMDEs, especially BRICS economies.
Just as the rapid pre-crisis growth in EMDEs lifted
5Global production chains may have facilitated the transmission of
output contractions across the global economy through intra-firm
contagion (Bems, Johnson, and Yi 2009). Conversely, they may havestrengthened the resilience of trade by facilitating better access tofinance or due to the stability of long-established contractual
relationships in supply chains (Altomonte and Ottaviano 2009;
Bernard et al. 2009).

Source: U.S. Census Bureau.
Note: U.S. exports and imports of goods, averages for 2002-14. Agricultural products, paper products, printing, non-metallic minerals, furniture, and miscellaneous manufactures have been omitted asthey each account for less than 2 percent of total trade. Food and bev includes food and beverages.
Textiles and app include textiles and apparel. Chemicals include chemicals and plastics. Electronics
includes electronics and electrical equipment.
A.-C. Residual to 100 percent is the share of all other sectors in exports (A), imports (B),and trade (C).
D. Residual to 100 percent is the share of arm’s-length transactions in U.S. exports and imports ineach sector.

arm’s-length export growth, their sharp post-crisis
growth slowdown dampened it (Figure SF2.6;
Didier et al. 2016). Second, arm’s-length exports
and imports include a greater share of sectors thatgrew rapidly pre-crisis but have struggled postcrisis (textiles and apparel and machinery) or
sectors that benefited from the pre-crisis
commodity price boom (mining, metals, andenergy; Figure SF2.5). The collapse in metals andenergy prices from their peak in the first quarter of2011 has weighed on trade (World Bank 2015aand 2015b; Baffes et al. 2015). These
compositional differences are the main reason
behind the steeper-than-average slowdown inarm’s-length trade growth. Had the composition

66

S P E C I AL FO C U S 2

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FIGURE SF2.6 Pre- and post-crisis growth in U.S. trade
Pre-crisis, a higher share of fast-growing sectors and export markets
supported arm’s-length export growth. Post-crisis, this effect unwound as
EMDE growth and some of the fastest growing sectors slowed. Suchcompositional effects are the main reason for the steeper-than-averageslowdown in arm’s-length trade growth.
A. Export growth

C. Contribution to average annual
export growth

E. Contribution to deviation fromannual average export growth, change
2002-08 to 2010-14

B. Import growthof arm’s-length trade matched that of averageexports and imports, arm’s-length export andimport growth would have slowed by 1.2 and 1.8
percentage points less, respectively, between the
pre-crisis and post-crisis periods (Figure SF2.6).6
Other contributing factors. Other factors may
have further contributed to the post-crisis
weakness in arm’s-length trade.7•

Reduced access to finance for unaffiliatedfirms. Tightening lending conditions during
and after the global financial crisis restricted
access to trade credit and other forms offinancing (Chor and Manova 2012). Thismay
have
disproportionately
affectedtransactions between non-affiliated parties(Desai, Foley, and Hines 2004; Alvarez andGörg 2012).

•

Disadvantages due to size and productivity.
Vertically integrated firms tend to be larger,
more productive, and more skill- and capitalintensive (Corcos et al. 2013). More efficientmanagement of stocks also helps verticallyintegrated firms adjust to large demand
shocks, such as the global financial crisis(Altomonte et al. 2011). Such factors may
account for the smaller likelihood of exit fromforeign markets for firms exporting on an
intra-firm basis, especially since the global
financial crisis. The number of U.S. firms
exporting intra-firm fell by 8.5 percent during
2009, whereas the number of firms exportingat arm’s-length fell by 12.5 percent (Carballo2015).

•

Shock amplification in complex supply chains.
The demand for complex goods, such as
automobiles, reacts more strongly to income
shocks than the demand for basic goods(Ferrantino and Taglioni 2014). As a negative

D. Contribution to average annual
import growth

F. Contribution to deviation fromannual average import growth,change 2002-08 to 2010-14

Source: U.S. Census Bureau.
Note: AE stands for advanced economies.
C.D. Average annual contribution of export (C) and import (D) transactions with EMDEs and AEs tototal U.S. merchandize exports (C) or imports (D).
E. “Country composition” measures the extent to which growth in arm’s-length or intra-firm exports
exceeded that of total exports due to a higher initial share of fast-growing countries. It is defined as
the difference between hypothetical arm’s-length (intra-firm) export growth, had arm’s-length (intrafirm) exports to each country grown at the same rate as total exports to each country, and actual totalexport growth. “Sector composition” measures the extent to which growth in arm’s-length or intra-firm
exports exceeded that of total exports because of a higher initial share of fast-growing sectors. It isdefined as the difference between hypothetical arm’s-length (intra-firm) export growth, had arm’slength (intra-firm) sectoral exports grown at the same rate as total sectoral exports, and actual totalexport growth. “Other” is the residual. The figure shows the change in these contributions between
the 2002-08 average and the 2010-14 average.
F. The definitions are as in E. Country composition is omitted since the destination country of allimports is the United States.

The results are robust to using manufacturing trade only.
Trade policy may have favored intra-firm trade. However, in the
post-crisis period under consideration here (2010-14) there were no
major changes in U.S. trade policy. Apart from three bilateral U.S.
FTAs that are slowly being phased in since 2012 (Korea, Panama,
Colombia), applied tariffs imposed by the United States on its
imports and faced by the United States on its exports did not change
significantly.
6

7

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

demand shock spreads through the supply
chain, participating firms observe greater
swings in demand the further up they are on
the supply chain (the “bullwhip effect”).
Although intra-firm trade in intermediate
goods fell more significantly at the beginningof the crisis, it also benefitted from a stronger
recovery thereafter (Alessandria 2011).
••

U.S. dollar appreciation. Trade conducted
through global value chains generally shows
less sensitivity to real exchange rates. That’s
because competitiveness gains from realdepreciations are partly offset by rising input
costs (Ahmed, Appendino, and Ruta 2015;
Mattoo, Mishra, and Subramaniam 2012;
Amiti, Itskhoki, and Konings 2014). To theextent that intra-firm trade is more strongly
associated with global value chains than arm’slength trade, intra-firm U.S. exports may havebenefited less from the pre-crisis U.S. dollar
depreciation and been dampened to a lesser
degree by the post-crisis appreciation thanarm’s-length exports. In addition, firms
integrated vertically may have a wider range oftools available to them to hedge against
exchange rate movements.
Uncertainty. Uncertainty influences whether
firms outsource or integrate vertically (Antras
and Helpman 2004). Although uncertainty
discourages cross-border vertical integration,
once established, vertically integrated U.S.
firms tend to be less sensitive to uncertainty intheir trade decisions (Carballo 2015; Bernard
et al. 2010). Heightened economic and trade
policy uncertainty during and after the global
financial crisis, may therefore have encouraged
a post-crisis preference for intra-firmtransactions over arm’s-length ones.

Conclusion
The United States plays an important role inglobal trade. It accounts for about 11 percent of
global goods trade and is the largest export
destination for one-fifth of the world’s countries.
U.S. multinationals account for about 30 percentof the employment and sales of the world’s largest
100 non-financial multinational companies.

S P E C I AL FO C U S 2

U.S. arm’s-length trade growth has slowed steeply
relative to intra-firm trade in the aftermath of the
global financial crisis, from high pre-crisis rates.
During the 2010-14 recovery, trade between nonaffiliated firms grew at about half the pre-crisis
rate. Intra-firm trade growth also slowed but to aconsiderably lesser degree.
The sharp slowdown in arm’s-length trade growthstems from a number of factors. A high share ofarm’s-length exports is conducted with EMDEs,
where growth has slowed sharply from elevatedpre-crisis rates. In addition, firms trading at arm’slength are more concentrated in sectors that grewparticularly rapidly pre-crisis and sectors that
benefited from the pre-crisis commodity priceboom, which boosted pre-crisis trade but havelanguished since the crisis. Such compositional
effects simply reflect cyclical trends in the global
economy. For the United States, these effects
account for a significant part of the post-crisis
growth gap between arm’s-length and intra-firmtrade.
Other factors have also been at play. Among these,
the characteristics that make firms engaged inarm’s-length trade less resilient to the severe
demand and financing shocks of the global
financial crisis contributed to the post-crisis
weakness of arm’s-length trade. Firms engaged inoutsourcing tend to be smaller, less productive,
less efficient in inventory management, and havemore restricted access to finance than firms
integrated vertically. Such factors may haveaccelerated the exit of firms trading at arm’slength during the global financial crisis and its
aftermath. In addition, the macroeconomic
environment has been less favorable to arm’slength trade than to intra-firm trade in the postcrisis period. The post-crisis U.S. dollar
appreciation has weighed more heavily on U.S.
exports from non-affiliated firms. Heightened
financial risks and policy uncertainty may also
have discouraged arm’s-length transactions.
While the post-crisis environment has favoredmultinationals that focus on intra-firmtransactions, their activities can also raise policy
challenges. For example, multinationals may havean incentive to adjust their transfer pricing—the

67

68

S P E C I AL FO C U S 2prices assigned to intra-firm transactions—to raisethe value of goods and services produced incountries with low corporate income taxes andreduce the value of those produced in countries
with higher taxes. Policies to promote FDI and
trade therefore have to be carefully calibrated toprotect fiscal revenues. A number of global
initiatives have been introduced since the global
financial crisis to make global tax practices moretransparent (IMF/OECD/UN/World Bank 2011,2016). In addition, large and internationally active
firms also tend to be better able to absorb thesignificant fixed costs of exporting. Measures toreduce asymmetries of information and help small
and medium-sized companies overcome regulatoryburdens can help level the playing field (WorldBank 2016).

References
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Antras, P. 2015. Global Production: Firms,
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69

CHAPTER 2REGIONALOUTLOOKS

The East Asia and Pacific region is projected to grow at 6.2 percent in 2017, and at a slightly lower 6.1 percent
on average in 2018-19, in line with previous forecasts. A gradual slowdown in China is offsetting a continued
modest pickup in the rest of the region, led by a rebound in commodity exporters and a gradual recovery inThailand. Growth in commodity importers excluding China is projected to remain robust, as stronger exports
will offset the negative effects of eventual policy tightening on domestic demand. Downside risks are mainly
external. They include heightened policy uncertainty and increased protectionism in key advanced economies,
and the risk of an abrupt tightening of global financing conditions. A sharp slowdown in China is a lowprobability risk, but it would have major negative consequences for the region.

Recent developments
Regional growth continued to be robust, and inline with expectations, in the first half of 2017.
Solid domestic demand growth reflectedaccommodative macroeconomic policies and tightlabor markets (World Bank 2017a). Export
volumes firmed across the region, reflecting
gradually strengthening global activity. Purchasing
managers’ indexes and consumer sentimentindicators point to solid activity across the region
in the second quarter of the year. Regional
inflation is trending up, reflecting positive
inflation in Thailand and increased price pressuresin the rest of the region, particularly in Malaysia.
Producer prices have recovered, particularly in
China and commodity exporting economies,
reflecting the stabilization of commodity prices
and a rebound in economic activity. Regional
financial markets stabilized after a period ofvolatility in late 2016, net capital outflows
declined, and regional currencies and asset prices
firmed (Figure 2.1.1).
In China, following strong growth in 2016Q4(6.8 percent y/y), GDP expanded by 6.9 percent
y/y in 2017Q1, helped by robust consumption

Note: This section was prepared by Ekaterine Vashakmadze.
Research assistance was provided by Liwei Liu.

and a recovery of exports. Rebalancing frominvestment to consumption resumed as statedriven investment growth slowed and private
sector investment growth recovered from a mid2016 dip, but remained weak (Figure 2.1.2).
House price growth declined in major cities andcredit growth slowed (but remained above
nominal GDP growth and credit to the household
sector accelerated) on tighter regulations and lessaccommodative monetary policy (Campanaro and
Masic 2017). Consumer price inflation has
remained below target. Producer price inflation
has moderated somewhat from its peak in
February, reflecting higher commodity prices andreduced overcapacity in heavy industry. Export
growth accelerated on stronger external demand.
The pace of foreign reserve drawdowns slowed
following a tightening of capital controls on
capital outflows and measures to encourage
foreign direct investment.
Growth continues to strengthen in commodityexporting economies (Table 2.1.1). Domestic
demand and imports are firming, reflecting
improved confidence, higher corporate profits,
and diminishing drag from macroeconomic
adjustment. In Indonesia, investment climate
reforms and recovering commodity prices havesupported a private investment recovery (WorldBank 2017b). In Malaysia, stabilizing commodity
prices have lifted business sentiment and invest-

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FIGURE 2.1.1 EAP: Recent developments
Activity remained robust in the first half of 2017, on solid domestic demandand firming exports. Regional financial markets have recently stabilized
and regional equity prices have generally recovered their earlier losses.
Inflation across the region picked up, but remained below central banks’targets in China and Thailand. Real credit growth generally moderated ontighter regulations and higher inflation, but remained high in China andVietnam, and accelerated in the Philippines.
A. GDP growth

B. Goods exports volume growth

C. Sovereign bond spreads

D. Equity prices

E. Inflation

F. Credit growth

Sources: Central Bank News, Haver Analytics, International Monetary Fund, World Bank.
Note: EAP stands for East Asia and Pacific. Commodity importers ex. China include Cambodia,
Philippines, Solomon Islands, Thailand, Vietnam, and Vanuatu. Commodity exporters include
Indonesia, Lao PDR, Mongolia, and Malaysia. GDP-weighted averages.
B. Last observation is March 2017.
C. Measures the average spread of a country’s sovereign debt (as measured by J.P. Morgan’s
Emerging Markets Bond Index) over their equivalent maturity U.S. Treasury bond. Lat observationis May 24, 2017.
D. Last observation is May 24, 2017.
E. Average year-on-year growth. Inflation targets for 2017 are 3 percent in China and 5 percent in
Vietnam. The figure shows the mid-points of targeted ranges in Indonesia (3-5 percent), Philippines(2-4 percent), and Thailand (1-4 percent). For Malaysia, the mid-point of Bank Negara’s 2017 forecastof 3-4 percent is used.
F. Real private sector credit growth. Average year-on-year growth. Data for Vietnam in 2016 arethrough October.

ment. In Indonesia, export volumes, which had
contracted through mid-2016, rebounded strongly
in 2016Q4, and export values continued toaccelerate in the first two months of 2017 onstrong demand from China. In Malaysia, export
growth (especially in electrical and electronics
goods) is being bolstered by a global pickup in
manufacturing and trade and a modest recovery ofoil and gas shipments.
Growth in commodity-importing economies
remains robust, as accommodative policies
continue to support solid growth of domestic
demand. In the Philippines, expansionary fiscal
policy has boosted capital formation, while robust
remittances, credit growth, and low inflation havesupported private consumption. In Thailand,
domestic demand is gradually recovering fromseveral years of subdued performance, but policy
uncertainty continues to weigh on growth.
Overall, exports in commodity-importing
economies are generally benefitting fromstrengthening
globaldemand,althoughperformance remains mixed.
After a period of financial market volatility in late2016—which contributed to capital outflows
from the region and put pressure on regional
exchange rates and equity prices—global financing
conditions have improved in 2017 (World Bank
2017a). Sovereign bond spreads have narrowed,
most notably in commodity exporters (e.g.,Indonesia and Malaysia) and Vietnam. Capital
inflows to EAP bond and equity mutual funds
have resumed (including in Malaysia andThailand, which had experienced substantial
outflows) and have been broadly stable in 2017.
Most regional currencies have strengthened against
the U.S. dollar. Regional equity prices havegenerally recovered their earlier losses, reflecting
improved confidence and a stabilization of global
bond yields.
Authorities are gradually moving to a lessaccommodative policy stance, with some
exceptions. China raised its short-term interest
rates in the first quarter of 2017 and continued totighten macro-prudential regulations to address
financial stability risks. Malaysia made some
progress in renewing medium-term fiscal
consolidation efforts. Indonesia is not planning toextend expenditure cuts into 2017 and has
signaled a more accommodative stance for the
medium term. Policies in the Philippines remain

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

accommodative, despite rapid credit growth,
accelerated inflation, widening fiscal deficits, andfalling current account surpluses.

Outlook
The regional growth outlook for 2017-19 remains
solid (World Bank 2017a). Growth is projected toreach 6.2 percent in 2017—a touch below the 6.3
percent pace in 2016 (Figure 2.1.3). This reflects a
gradual slowdown in China, which offsets a
pickup of activity in the rest of the region led by arebound in commodity exporters (Table 2.1.2).
The outlook is predicated on a modest recovery ofcommodity prices and stronger external demand.
A rebound in global trade is expected to offset thenegative effects on activity of a gradual tighteningof global financing conditions.
Growth in China is projected to slow from a
projected 6.5 percent in 2017 to 6.3 percent on
average in 2018-19. Fiscal support will continue
to offset monetary tightening. Policies willcontinue to support growth and contain financial
risks and encourage rebalancing (World Bank andDevelopment Research Center of China’s StateCouncil 2014). A moderate recovery in Chinese
imports reflects robust domestic demand.
Improving global demand supports export, butrising cost pressures will limit export growth. The
baseline forecast assumes no material change intrade or political relations between China and theUnited States, notwithstanding policy efforts to
reduce China’s trade surplus with the UnitedStates.
Growth in the rest of the region is projected topick up from an estimated 5.1 percent in 2017 to
5.2 percent on average in 2018-19, reflecting acontinued recovery in commodity exporters andThailand. Growth in commodity exporters willcontinue to accelerate, from an estimated 5.1
percent in 2017 to its long-term average of 5.3
percent in 2019. This assumes that the adjustment
to low commodity prices runs its course over theforecast horizon, exports rebound, and investment
growth stabilizes around its long-term trend.
In Indonesia, growth is projected to firm from anestimated 5.2 percent in 2017 to 5.4 percent in

E A S T A S I A A N D P A C IF I C

75

FIGURE 2.1.2 China
Growth in China continues to slow gradually. The rebalancing frominvestment to consumption resumed in 2017Q1. Fixed asset investment bystate-owned enterprises and enterprises with state participation eased as
support from policy-led investment spending gradually dissipated. Private
investment growth recovered, but remained weak. Tighter regulations
contributed to further moderation of credit growth, especially to the nonfinancial corporate sector. Credit to the household sector accelerated.
House price growth in Tier 1 and 2 cities has decelerated since mid-2016
on tightening regulations and less accommodative monetary policy.
A. Contribution of expenditurecomponents to growth

B. Fixed asset investment

C. Credit growth

D. Housing prices

Sources: Haver Analytics, World Bank.
B. 2017YTD is March 2017 data.
D. The National Bureau of Statistics of China surveys house prices in 70 cities and divides them into
three tiers. The first tier includes Shanghai, Beijing, Guangzhou, and Shenzhen. The second tierincludes 31 provincial capital and sub-provincial capital cities. The third tier includes 35 other cities.
Last observation is March 2017.

2019 (World Bank 2017b). The impact of fiscal
consolidation is expected to gradually dissipate.
Private activity will pick up, helped by modestly
rising commodity prices, improving external
demand, and increased confidence bolstered byreform measures and recent upgrades ofIndonesia’s sovereign ratings by major credit
rating agencies. These include streamlining
business regulations, liberalizing the foreign direct
investment (FDI) regime, and a stable rupiah(IMF 2017a; World Bank 2017b). In Malaysia,
income support measures, higher infrastructure
spending, and improved exports are forecast toraise growth (World Bank 2016a). In Mongolia,
growth is projected to stagnate in 2017, partly
reflecting efforts to reduce public debt to76

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FIGURE 2.1.3 EAP: Outlook and risks
Regional growth is projected to reach 6.2 percent in 2017, a touch below
2016 growth of 6.3 percent. This reflects a gradual slowdown in China,
which offsets a pickup of activity in the rest of the region led by a reboundin commodity exporters and a recovery in Thailand. Risks remain tilted tothe downside and are mainly external. In addition, a steeper-than-expected
slowdown in China would have sizable regional spillovers. Elevateddomestic debt (e.g., China, Malaysia, Thailand) and sizeable externalfinancing needs (e.g., Indonesia, Mongolia) would amplify the impact ofexternal shocks.
A. Regional GDP growth

B. GDP growth by groups

C. External financing requirements

D. Total debt

Sources: Bank of International Settlements, Haver Analytics, International Monetary Fund, World
Bank, Quarterly External Debt Statistics.
Note: EAP stands for East Asia and Pacific.
A. B. Commodity importers ex. China include Cambodia, Philippines, Solomon Islands, Thailand,
Vietnam, and Vanuatu. Commodity exporters include Indonesia, Lao PDR, Mongolia, and Malaysia.
C. Data are from 2016. For Malaysia, Vietnam, and Lao PDR, the data are from 2015. Externalfinancing requirements are defined as total debt obligations (sum of short-term external debt andlong-term debt obligations) minus the current account balance.
D. The highest debt-to-GDP ratio since 1995Q1. The peak is identified to have occurred in 1997Q4
in Thailand, 1998Q4 in Malaysia, 2001Q4 in Indonesia, and 2016Q3 in China.

percent in 2017-19—significantly higher than thelong-term average of 4.3 percent (World Bank
2017c). Accelerated public investment spending
and recovering private consumption are expected
to support slightly stronger growth in Thailand in
2018-19 (IMF 2016a; World Bank 2016b).
Nevertheless, growth in Thailand will remain
below the long-term trend of 4.5 percent, as policy
uncertainty and slowing productivity growth
dampen private investment. In Vietnam, growth isprojected to remain solid, at slightly below 6.5
percent throughout the forecast period, helped bystrong exports (World Bank and Ministry ofPlanning and Investment of Vietnam 2016). The
outlook for Pacific Island countries is benign,reflecting favorable conditions for fisheries,
tourism, and migration, conditional on proper
domestic policies.

Risks
Risks to the outlook remain tilted to the downside
and are mainly external. They include heightened
policy uncertainty in the United States andEurope, increased protectionism, and the risk ofan abrupt tightening of financing conditions. In
addition, a steeper-than-expected slowdown in
China would have sizable regional spillovers(World Bank 2016c).

sustainable levels, before staging a modest recovery
in 2018. A solid rebound is expected startingin 2019, reflecting macroeconomic stabilization,
structural reforms, large new investments into coaland gold mines, and a rebound of productionin the Oyu Tolgoi copper mine (World Bank
2017a).

Global economic policy uncertainty has been
particularly elevated since the start of 2017.
Sources of economic policy uncertainty areextensive. In the United States, the newadministration has suggested major shifts in fiscal,
trade, and immigration policies. In Europe, therising influence of populist parties could re-orient
policies and affect economic integration in theEuropean Union. Negotiations around the exit of
the United Kingdom from the European Unionalso carry risks. If the uncertainty persists, it could
weigh on investor confidence and derail theongoing recovery in growth (World Bank 2017a).

Growth in commodity importers is projected toaccelerate from 5.0 percent in 2017 to 5.2 percent
on average in 2018-19, slightly above the longterm average of 4.8 percent. In the Philippines,
growth, led by accelerated public and private
investment, is expected to remain at just under 7

Rising protectionist sentiments in advanced
economies are creating uncertainty about the
future of established trading relationships(Chapter 1). The new U.S. administration has
started reassessing a number of existing trade
agreements. Some recent related actions, includingG L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 1777

E A S T A S I A A N D P A C IF I C

the withdrawal of the United States from theTrans-Pacific Partnership (TPP), are already ineffect.
These
could
removesignificant
opportunities from Vietnam, and, to a lesser
extent, Malaysia (World Bank 2016c). Changing
trade policies would disproportionately affect themore open economies in the EAP region,
especially those with sizable exports to advanced
economies (e.g., Cambodia, China, Malaysia,
Thailand, Vietnam). Significant disruption to
China’s exports would undermine its growth, withlarge spillovers on the region (IMF 2016b-e;
World Bank 2016c). Furthermore, traderestricting measures in the United States could
trigger retaliatory measures.
A faster-than-expected tightening of global financing conditions could set back regional growthand exacerbate existing financial vulnerabilities.

The shock would transmit to the region throughreduced capital flows, high volatility, pressure on
nominal exchange rates and asset prices, andincreased risk premiums. This could result inincreased debt-service burdens and rollover risks,
especially for unhedged short-term, foreigncurrency-denominated debt (e.g., Malaysia,
Mongolia) (IMF 2016f; World Bank 2016d and2017a).
Domestic vulnerabilities, related to elevateddomestic debt (e.g., China, Malaysia, Thailand)
and large external financing needs in somecountries (Indonesia, Malaysia, Mongolia), would
amplify the impact of external shocks (BIS 2017;
Figure 2.1.3). Shallow policy buffers are a concern
in smaller countries (e.g., Mongolia, Papua New
Guinea, especially, and to some extent in Lao
PDR and Vietnam).

TABLE 2.1.1 East Asia and Pacific forecast summary(Real GDP growth at market prices in percent, unless indicated otherwise)
2014

2015

2016

2017

Estimates

EMDE EAP, GDPa

2018

2019

2016

Projections

6.8
6.5
6.3
6.2
6.1
6.1
0.0
(Average including countries with full national accounts and balance of payments data only)b

EMDE EAP, GDPb
GDP per capita (U.S. dollars)
PPP GDP

2017

2018

2019

(percentage point difference
from January 2017 projections)

0.0

0.0

0.0

6.8
6.0
6.6

6.5
5.8
6.4

6.3
5.6
6.3

6.2
5.6
6.2

6.1
5.4
6.0

6.1
5.6
6.1

0.0
-0.1
0.0

0.0
0.1
0.1

0.0
-0.1
-0.1

0.0
0.1
0.0

Private consumption

7.3

7.2

7.0

7.1

7.1

7.1

0.1

0.1

0.1

0.1

Public consumption
Fixed investment

4.0
6.5

8.5
6.7

9.1
6.5

7.5
6.4

6.9
6.0

6.8
6.1

3.0
0.1

1.6
0.2

1.1
0.3

1.0
0.4

Exports, GNFSc
Imports, GNFSc

7.6
6.8

0.9
1.3

2.2
3.8

3.3
4.9

3.6
5.0

4.1
5.2

-1.1
-0.1

-1.0
0.2

-1.2
-0.4

-0.7
-0.2

Net exports, contribution to growth

0.4

-0.1

-0.4

-0.4

-0.3

-0.2

-0.3

-0.4

-0.2

-0.1

4.7

4.8

4.9

5.1

5.2

5.3

0.1

0.1

0.0

0.1

7.3
5.0
0.9

6.9
4.9
2.9

6.7
5.0
3.2

6.5
5.2
3.2

6.3
5.3
3.3

6.3
5.4
3.4

0.0
-0.1
0.1

0.0
-0.1
0.0

0.0
-0.2
0.0

0.0
-0.1
0.0

Memo items: GDP
East Asia excluding China
China
Indonesia
ThailandSource: World Bank.
World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here may differ from those contained inother Bank documents, even if basic assessments of countries’ prospects do not differ at any given moment in time.
a. EMDE refers to emerging market and developing economy. GDP at market prices and expenditure components are measured in constant 2010 U.S. dollars. Excludes American Samoa
and Democratic People’s Republic of Korea.
b. Sub-region aggregate excludes American Samoa, the Democratic People’s Republic of Korea, Fiji, Kiribati, the Marshall Islands, the Federated States of Micronesia, Myanmar, Palau,
Papua New Guinea, Samoa, Timor-Leste, Tonga, and Tuvalu, for which data limitations prevent the forecasting of GDP components.
c. Exports and imports of goods and non-factor services (GNFS).
For additional information, please see www.worldbank.org/gep.

78

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TABLE 2.1.2 East Asia and Pacific country forecastsa(Real GDP growth at market prices in percent, unless indicated otherwise)
2014

2015

2016

2017

Estimates

2018

2019

2016

2017

2018

2019

(percentage point difference
from January 2017 projections)

Projections

Cambodia

7.1

7.0

6.9

6.9

6.9

6.7

-0.1

0.0

0.0

-0.1

China

7.3

6.9

6.7

6.5

6.3

6.3

0.0

0.0

0.0

0.0

Fiji

5.6

3.6

2.0

3.7

3.5

3.3

-0.4

-0.2

-0.2

-0.2

Indonesia

5.0

4.9

5.0

5.2

5.3

5.4

-0.1

-0.1

-0.2

-0.1

Lao PDR

7.5

7.4

7.0

7.0

6.8

7.2

0.0

0.0

0.0

0.0

Malaysia

6.0

5.0

4.2

4.9

4.9

5.0

0.0

0.6

0.4

0.5

Mongolia

6.9

2.2

1.0

-0.2

1.9

8.0

0.9

-2.2

-1.6

4.3

Myanmar

8.0

7.3

6.5

6.9

7.2

7.3

0.0

0.0

0.0

0.0

Papua New Guinea

7.4

6.8

2.4

3.0

3.2

3.4

0.0

0.0

0.0

0.4

Philippines

6.1

6.1

6.9

6.9

6.9

6.8

0.1

0.0

-0.1

0.1

Solomon Islands

2.0

3.3

3.0

3.3

3.0

3.0

0.0

0.0

0.0

0.0

Thailand

0.9

2.9

3.2

3.2

3.3

3.4

0.1

0.0

0.0

0.0

Timor-Lesteb

5.9

4.3

5.1

4.0

5.0

6.0

0.1

-1.5

-1.0

0.5

Vietnam

6.0

6.7

6.2

6.3

6.4

6.4

0.2

0.0

0.1

0.2

Source: World Bank.
World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here may differ from those contained inother Bank documents, even if basic assessments of countries’ prospects do not significantly differ at any given moment in time.
a. GDP at market prices and expenditure components are measured in constant 2010 U.S. dollars. Excludes American Samoa and the Democratic People’s Republic of Korea.
b. Non-oil GDP. Timor-Leste’s total GDP, including the oil economy, is roughly four times the non-oil economy, and highly volatile, sensitive to changes in global oil prices and local
production levels.
For additional information, please see www.worldbank.org/gep.

The pickup in regional growth at the end of 2016 has persisted in 2017, with both commodity exporters andimporters signaling recovery. The region is benefiting from rising oil prices, benign global financing conditions,robust growth in the Euro Area, and generally supportive policies. The 2017 growth forecast of 2.5 percent
remains in line with January projections. Growth in the region is expected to edge up to an average of 2.8
percent in 2018-19, as activity in the Russian Federation and other commodity exporters firms, and growth inTurkey recovers. The main downside risks include renewed declines in oil and other commodity prices, policy
uncertainty, and geopolitical risks, as well as international financial market disruptions. Domestic banking
system weaknesses are vulnerabilities, and could become amplifiers of the effects of internal and external shocks.

Recent developments
The diverging growth paths in the region reversed
in 2016 (Box 2.2.1) and growth momentum
strengthened further in early 2017 in bothcommodity exporters and importers (Figure
2.2.1). Activity and trade in the Europe andCentral Asia (ECA) region is benefiting fromrising oil prices, benign global financing
conditions, and robust growth in the Euro Area.
Policies in several large ECA countries have also
been supportive.
Commodity exporters have continued on the pathof recovery, although with a few stumbles.
Strengthening activity indicators for Russia
suggest continued expansion in the first quarter of
2017. Modest monetary policy easing, as inflation
approached the target of 4 percent at end-March,
will support Russian growth in the near term.
Early 2017 data indicate some signs of recovery in
Azerbaijan, including in the non-oil sector, and acontinued recovery in Kazakhstan, assisted byfiscal stimulus (World Bank 2017d). In contrast,
renewed conflict in Ukraine is already taking atoll, and is manifested in weak industrial
production data. Inflation in commodity exporters
is slowing, reflecting easing depreciation pressures.

Note: The section was prepared by Yoki Okawa. Research
assistance was provided by Shituo Sun.

Recovery is also gaining momentum incommodity importers. Robust construction activity in Central Europe (e.g., Hungary, Poland)
points towards firming investment, supported by
EU structural funds. Early 2017 data suggest acontinued recovery in Turkey despite elevatedpolicy uncertainty. Turkey has remained in a stateof emergency even after the approval of thegovernment-proposed constitutional referendum
that created a powerful executive presidency. The
recession in Belarus shows some signs of abating,amid tailwinds from the Russian recovery. Growth
momentum in Croatia, Moldova, and Serbia is
steady, around potential growth. Inflation incommodity importers has been consistently
undershooting lower monetary policy bounds, but
has started gathering speed, with both core andnon-core components accelerating.

OutlookA broad-based acceleration in growth to 2.5
percent is expected in 2017, in line with January
forecasts, but with some heterogeneity within theregion. A forecast upgrade for Turkey due to thefaster-than-anticipated recovery after the failed
coup attempt is offset by a downward revision in
Russia due to the extension of economic sanctions.
Growth is expected to strengthen further in 201819, supported by a continuing recovery incommodity exporters in line with firming
commodity prices, and the unwinding of80

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BOX 2.2.1 Reversal in 2016 of diverging growth paths
Following a sharp slowdown in 2014-15 in the wake of theoil price collapse, regional growth started recovering in
2016. The growth rebound in large commodity exporters(e.g., Kazakhstan, Russia, Ukraine) in late 2016 was partly
offset by a growth deceleration in large commodity
importers (e.g., Hungary, Poland, Turkey), bringing the2016 regional average to 1.5 percent, up from 1 percent in2015.

cumulative 15.8 percent contraction in 2014-15 in thewake of geopolitical tensions with Russia. In contrast,
growth in Azerbaijan declined precipitously from 1.1
percent in 2015 to negative 3.8 percent in 2016 amid
contraction in the non-oil sector. This, in part, reflectedcredit constraints as currency devaluations in 2015
strained the solvency of banks in Azerbaijan’s highly
dollarized banking system.

The Russian economy, hit hard by the oil price plunge andeconomic sanctions, emerged from recession in the lastquarter of 2016 (World Bank 2016f). Annual GDP
remained virtually flat, in a notable improvement over the
2.8 percent contraction of 2015. The recovery was
supported by rising oil prices and facilitated by exchange
rate flexibility (World Bank 2017e). A strengthening oil
sector and supportive policies, including fiscal stimulus in
infrastructure and monetary policy easing, also contributed
to the recovery in Kazakhstan in the second half of 2016,
with growth stabilizing at 1 percent. In Ukraine, government stabilization efforts, supported by international
financial institutions and a bumper agricultural crop, led
to a sharp rebound in growth to 2.3 percent, following a

The pace of expansion in large commodity importers
slowed. Despite strong recovery in the fourth quarter,
growth in Turkey halved, to 2.9 percent—the lowest ratesince the global financial crisis. The sharp decelerationreflected deteriorating business conditions in the wake ofthe failed coup attempt and sanctions imposed by Russia.
In Poland and Hungary, slow disbursement of EU
structural funds contributed to a contraction in
investment, which weighed on growth. In contrast, an
incipient recovery in Russia and Ukraine reduced adverse
spillovers from these two large economies to neighboring
economies in the eastern part of the region (e.g., Belarus,
Moldova), although the economy of Belarus continued tocontract.

geopolitical risks and domestic policy uncertainty
in major economies in the region (Figure 2.2.2).
Growth in commodity exporters is projected toaccelerate in 2017, driven by private consumption
and investment amid strengthening commodity
prices, although economic performance is
expected to vary widely. In Russia, the 1.3 percent
expansion this year, after a two-year recession, will
be driven by consumption, as easing inflation willcontribute to growth in real incomes.
Strengthening oil prices and output and anaccommodative macroeconomic policy stance will
support Kazakhstan’s growth recovery to 2.4
percent. Growth in Ukraine is projected to edge
down to 2 percent. In contrast, output willcontinue contracting in Azerbaijan, although at a
slower pace than in 2016 as weaknesses in thebanking system as well as tight monetary and fiscal
policies continue weighing on growth.
Growth in commodity importers is also expected
to gather momentum in 2017, albeit only

modestly and to varying degrees. Output inTurkey is set to expand by 3.5 percent, supported
by accommodative fiscal policy. Countries inCentral Europe will benefit from EU
infrastructure financing, with an acceleration of
growth to 3.4 percent. Countries in the easternpart of the region will benefit from the continued
recovery in Russia, though growth in Belarus isbeing held back by continued fiscal tightening
needed to finance public debt repayment. While
fiscal relaxation will contribute less to growth inRomania, it will put pressure on public andexternal deficits.
Growth in the region is expected to edge up to an
average of 2.8 percent in 2018-19, as activity in
Russia and other commodity exporters firms, andgrowth in Turkey recovers. Russia is expected tocontinue growing at a modest 1.4 percent, as low
oil prices, demographic pressures, and slow
implementation of structural reforms weigh on
potential growth. In contrast, growth in Turkey is
expected to accelerate to 4 percent as policy

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

uncertainty abates, tourism recovers, andcorporate balance sheets mend. Structural reforms,
including in the banking sector, will help lift
growth throughout the forecast horizon in
Azerbaijan, Belarus, and Kazakhstan.

E U R OP E A N D CE N T R A L A S I A

81

FIGURE 2.2.1 ECA: Recent developments
Growth momentum strengthened further in early 2017 for a majority ofcountries. Inflation in commodity exporters is slowing as depreciationpressures have eased, while inflation in commodity importers gathered
speed.
A. Industrial production

B. Manufacturing PMIs

C. Inflation

D. Export and import growth

Risks
The projected upturn is fragile. Heightened policy
uncertainties and geopolitical risks, within andoutside the region, could set back growth in ECA.
Other major risks include renewed decline incommodity prices and international financial
market disruptions. Domestic banking systemweaknesses are vulnerabilities, and could become
amplifiers of the effects of internal and external
shocks.
Subdued growth and growing anti-immigration
sentiment have fueled populist opposition toEuropean integration. An unwinding ofintegration in Europe would have implications for
ECA given its close trade, financial, andremittances ties with advanced economies in theregion (Figure 2.2.2; EBRD 2015; World Bank
2016c). Even in the absence of concrete antiintegration steps, uncertainty about policies canweigh on growth by discouraging investment,
employment, foreign firm entry, and FDI(Crowley, Song, and Meng 2016; Kose et al.
2017a).
Geopolitical tensions may also suppress growth. A
re-escalation of violence in Syria could undermine
investor and consumer confidence, thereby
putting a strain on growth. Within the region,
geopolitical risks have been highlighted by the firstmajor terrorist attack in Russia since 2012, a cargo
blockade on eastern region in Ukraine in March, arenewed territorial dispute between Armenia andAzerbaijan since early 2016, reemerging politicaltension among Western Balkan countries, anddomestic policy uncertainties in Belarus, Russia,
and Turkey. In contrast, strengthening relations
between Central Asian countries, including aprovisional agreement on the demarcation
between the Kyrgyz Republic and Uzbekistan, andrestoration of direct flights between Tajikistan andUzbekistan, could help boosting regional
integration.

Sources: Haver Analytics, World Bank.
Note: ECA stands for Europe and Central Asia.
A. Values are GDP weighted-average year-on-year growth. Commodity exporters include Armenia,
Azerbaijan, Kazakhstan, Kyrgyz Republic, Russia, and Ukraine. Commodity importers include
Belarus; Bosnia and Herzegovina; Bulgaria; Croatia; Hungary; Macedonia, FYR; Moldova;
Montenegro; Poland; Romania; Serbia; and Turkey. Last observation is 2017Q1.
B. Purchasing managers’ indexes for manufacturing. Values above 50 indicate expansion. Lastobservation is April 2017.
C. Inflation is median in each sub-grouping. Commodity exporters include Albania, Armenia,
Azerbaijan, Kazakhstan, Kyrgyz Republic, Russia, and Ukraine. Commodity importers include
Belarus; Bosnia and Herzegovina; Bulgaria; Croatia; Georgia; Hungary; Kosovo; Macedonia, FYR;
Moldova; Poland; Romania; Serbia; and Turkey. Last observation is March 2017.
D. GDP weighted-average volume of exports and imports for Armenia, Hungary, Kazakhstan, Poland,
Russia, Turkey, and Ukraine. Last observation is February 2017.

A renewed decline in commodity prices could
negatively affect investment and consumption
among ECA commodity exporters. The resulting
slower growth could have spillovers to neighboring
countries (World Bank 2016c). In addition, adisorderly tightening of global financing
conditions may put pressure on currencies, raiseborrowing costs, and lead to an outflow of capitalfrom ECA region.
Domestic vulnerabilities may exacerbate theimpact of external and internal shocks. Banking
and corporate sector balance sheets with highdegrees of dollarization (e.g., Azerbaijan, Armenia,
Belarus, Georgia, Kazakhstan, Kyrgyz Republic,

82

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FIGURE 2.2.2 ECA: Outlook and risks
A broad-based acceleration in activity, supported by consumption andinvestment, is expected in 2017-19. However, growth outcomes areprojected to vary widely, especially in commodity exporters. Growth isexpected to edge up further in 2018-19. Heightened policy uncertainties
and geopolitical risks in Europe could inflict damage on growth in the ECA
region. Domestic banking system weaknesses are vulnerabilities, andcould become amplifiers of the effects of internal and external shocks.
A. Distribution of growth

B. Country decomposition of growth

C. GDP decomposition of commodity
exporters

D. GDP decomposition of commodity
importers

E. Trade and financial exposure

F. Non-performing loans

Sources: BIS, Bloomberg, Haver Analytics, World Bank.
Note: ECA stands for Europe and Central Asia.
A. Median and range among each sub-grouping. Commodity exporters include Albania, Armenia,
Azerbaijan, Kazakhstan, Kosovo, Kyrgyz Republic, Russia, Tajikistan, Turkmenistan, Ukraine, andUzbekistan. Commodity importers include Belarus; Bulgaria; Bosnia and Herzegovina; Croatia;
Georgia; Hungary; Macedonia, FYR; Moldova; Montenegro; Poland; Romania; Serbia; and Turkey.
B. GDP-weighted growth. Commodity exporters include Albania, Armenia, Azerbaijan, Kazakhstan,
Kyrgyz Republic, Ukraine, and Uzbekistan. Commodity importers include Belarus; Bulgaria; Croatia;
Georgia; Hungary; Macedonia, FYR; Moldova; Poland; Romania and Uzbekistan.
C. Commodity exporters include Albania, Armenia, Azerbaijan, Kazakhstan, Kyrgyz Republic, Russia,
Ukraine, and Uzbekistan. Cons. = consumption.
D. Commodity importers include Belarus; Bulgaria; Croatia; Georgia; Hungary; Macedonia, FYR;
Moldova; Poland; Romania; and Turkey. Cons. = consumption.
E. Foreign claims refer to stock of total claims of BIS-reporting banks on foreign banks and nonbanks. Trade refers to goods exports and imports. Data are average of 2010-15. Exports to theUnited States/Euro Area, remittances from the United States/Euro Area, and FDI from the UnitedStates/Euro Area (all in percent of GDP). FDI is stock of total FDI. ECA refers to EMDE ECA
countries. EU15 includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, and United Kingdom.
F. Share of non-performing loans to gross loans. Simple average of each sub-grouping of countries.

Tajikistan), low asset quality (e.g., Azerbaijan,
Bosnia and Herzegovina, Croatia, Russia,
Kazakhstan, Tajikistan, Serbia), and reliance on
external funding (e.g., Belarus, Croatia, Georgia,
Tajikistan, Turkey) are weak spots. While reforms
aimed at strengthening financial systems are
ongoing in many countries, including Azerbaijan,
Belarus, Kazakhstan, Turkey, and Russia, theprocess of restoring banking sector health may be
protracted (Reinhart and Rogoff 2014). Fiscal
deficits in several ECA countries (e.g., Kyrgyz
Republic, Tajikistan, Turkey, Romania) widenedin 2016. Further deterioration in fiscal positions
could exacerbate vulnerabilities.

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 1783

E U R OP E A N D CE N T R A L A S I ATABLE 2.2.1 Europe and Central Asia forecast summary(Real GDP growth at market prices in percent, unless indicated otherwise)
2014

2015

2016

2017

Estimates
EMDE ECA, GDPa
EMDE ECA, GDP excl. Russia

2018

2019

2016

2017

2018

2019

(percentage point difference
from January 2017 projections)

Projections

2.3

1.0

1.5

2.5

2.7

2.8

0.3

0.1

-0.1

-0.1

3.4

3.6

2.7

3.3

3.5

3.7

0.3

0.3

0.1

0.1

(Average including countries with full national accounts and balance of payments data only)b

EMDE ECA, GDPb

2.3

0.9

1.5

2.5

2.7

2.8

0.3

0.1

0.0

-0.1

GDP per capita (U.S. dollars)

1.9

0.5

1.2

2.3

2.5

2.6

0.3

0.2

-0.1

-0.1

PPP GDP

2.2

0.7

1.5

2.5

2.7

2.8

0.4

0.1

-0.1

-0.1

Private consumption

2.0

-2.5

-0.1

3.4

3.9

4.0

-2.1

0.8

0.9

1.0

Public consumption

0.9

0.0

2.4

2.3

1.9

2.1

1.7

1.1

0.5

0.7

Fixed investment

2.3

0.4

0.4

3.8

4.2

4.3

0.1

-0.9

-2.6

-1.1

Exports, GNFSc

3.3

3.7

3.2

3.7

3.9

3.8

0.9

0.6

0.5

0.2

Imports, GNFSc

-0.5

-5.8

3.1

5.4

5.9

6.0

-0.2

0.7

-0.3

1.0

1.3

3.1

0.2

-0.3

-0.4

-0.5

0.4

0.0

0.3

-0.2

Commodity exportersd

0.8

-2.4

0.2

1.7

1.9

2.0

0.3

-0.1

-0.3

-0.3

Commodity importerse

4.0

4.6

2.8

3.4

3.5

3.6

0.2

0.4

0.2

0.2

Net exports, contribution to
growthMemo items: GDP

Central Europe

f

3.0

3.7

3.1

3.5

3.3

3.2

0.2

0.3

0.0

0.0

Western Balkansg

0.4

2.2

2.9

3.2

3.5

3.7

0.2

0.0

-0.1

0.0

Eastern Europeh

-3.8

-7.7

0.8

1.4

2.6

3.2

0.9

0.1

0.1

0.6

South Caucasus

i

2.7

1.7

-2.1

0.1

1.6

2.2

-0.9

-2.0

-1.4

-0.7

Central Asiaj

5.4

3.1

3.0

3.9

4.1

4.5

0.2

0.1

-0.7

-0.6

Russia

0.7

-2.8

-0.2

1.3

1.4

1.4

0.4

-0.2

-0.3

-0.4

Turkey

5.2

6.1

2.9

3.5

3.9

4.1

0.4

0.5

0.4

0.4

Poland

3.3

3.9

2.8

3.3

3.2

3.2

0.3

0.2

-0.1

-0.2

Source: World Bank.
World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here may differ from those containedin other Bank documents, even if basic assessments of countries’ prospects do not differ at any given moment in time.
a. EMDE refers to emerging market and developing economy. GDP at market prices and expenditure components are measured in constant 2010 U.S. dollars.
b. Sub-region aggregate excludes Bosnia and Herzegovina, Kosovo, Montenegro, Serbia, Tajikistan, and Turkmenistan, for which data limitations prevent the forecasting of GDP
components.
c. Exports and imports of goods and non-factor services (GNFS).
d. Includes Albania, Armenia, Azerbaijan, Kazakhstan, Kyrgyz Republic, Kosovo, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan.
e. Includes Belarus; Bosnia and Herzegovina; Bulgaria; Croatia; Georgia; Hungary; Macedonia, FYR; Moldova; Montenegro; Poland; Romania; Serbia; and Turkey.
f. Includes Bulgaria, Croatia, Hungary, Poland, and Romania.
g. Includes Albania; Bosnia and Herzegovina; Kosovo; Macedonia, FYR; Montenegro; and Serbia.
h. Includes Belarus, Moldova, and Ukraine.
i. Includes Armenia, Azerbaijan, and Georgia.
j. Includes Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan.
For additional information, please see www.worldbank.org/gep.

84

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TABLE 2.2.2 Europe and Central Asia country forecastsa(Real GDP growth at market prices in percent, unless indicated otherwise)
2014

2015

2016

2017

Estimates

2018

2019

2016

2017

2018

2019

(percentage point difference
from January 2017 projections)

Projections

Albania

1.8

2.6

3.2

3.5

3.5

3.8

0.0

0.0

0.0

0.1

Armenia

3.6

3.0

0.2

2.7

3.1

3.4

-2.2

0.0

0.1

0.2

Azerbaijan

2.0

1.1

-3.8

-1.4

0.6

1.3

-0.8

-2.6

-1.7

-1.0

Belarus

1.7

-3.9

-2.6

-0.4

0.5

1.2

-0.1

0.1

-0.8

-0.2

Bosnia and Herzegovina

1.1

3.0

2.8

3.2

3.7

4.0

0.0

0.0

0.0

0.1

Bulgaria

1.3

3.6

3.4

3.0

3.2

3.3

-0.1

-0.2

0.1

0.2

Croatia

-0.4

1.6

2.9

2.9

2.5

2.6

0.2

0.4

0.0

0.0

Georgia

4.6

2.9

2.7

3.5

4.0

4.5

-0.7

-1.7

-1.3

-0.5

Hungary

4.0

3.1

2.0

3.7

3.7

3.0

-0.1

0.6

0.3

0.0

Kazakhstan

4.2

1.2

1.0

2.4

2.6

2.9

0.1

0.2

-1.1

-1.1

Kosovo

1.2

4.1

3.6

3.9

4.2

4.4

0.0

0.0

0.5

0.8

Kyrgyz Republic

4.0

3.9

3.8

3.4

4.0

4.8

1.6

0.4

0.3

-0.1

Macedonia, FYR

3.6

3.8

2.4

2.8

3.3

3.8

0.4

-0.5

-0.4

-0.2

Moldova

4.8

-0.5

4.1

4.0

3.7

3.5

1.9

1.2

0.4

-0.2

Montenegro

1.8

3.4

2.5

3.3

3.0

2.0

-0.7

-0.3

0.0

-1.0

Poland

3.3

3.9

2.8

3.3

3.2

3.2

0.3

0.2

-0.1

-0.2

Romania

3.1

3.9

4.8

4.4

3.7

3.5

0.1

0.7

0.3

0.3

Russia

0.7

-2.8

-0.2

1.3

1.4

1.4

0.4

-0.2

-0.3

-0.4

Serbia

-1.8

0.8

2.8

3.0

3.5

3.5

0.3

0.2

0.0

0.0

Tajikistan

6.7

6.0

6.9

5.5

5.9

6.1

0.9

1.0

0.7

1.6

Turkey

5.2

6.1

2.9

3.5

3.9

4.1

0.4

0.5

0.4

0.4

Turkmenistan

10.3

6.5

6.2

6.3

6.5

6.5

0.0

-0.2

-0.3

-0.5

Ukraine

-6.6

-9.8

2.3

2.0

3.5

4.0

1.3

0.0

0.5

1.0

Uzbekistan

8.1

8.0

7.8

7.6

7.7

7.8

0.5

0.2

0.3

0.4

Source: World Bank.
World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here may differ from those contained inother Bank documents, even if basic assessments of countries’ prospects do not significantly differ at any given moment in time.
a. GDP at market prices and expenditure components are measured in constant 2010 U.S. dollars.
For additional information, please see www.worldbank.org/gep.

The regional economy appears to be stabilizing in 2017, but the recovery is uneven. Growth is expected to be
0.8 percent in 2017 as private consumption strengthens and the contraction in investment eases. Growth isprojected to increase to 2.1 percent in 2018 as the recovery in Brazil and other commodity exporters gains
traction. Risks to the outlook remain tilted to the downside and stem from domestic political and policy
uncertainty, uncertainty about policy changes in the United States, and potential financial market disruptions
that could hinder external financing.

Recent developments
Recent data for the largest economies in Latin
American and the Caribbean are lackluster, yetbroadly improving. Real activity data (forexample, industrial production and PMI) have
improved somewhat from the lows of 2016, while
confidence has stabilized after falling in the three
years to early 2016 (Figure 2.3.1, Box 2.3.1). The
recent recovery in global trade is also evident in
Latin America, where export volumes have picked
up since mid-2016.
The recovery is uneven, however. While Argentina
and Brazil appear to be pulling out of recessions,
growth in Colombia slowed in 2017Q1, in partdue to a value-added tax (VAT) hike. First quarter
activity in Chile and Peru was held back bynatural disasters and mining sector strikes.
Disinflation is underway in most large economies
in the region, underpinned by exchange rate appreciation, monetary policy actions over the past
year, and, especially in Brazil, falling food prices(Figure 2.3.2). Mexico is an exception, where
inflation is increasing due to a still weak peso
(reflecting the uncertain policy path in the UnitedStates) and rising fuel prices. Hyperinflation
continues in República Bolivariana de Venezuela.

Note: This section was prepared by Dana Vorisek. Research
assistance was provided by Shituo Sun.

International bond issuance in Latin America
accelerated in the first quarter of 2017 amid low
market volatility and robust investor appetite for
emerging market assets. Private sector debt
issuance rose notably as energy firms sought toextend debt maturities or lower interest costs.
Early 2017 was marked by fiscal reforms in several
countries. Mexico took steps to liberalize fuelprices in January. Colombia enacted a structural
tax reform that includes adjustments to the VAT,
simplification of the corporate and personal
tax regimes, the imposition of some excise andsubnational taxes, and measures to reduce tax
evasion. Argentina initiated a quarterly path forfiscal targets. In Brazil, the pension reform plan
being negotiated in the National Congress is
expected to be finalized later this year, following
the adoption in late 2016 of a constitutional
amendment introducing a ceiling on federal
primary expenditures for the next 20 years.
Nearly all countries in the region have fiscal
deficits, and more than one-quarter have deficits
of greater than 5 percent of GDP, in partreflecting the lingering effects of low commodity
prices on government revenues. There was somecorrection in 2016, however, with nearly half ofthe countries in the region managing to improvetheir budget positions. The largest improvements
occurred in small economies, including Grenada(stronger adherence to fiscal rules and improved
tax administration and compliance), Belize (rising86

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BOX 2.3.1 Continued growth divergence within Latin America and the Caribbean
Latin America and the Caribbean experienced a second
year of contraction in 2016—the continent’s first multiyear recession since the 1980s—with output contracting
1.4 percent. Performance in the subregions varied substantially, however. While growth eased to a moderate 2.5
percent in Mexico and Central America, and in the Caribbean, the contraction in South America deepened, to 2.9
percent. Growth for the region as a whole was neverthelessin line with expectations in January 2017.
Within South America, output contracted in four countries in 2016—Argentina, Brazil, Ecuador, and República
Bolivariana de Venezuela—while the majority of other
South American countries saw a slowdown in growth.
Adjustment to subdued commodity prices continued todampen activity in South America. In Brazil, rising unemployment, tightening financial conditions, and continued
political tensions extended deep declines in private consumption and investment. In Argentina, the short-termrise in inflation that resulted from the removal of public
service subsidies contributed to a contraction in private
consumption and investment. Peru was a notable exception to the trend in South America, as growth was lifted bybooming copper production as a large new mine began
operating. Conditions in the two largest economies ofSouth America (Brazil and Argentina) improved somewhat
in the second half of the year, however. Argentina saw thestart of a recovery in the third quarter of 2016. AlthoughBrazil experienced its eighth quarterly contraction in Q4,
the decline moderated on a year-on-year basis.
The slight growth deceleration in Mexico and Central
America in 2016 mainly reflects easing growth in Mexico,
where investment and net exports were less supportive ofgrowth in the context of subdued capital inflows and global trade. Growth in Central America also eased, mainlyreflecting slowing growth in Guatemala on heightenedpolitical uncertainty and contracting public spending.
Guatemala and other Central American countries did,
however, experience robust growth in remittances in 2016as the U.S. labor market recovered, and in anticipation ofchanges in U.S. immigration policy (World Bank 2017f).
In the Caribbean, the deceleration in 2016 reflected amodest slowdown in the Dominican Republic, the largest
economy in the region, on the completion of construction
projects and weakening manufacturing growth. Contraction in several commodity-exporting countries (Belize,
Suriname, Trinidad and Tobago) also contributed to thedeceleration.

revenue, including from fuel tax hikes), andSuriname (reduced procurement spending). The
median deficit in commodity-exporting countries
is on track to recede in 2017 as recoveringcommodity prices bolster government revenues
and budget reform programs progress.

Outlook
Growth in Latin America and the Caribbean is
projected to strengthen to 0.8 percent in 2017, as
Argentina and Brazil emerge from recessions(Figure 2.3.3, Table 2.3.1). A growth recovery incommodity exporters in the region will be offset tosome extent by easing growth in Mexico. The paceof the regional recovery is projected to be slower
than forecasted in the January Global Economic
Prospects as a result of a more protracted adjustment
to previous commodity price declines andcontinued policy uncertainty.

After dropping sharply in response to fallingcommodity prices and domestic politicaluncertainty, investment appears set to return topositive growth in 2017 in some countries (e.g.,
Argentina, Colombia). In Argentina, investment
will be supported by an improved business climate following reforms by the Macri administration and a strong increase in public
investment, albeit projected within the planned
fiscal consolidation path. In Colombia, a reboundin infrastructure investment will be supported by alarge national road project. Nonetheless, for theregion as whole, the investment contribution to
growth will continue to be slightly negative in2017. Private consumption and net exports are
expected to provide a boost to growth as activity
in commodity exporters recovers.
A rising forecast for metals prices should favor
metals and minerals producers. However, theG L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

metal-exporting economies in the region facediverging growth paths, due to idiosyncratic
factors. Copper production in Chile, which was
deeply disrupted early in the year by a strike at thelargest mine, should recover sufficiently for growthto accelerate modestly, to 1.8 percent. Growth in
Peru is projected to decelerate in 2017, reflecting
the adverse impacts of major floods early in theyear and softening copper production and exports.
Growth in energy exporters is projected to bemixed this year. In Colombia, stable growthreflects rebounding investment and exports and an
uptick in imports, while the higher VAT is
expected to keep private consumption growth flat.
Growth in Ecuador is projected to continue
contracting, though less deeply than in 2016,reflecting slowing momentum in fiscal
consolidation.

L A T I N AM E RI C A A N D T H E C A R I B B E A N

87

FIGURE 2.3.1 LAC: Recent developments
Early 2017 data for the largest economies in the region are lackluster, yetbroadly improving. Exports from the region have picked up since mid2016. Disinflation is underway in most large Latin American economies,
reflecting strengthening currencies. In Mexico, however, currency
depreciation has pushed inflation above the central bank target range.
Despite bouts of market volatility in late 2016, external financing conditions
remain accommodative.
A. Industrial production andconsumer confidence

B. Goods exports and imports,
volumeC. Consumer price inflation

D. Exchange rates

E. Bond issuance

F. Sovereign bond spreads

Growth in Mexico is projected to slow to 1.8
percent, from 2.3 percent in 2016, mainly on an
expected contraction of investment, in turnreflecting uncertainty about U.S. economic policy.
In the remainder of Central America, growth isexpected to be stable. Strengthening tourism
demand underlies an expected acceleration in
growth to 3.3 percent in the Caribbean.
The regional recovery is expected to gather pace in2018 and 2019 as growth picks up in the largest
economy, Brazil, and in energy exporters. In
Argentina and Brazil, reforms implemented overthe past two years to stabilize government finances
are expected to begin to yield dividends, as will
efforts in Argentina to improve the businessclimate. The medium-term outlook for Brazil isconstrained, however, by the need for private andpublic sector deleveraging, following a rapid
increase in debt prior to the 2015–16 recession,and the medium-term forecast for Argentina issubject to significant uncertainty. For Mexico, thenegative impacts from potential U.S. policychanges will weigh on investment and growthprospects. More generally, long-term growth in
the region is constrained by infrastructure bottlenecks, highlighting the trade-off with short-term
fiscal consolidation needs, and by expected subdued long-term commodity price growth following the end of the latest commodity supercycle.

Sources: CPB Netherlands Bureau for Economic Policy Analysis, Dealogic, Haver Analytics, WorldBank.
Note: LAC stands for Latin America and the Caribbean.
A. GDP-weighted averages using seasonally-adjusted data for Brazil and Mexico. Last observationis March 2017 for industrial production and April 2017 for consumer confidence.
B. Lines show aggregate volumes for Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, theDominican Republic, Ecuador, Guatemala, Mexico, Paraguay, Peru, and Uruguay. Last observationis March 2017.
C. Blue boxes show central inflation targets; vertical lines show target bands.
D. LCU is local currency unit.
F. Measures the average spread of a country’s sovereign debt (as measured by J.P. Morgan’s
Emerging Markets Bond Index) over the equivalent maturity U.S. Treasury bond. Last observationis May 24, 2017.

88

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FIGURE 2.3.2 LAC: Outlook and risks
The two-year contraction in growth in Latin America and the Caribbean is
expected to end in 2017. Net exports are projected to support growth in2017–19, in part due to firming commodity prices. But the recovery will belargely driven by accelerating private consumption and investment. Strong
trade and financial linkages with the United States mean that U.S. policychanges could impact regional activity. Fiscal imbalances, particularly inSouth America, make the region vulnerable to global financing shocks. The
rising impact of natural disasters in the region stands to derail growth insome countries.
A. Contribution to GDP growth

C. Exports to the United States andChina, 2015–16

E. Fiscal balances

B. Commodity prices

D. Remittance inflows, 2015

F. Natural disasters

Sources: Centre for Research on the Epidemiology of Disasters, Haver Analytics, International
Monetary Fund, national sources, World Bank.
Note: LAC stands for Latin America and the Caribbean.
A. GDP-weighted averages. Countries covered are Antigua and Barbuda, Argentina, The Bahamas,
Barbados, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominica, the Dominican Republic,
Ecuador, El Salvador, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama,Paraguay, Peru, St. Lucia, St. Vincent and the Grenadines, Trinidad and Tobago, Uruguay, andRepública Bolivariana de Venezuela. e = estimate. f = forecast.
B. Percent change of average annual prices. f = forecast.
C. 2015–16 average for share of GDP and share of goods exports.
E. Median for each country group.
F. Annual average for year spans indicated. “All disasters” include droughts, floods, storms,
landslides, and wildfires. Countries covered are Antigua and Barbuda, Argentina, The Bahamas,
Barbados, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominica, the Dominican
Republic, Ecuador, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico,
Nicaragua, Panama, Paraguay, Peru, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines,
Suriname, Trinidad and Tobago, Uruguay, and República Bolivariana de Venezuela. The populationof these countries averaged 533 million in 1997-2006 and 605 million in 2007-16.

Risks
Risks to the growth outlook for Latin America andthe Caribbean remain tilted to the downside.
They stem most prominently from domestic
political and policy uncertainty, possible policychanges in major advanced economies (inparticular, the United States), a sharp or disorderly
tightening of global financing conditions, lowerthan-expected commodity prices, and theincreasingly severe impact of natural disasters.
In a number of countries in the region, persistentdomestic political uncertainty could hinder
growth in the short and medium term by reducing
confidence. In addition, the region faces anelevated level of policy uncertainty related toelection cycles. Four major countries in the region(Brazil, Chile, Colombia, Mexico) are scheduled
to hold legislative and presidential elections
between November 2017 and October 2018.
Although expansionary U.S. fiscal policy stands tohave positive spillovers for exports from theregion, a more protectionist trade policy stance inthe United States would be detrimental to Mexicoand many Central American and Caribbean
economies (IADB 2017). For Mexico, arenegotiation of the North American Free Trade
Agreement (NAFTA) could have repercussions
not only for exports, but also for investment,
which was boosted by the agreement. NAFTA has
also been found to have boosted total factor
productivity in Mexico (Shiff and Wang 2002)
and accelerated economic convergence in North
America (Easterly, Fiess, and Lederman 2003).
Central America would suffer from rising U.S.
trade protectionism through its strong trade
linkages to both the United States and Mexico.
For commodity producers in South America, ashift in the composition of GDP in China toward
services could also hinder growth through areduction in exports.
More restrictive U.S. immigration policy may
reduce remittance flows to the region, with afollow-on drop in private consumption andinvestment. Central America and some Caribbean
countries, where remittances are an importantsource of household income are particularly vulnerable. In the medium term, the adverse effects

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 1789

L A T I N AM E RI C A A N D T H E C A R I B B E A N

on growth of tighter U.S. immigration policy may
be mitigated, at least to some degree, by
expanding labor forces as returning migrants begin
to be reabsorbed by the domestic labor markets.
Faster-than-expected U.S. interest rate hikes or
U.S. dollar appreciation could make it moredifficult and costlier to secure financing in somecountries in the region—in particular, those withelevated dollar-denominated debt or high government financing needs (Argentina, Chile, some
Caribbean economies). Despite the recent pursuitof countercyclical fiscal policies in some countries,
the lack of fiscal buffers remains a vulnerability inthe region (World Bank 2017g; IMF 2017b).

The path of commodity prices also stands to
impact growth in the region. In particular, a lessrobust-than-expected recovery of global oil andnatural gas prices in 2017 would undermine theexpected pace of growth in Bolivia, Colombia,
Ecuador, and Trinidad and Tobago, all of which
are heavily reliant on energy exports.
Finally, changing environmental patterns pose
growing risks (World Bank 2014). The average
number of people per year in the region affectedby natural disasters, especially droughts andfloods, doubled in 2007–16 compared to theprevious decade. Drought impacted approximately
4.3 million people in the region in 2016.

TABLE 2.3.1 Latin America and the Caribbean forecast summary(Real GDP growth at market prices in percent, unless indicated otherwise)
2014

2015

2016

2017

Estimates
EMDE LAC, GDPa

0.9

-0.8

-1.4

2018

2019

2.1

2017

2018

2019

(percentage point difference
from January 2017 projections)

Projections
0.8

2016

2.5

0.0

-0.4

-0.2

-0.1

(Average including countries with full national accounts and balance of payments data only)b
EMDE LAC, GDPb

0.9

-0.8

-1.4

0.8

2.1

2.5

0.0

-0.4

-0.2

-0.1

GDP per capita (U.S. dollars)

-0.2

-1.9

-2.5

-0.2

1.1

1.5

0.0

-0.3

-0.1

-0.1

PPP GDP

1.1

-0.2

-0.9

1.1

2.2

2.6

0.0

-0.3

-0.2

0.0

Private consumption

1.5

-0.8

-1.2

0.8

2.1

2.7

0.3

-0.1

-0.1

0.3

Public consumption

1.9

0.6

-0.3

0.5

0.9

0.9

0.9

1.7

0.4

0.0

Fixed investment

-2.0

-5.8

-6.4

-0.6

2.3

3.3

-1.5

-1.0

0.0

-0.1

Exports, GNFS

c

1.5

4.5

1.2

4.2

3.2

3.2

-0.3

0.9

-0.1

-0.3

Imports, GNFSc

-0.2

-1.2

-2.7

2.9

2.6

3.4

-0.3

2.7

0.5

0.6

Net exports, contribution to growth

0.3

1.2

0.9

0.3

0.2

0.0

0.1

-0.4

-0.1

-0.2

South Americad

0.3

-2.1

-2.9

0.3

1.9

2.3

-0.1

-0.5

-0.2

-0.1

Mexico and Central Americae

2.5

2.9

2.5

2.1

2.4

2.7

0.2

0.0

-0.3

-0.2

3.9

3.4

2.5

3.3

3.8

3.7

-0.7

0.2

0.4

0.4

Brazil

0.5

-3.8

-3.6

0.3

1.8

2.1

-0.2

-0.2

0.0

-0.1

Mexico

2.3

2.6

2.3

1.8

2.2

2.5

0.3

0.0

-0.3

-0.3

Argentina

-2.5

2.6

-2.3

2.7

3.2

3.2

0.0

0.0

0.0

0.0

Memo items: GDP

CaribbeanfSource: World Bank.
World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here may differ from those containedin other Bank documents, even if basic assessments of countries’ prospects do not differ at any given moment in time.
a. EMDE refers to emerging market and developing economy. GDP at market prices and expenditure components are measured in constant 2010 U.S. dollars. Excludes Cuba.
b. Aggregate includes all countries in notes d, e, and f except Grenada, St. Kitts and Nevis, and Suriname, for which data limitations prevent the forecasting of GDP components.
c. Exports and imports of goods and non-factor services (GNFS).
d. Includes Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay, and República Bolivariana de Venezuela.
e. Includes Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, and Panama.
f. Includes Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, the Dominican Republic, Grenada, Guyana, Haiti, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent
and the Grenadines, Suriname, and Trinidad and Tobago.
For additional information, please see www.worldbank.org/gep.

90

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TABLE 2.3.2 Latin America and the Caribbean country forecastsa(Real GDP growth at market prices in percent, unless indicated otherwise)
2014

2015

2016

2017

Estimates

2018

2019

2016

2017

2018

2019

(percentage point difference

Projections

from January 2017 projections)

Argentina

-2.5

2.6

-2.3

2.7

3.2

3.2

0.0

0.0

0.0

0.0

Belize

4.1

1.0

-1.5

2.1

2.0

2.0

-0.5

0.6

0.0

-0.5

Bolivia

5.5

4.9

4.3

3.7

3.7

3.4

0.6

0.2

0.3

0.0

Brazil

0.5

-3.8

-3.6

0.3

1.8

2.1

-0.2

-0.2

0.0

-0.1

Chile

1.9

2.3

1.6

1.8

2.0

2.3

0.0

-0.2

-0.3

-0.2

Colombia

4.4

3.1

2.0

2.0

3.1

3.4

0.3

-0.5

0.1

0.1

Costa Rica

3.7

4.7

4.3

3.8

3.6

3.5

0.0

-0.1

-0.1

-0.2

Dominica

3.9

2.2

0.6

3.0

2.1

2.1

-0.7

0.2

-0.6

-0.6

Dominican Republic

7.6

7.0

6.6

5.3

5.0

4.8

-0.2

0.8

0.8

0.8

Ecuador

4.0

0.2

-1.5

-1.3

-0.4

0.3

0.8

1.6

0.2

-0.7

El Salvador

1.4

2.3

2.4

2.0

1.8

1.7

0.2

0.1

-0.2

-0.3

Guatemala

4.2

4.1

3.1

3.5

3.5

3.6

0.2

0.3

0.1

0.2

Guyana

3.8

3.1

3.3

3.5

3.6

3.7

0.7

-0.3

-0.3

-0.4

Haitib

2.8

1.2

1.4

0.5

1.7

2.3

0.2

1.1

0.2

0.3

Honduras

3.1

3.6

3.6

3.4

3.3

3.3

-0.1

-0.1

-0.1

0.1

Jamaica

0.7

1.0

1.4

2.0

2.1

2.3

-0.2

0.0

-0.2

-0.2

Mexico

2.3

2.6

2.3

1.8

2.2

2.5

0.3

0.0

-0.3

-0.3

Nicaragua

4.8

4.9

4.7

4.3

4.2

4.2

0.2

0.3

0.3

0.4

Panama

6.1

5.8

4.9

5.2

5.4

5.8

-0.5

-0.2

-0.1

0.3

Paraguay

4.7

3.0

4.1

3.6

3.8

3.8

0.3

0.0

0.5

0.5

Peru

2.4

3.3

3.9

2.8

3.8

3.6

-0.1

-1.4

0.0

0.0

St. Lucia

0.5

1.6

0.8

0.5

0.7

0.7

-0.2

-1.3

-1.5

-1.8

St. Vincent and the Grenadines

-0.5

2.1

1.8

2.5

2.8

2.9

-0.2

0.3

0.4

0.5

Suriname

0.4

-2.7

-10.4

0.9

2.2

1.2

-3.4

0.4

1.1

-0.1

Trinidad and Tobago

-0.6

-0.6

-5.1

0.3

3.4

3.3

-2.3

-2.0

-0.2

0.1

Uruguay

3.2

0.4

1.5

1.6

2.4

3.4

0.8

0.0

-0.1

-0.3

Venezuela, RB

-3.9

-8.2

-12.0

-7.7

-1.2

0.7

-0.4

-3.4

-1.7

-0.3

Source: World Bank.
World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here may differ from those containedin other Bank documents, even if basic assessments of countries’ prospects do not significantly differ at any given moment in time.
a. GDP at market prices and expenditure components are measured in constant 2010 U.S. dollars.
b. GDP is based on fiscal year, which runs from October to September of next year.
For additional information, please see www.worldbank.org/gep.

Growth in the Middle East and North Africa region is projected to fall from 3.2 percent in 2016 to 2.1 percent
in 2017. The adverse impact of OPEC-led oil production cuts in oil exporters is expected to more than offset themodestly improving growth in oil importers. Regional growth is forecast to pick up gradually, reaching 3.1
percent by 2019, despite continued fiscal consolidation in both oil exporters and importers. The key risks to theoutlook include continued geopolitical tensions and conflicts, a lower-than-expected rise in oil prices for oil
exporters, and challenges that may delay implementation of key structural reforms.

Recent developments
Growth in the Middle East and North Africa(MENA) region remained subdued at 3.2 percent
in 2016, due in part to the impact of low oil prices
on the region’s key oil exporters (Figure 2.4.1).1
Growth in Gulf Cooperation Council (GCC)
economies was held back by low oil prices andfiscal consolidation. Lower transfers from oil funds
to general budgets were accompanied by tightened
liquidity in the banking sector, which is reliant on
public sector deposits, and has weighed on non-oil
activity. Offsetting the slower growth in GCC oil
exporters was stronger-than-expected growth in
non-GCC oil exporters, due to rising oil
production in the Islamic Republic of Iran following the lifting of sanctions, as well as improved
security in Iraq.
In 2017, growth in the MENA region continues
to be held back by oil production cuts, fiscal
Note: This section was prepared by Lei Sandy Ye, with
contributions from Ergys Islamaj. Research assistance was provided
by Liwei Liu.
1The World Bank’s Middle East and North Africa aggregate
includes 16 economies, and is grouped into three subregions.
Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United ArabEmirates comprise the Gulf Cooperation Council (GCC); all are oil
exporters. Other oil exporters in the region are Algeria, the Islamic
Republic of Iran, and Iraq. Oil importers in the region are Djibouti,
the Arab Republic of Egypt, Jordan, Lebanon, Morocco, Tunisia, andWest Bank and Gaza. The Syrian Arab Republic, the Republic of
Yemen, and Libya are excluded from regional growth aggregates due
to data limitations.

consolidation, and regional conflicts. Productionin the oil sector has declined in the first fourmonths of 2017 as a result of the November 2016
OPEC production cut agreement.2 Among the top
five oil producers in the region (Iraq, Islamic
Republic of Iran, Kuwait, Saudi Arabia, and theUnited Arab Emirates), oil production cuts in thefirst quarter of 2017 amounted to more than one
million barrels a day relative to October 2016
levels. The largest cuts were implemented by Saudi
Arabia, but compliance with OPEC mandates has
been higher than expected across most oil
exporters.
Oil importers have been gradually gaining
momentum since 2016, during which poor
harvests (e.g., severe drought in Morocco) as wellas geopolitical conflicts (e.g., terrorist attacks in
the Arab Republic of Egypt and Jordan,
repercussions from closure of export routes from
Jordan to the Syrian Arab Republic) constrained
growth. Egypt, the largest oil importer, has beenadjusting to a flexible exchange rate regime sinceNovember 2016, contributing to improving
exports and industrial production in the beginningof 2017. Egypt and other large importers are also
beginning to undertake reforms to their businessenvironments, such as the launch of Morocco’s
2The OPEC production cut agreement attempts to contain theincrease in global oil stocks and rebalance global oil markets. These
cuts were initially scheduled to last until June 2017 and havesubsequently been extended to March 2018.

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C H A P TE R 2. 4

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FIGURE 2.4.1 MENA: Recent developments
Growth in MENA is softening in 2017. The adverse impact of OPEC-led
production cuts in oil exporters more than offsets stronger growth in otherregional economies. Inflation has picked up sharply in several countries.
The peg to the dollar has contained inflation, but has led to real exchange
rate appreciations in Saudi Arabia and the United Arab Emirates.
A. GDP growth

C. Inflation

B. Oil production

D. Real effective exchange rate

Sources: Bank for International Settlements, Haver Analytics, International Energy Agency, WorldBank.
Note: MENA stands for Middle East and North Africa.
A. Weighted average growth of real GDP.
B. Sum of daily crude oil productions of Iraq, Islamic Republic of Iran, Kuwait, Saudi Arabia, and theUnited Arab Emirates. Red columns denote period since November 2016 OPEC production cut
agreement. Last observation is April 2017.
C. Unweighted averages. GCC includes Bahrain, Kuwait, Oman, Saudi Arabia, Qatar, and the United
Arab Emirates. Other oil importers include Morocco, Tunisia, Lebanon, and Jordan. Year-on-year
growth rates. Last observation is April 2017.
D. Broad indexes of weights comprising 61 economies. Last observation is April 2017.

Islamic banking services in January, to relieve
structural bottlenecks and improve private sector
activity.
Inflation has picked up in several large economies.
Egypt’s core and overall inflation rate exceeded 30
percent (y/y) in March 2017 due to currency
depreciation and rising food prices. As a result ofhigher oil prices, inflation in most oil importers
outside of Egypt has also begun to edge up thisyear. Food price pressures have further
contributed to rising inflation in Algeria and theIslamic Republic of Iran, climbing back to double
digits (y/y) in March 2017 in the latter (althoughstill on a declining trend from an annual rate ofabout 35 percent in 2013). In contrast, exchange

rates largely pegged to the U.S. dollar andsubdued oil prices helped keep inflation below 3
percent among GCC economies. The peg to the
U.S. dollar has, however, implied appreciations of
the real effective exchange rate in Saudi Arabia
and the United Arab Emirates, which may hinder
their adjustment to low oil prices.
Fiscal consolidation programs continue against
the backdrop of sizable current account and fiscal
deficits in the region. These programs feature
expenditure cuts, new or increased value-addedand excise taxes, and energy subsidy reforms. In
several economies (e.g., GCC), some of these
programs are part of longer-term policies topromote diversification beyond the energy sector.
These include Saudi Arabia’s National
Transformation Plan and Vision 2030; and a
GCC-wide value-added tax of 5 percent, effective
in 2018. While consolidation programs havealready contributed to estimated fiscal improvements by the start of 2017 in a few
economies (e.g., Morocco, Jordan), most others
registered weaker external and fiscal accounts
from 2015 to 2016.
Supported by benign global financing conditions,renewed investor risk appetite since the start of2017, and driven by the need to finance fiscal
deficits, international bond issuances in the region
have been resilient, amounting to more than $45
billion in early 2017. GCC economies have also
embarked on efforts to promote equity investor
confidence, including in the context of theimpending initial public offering of Saudi
Aramco, the state oil company, under what is
expected to be the largest valuation on record. In
Saudi Arabia and the United Arab Emirates,
higher composite purchasing managers’ indexes(PMIs) over the past five months suggest thatbusiness confidence is improving.

Outlook
Regional growth is projected to fall from 3.2
percent in 2016 to 2.1 percent in 2017. The
adverse impact of OPEC-led oil production cutsin oil exporters more than offsets the modestly
improving growth in oil importers. Growth isexpected to recover to an average of 3.0 percent

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

in 2018-19. While the deceleration in 2017 isdriven by oil exporters, the modest recovery in thelonger-term outlook is broad-based. This forecast
assumes a moderation of geopolitical tensions, aswell as an increase in oil prices, which are expected
to average $53 per barrel (bbl) in 2017 and$56 per bbl in 2018—a slight downgrade fromJanuary projections. Given the considerable
uncertainty associated with oil prices in 2017,
fiscal consolidation is expected to continue, as the
fiscal break-even prices for most oil exporters in
the region remain above projected oil prices(Figure 2.4.2). Oil importers are expected to see
higher growth starting in 2017, aided by improved
competitiveness, reforms, and a recovery inagricultural conditions.
The forecast assumes that OPEC-mandated
production cuts constrain GCC growth in 2017.
Growth in Saudi Arabia, the largest economy in
the region, and Iraq will slow as a result ofcontinued production cuts. In the Islamic
Republic of Iran, the second-largest economy in
the region, limited spare capacity in oil production
and difficulty in accessing finance are weighing on
the country’s growth. Offsetting factors include
solid current account and fiscal positions, which
are expected to support a steady growth outlook of
about 4 percent over 2017-19.
The non-oil sectors in most oil exporters are
expected to modestly recover in 2017 from theweakness in 2016, as improved revenues fromhigher oil prices provide space for more expansionary fiscal policy, and as rising deposits increase
the funding capacity for bank lending (Miyajima2017). However, the real economy’s ability toleverage improving conditions may be limited by
weaknesses in private sector participation as well as
in the governance framework for investors andcorporations (EBRD et al. 2016; Schiffbauer et al.
2015). Over 2018-19, growth in oil exporters is
expected to modestly improve as oil prices recover,fiscal consolidation eases, and several economies
implement planned public investment (e.g., for
Dubai’s World Expo 2020; Qatar’s World Cup2022) and diversification programs, the benefits ofwhich will be enhanced by ongoing businessclimate reforms (Callen et al. 2014).

M I D D LE E AS T A N D N O R T H A F R I C A

93

FIGURE 2.4.2 MENA: Outlook and risks
In GCC oil exporters, gradually improving PMIs suggest recovery in the
non-oil sectors. A weak governance environment for investors andcorporations in MENA may limit potential benefits from more supportive
conditions. Current account and fiscal balances are expected to improveover the medium term amid ongoing fiscal consolidation, as reflected in
declining fiscal break-even prices, and depreciated exchange rates in
economies not pegged to the U.S. dollar. Heightened geopolitical tensions
may deter tourism and incur particularly high business costs outside of the
GCC. A lower-than-expected rise in oil prices, potentially from higher
production outside of the region, may constrain fiscal space.
A. Purchasing managers’ indexes

B. Doing Business environment:
MENA

C. Fiscal break-even oil prices: oil
exporters

D. Current account balance

E. Business costs of terrorism

F. Oil prices and U.S. crude inventory

Sources: Haver Analytics, International Monetary Fund, U.S. Energy Information Administration,
World Bank, World Economic Forum.
Note: MENA stands for Middle East and North Africa.
A. Composite PMI for total economy (50+ indicates expansion). Last observation is April 2017.
B. Distance to frontier score, where best practice equals 100. Includes 15 economies. Unweighted
averages. Data based on 2016/2017 edition.
C. GCC includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. NonGCC includes Algeria, Islamic Republic of Iran, and Iraq. Unweighted averages. 2017 and 2018 data
are projections.
D. Data for 2017-19 are projections. Includes 6 GCC economies, 3 non-GCC oil exporters, and 6 oil
importers. Unweighted averages.
E. Based on survey response to “To what extent does the threat of terrorism impose costs on
businesses in your country? (1 = to a great extent, imposes huge costs; 7 = no costs at all).”Unweighted averages. Includes 6 GCC economies, 2 non-GCC oil exporters, and 5 oil importers.
Data based on the World Economic Forum’s Global Competitiveness Index, 2016/17 edition.
F. U.S. crude stocks denote monthly average of U.S. stocks of crude oil excluding strategic petroleum
reserves. Oil price denotes average of Brent, Dubai, and West Texas Intermediate. Last observation
is April 2017.

94

C H A P TE R 2. 4

Among oil importers, activity is expected to
improve. In Morocco and Tunisia, agricultural
production (e.g., wheat) is projected to reboundunder more normal weather. Egypt’s growth isexpected to remain near 4 percent in fiscal year2017 and strengthen in the two years thereafter,
supported by the gradual implementation ofbusiness climate reforms and improved
competitiveness, although high inflation weighson near-term activity. In many oil importers,
depreciating currencies and rising food prices may
dampen private consumption. A gradual recovery
in growth is expected in Jordan as reforms
progress, and in Lebanon as political stability is
restored. Fiscal consolidation, including public
spending cuts in some economies, and politicaluncertainty are the main headwinds to growth in
this sub-region.
The pace of fiscal and external account adjustment
is contingent upon the movement in oil prices.
More than four-fifths of the region’s economies
are projected to have fiscal deficits in 2017.
Several years of fiscal adjustment lie ahead forboth oil exporters and importers. For economies
with flexible exchange rates, current accountbalances are expected to improve as a result ofdepreciations. For economies with pegged
exchange rates, external account balances are
expected to be cushioned by fiscal consolidationand higher oil prices. Remittance flows to the
MENA region, which contracted sharply in 2016,
are expected to recover in 2017, supported bymore stable exchange rate expectations in Egypt
and robust activity in the Euro Area, a major
source of remittance flows for several oil importers(World Bank 2017h).

Risks
The regional growth outlook faces three mainrisks: geopolitical conflicts, a lower-than-expected
rise in oil prices, and political and social obstacles
to reforms. Geopolitical risks in the region havepersisted into 2017. The U.S. sanctions on theIslamic Republic of Iran imposed in early 2017
may deter foreign investors’ confidence. Security
tensions and conflict in Iraq and the Syrian Arab
Republic are serious obstacles for these economies.
Ongoing conflicts in the region have caused

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

destruction of capital, displacement of people and,in the case of the Republic of Yemen, famine.
Fighting and instability in the Republic of Yemen
limit its hydrocarbon production and have
imposed human and physical costs (World Bank
2017i). The continued conflict in Syria contributes to regional instability, depressing businessand consumer confidence while restraining private
consumption and reducing investment inflows inneighboring countries, such as Jordan andLebanon. In addition, the continued flow of
refugees is causing strains on the public finances ofthese countries.
Deteriorating geopolitical tensions on a broader
scale would shake investor confidence. Sovereignrisk, as reflected in sovereign credit default swap
spreads, has been declining in the GCC, but isvulnerable to conflict-driven uncertainty. In nonGCC MENA economies, business costs ofterrorism are more elevated compared to otheremerging and developing economies. Tourism, an
important source of revenue for several oil
importers, is at risk; the sector remains weak andhas only recently begun to stabilize in Egypt andMorocco. Efforts to expand tourism throughbilateral initiatives, such as Morocco’s tourismmarketing initiative with China in 2016, may help
cope with some of these risks. Heightened policy
uncertainty in some advanced economies, andassociated risks of increased protectionism andmore stringent immigration restrictions, may
adversely impact the region through reduced
trade, remittance, and financial flows. The regionis particularly reliant on the European Union
for financial and trade flows, while the UnitedStates also contributes materially to foreign
investment in some economies (IMF 2017c;
World Bank 2017j).
A lower-than-expected rise in oil prices would
likely diminish fiscal space in oil exporters andweigh on confidence (Husain et al. 2015). A
number of forces could limit the price rise. One isthe extent to which U.S. oil shale production andcrude stocks can offset OPEC production cuts.
News of record-high U.S. crude inventories inMarch pushed down oil prices from $55/bbl to$51/bbl over a four-day period, and inventories
did not fall as much as expected in April. Second,
compliance with OPEC production cuts mayG L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

weaken. Weaker oil prices would contribute to a
deterioration, or slower improvement, in external
and fiscal balances. They would also impose
strains on the non-oil sectors of the region, either
directly from consolidation programs (e.g.,
reductions in public investment), or indirectly via
strains on banking liquidity, which tends to be
driven by public-sector deposits.
The implementation of comprehensive reforms
could face challenges. The agreement on
Lebanon’s budget on March 27, the first in 12
years, marks a step toward political and economic
stabilization but has prompted protests among
citizens and firms who oppose higher taxes.

M I D D LE E AS T A N D N O R T H A F R I C A

Protests over tax hikes have also occurred in partsof Algeria in 2017. Such developments could
discourage further reform and prolong the periodof adjustment. In Tunisia, where reforms had
been previously delayed, the new government has
agreed with the workers’ union on a reschedulingof negotiated salary increases signed in 2015. This
will help slow wage bill increases to 14.1 percent
of GDP in 2017. To further contain the wage billin 2018, the government has proposed two
measures—a voluntary early retirement programand a negotiated departure program—bothanchored in the IMF Extended Fund Facility
program with coordinated technical support fromthe IMF and the World Bank.

95

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C H A P TE R 2. 4

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TABLE 2.4.1 Middle East and North Africa forecast summary(Real GDP growth at market prices in percent, unless indicated otherwise)
2014

2015

2016

2017

Estimates
EMDE MENA, GDPa

3.4

2.8

3.2

2018

2019

2016
2017
2018
2019
(percentage point difference
from January 2017 projections)

3.1

0.5

Projections
2.1

2.9

-1.0

-0.4

-0.3

(Average including economies with full national accounts and balance of payments data only)b
EMDE MENA, GDPb

3.4

2.7

3.1

2.2

2.9

3.2

0.5

-0.9

-0.5

-0.3

GDP per capita (U.S. dollars)

1.4

0.8

1.3

0.6

1.4

1.8

0.4

-0.9

-0.6

-0.3

PPP GDP

3.5

2.6

3.3

2.4

3.0

3.3

0.5

-0.9

-0.6

-0.4

Private consumption

6.4

1.5

2.6

2.3

3.0

3.2

-0.2

-0.7

-0.4

-0.3

Public consumption

6.9

1.7

-1.0

1.0

1.6

1.6

-0.4

0.1

-0.5

-0.7

Fixed investment

5.8

3.3

0.1

2.9

4.6

5.6

1.5

-0.8

1.1

1.7

2.3

1.9

5.8

2.3

3.7

3.9

0.9

-2.9

-1.2

-1.1

Exports, GNFS
Imports, GNFS

c

c

7.0

0.0

2.1

3.0

3.0

3.4

1.3

-1.9

-2.2

-2.0

-1.7

0.9

1.9

0.0

0.6

0.5

-0.1

-0.6

0.3

0.2

3.4

2.6

3.2

1.8

2.5

2.8

0.5

-1.1

-0.6

-0.3

3.2

3.8

1.9

1.3

2.3

2.5

0.3

-0.9

-0.3

-0.2

Saudi Arabia

3.7

4.1

1.4

0.6

2.0

2.1

0.4

-1.0

-0.5

-0.5

Iran, Islamic Rep.

4.3

-1.8

6.4

4.0

4.1

4.2

1.8

-1.2

-0.7

-0.3

Oil importersf

3.0

3.7

2.8

3.7

4.1

4.4

-0.2

-0.2

-0.1

-0.1

3.7

4.4

4.1

4.3

5.0

5.3

-0.1

-0.1

-0.1

-0.1

2.9

4.4

4.3

3.9

4.6

5.3

0.0

-0.1

-0.1

-0.1

Net exports, contribution to growthMemo items: GDP
Oil exportersd
GCC countriese

Egypt, Arab Rep.
g

Fiscal year basis

Source: World Bank.
World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here may differ from those containedin other Bank documents, even if basic assessments of countries’ prospects do not differ at any given moment in time.
a. EMDE refers to emerging market and developing economy. GDP at market prices and expenditure components are measured in constant 2010 U.S. dollars. Excludes Libya, Syria,
and the Republic of Yemen due to data limitations.
b. Aggregate includes all countries in notes d and f except Djibouti, Iraq, Qatar, and West Bank and Gaza, for which data limitations prevent the forecasting of GDP components.
c. Exports and imports of goods and non-factor services (GNFS).
d. Oil exporters include Algeria, Bahrain, Iraq, the Islamic Republic of Iran, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
e. The Gulf Cooperation Council (GCC) includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
f. Oil importers include Djibouti, Egypt, Jordan, Lebanon, Morocco, Tunisia, and West Bank and Gaza.
g. The fiscal year runs from July 1 to June 30 in Egypt; the column labeled 2016 reflects the fiscal year ended June 30, 2016.
For additional information, please see www.worldbank.org/gep.

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97

M I D D LE E AS T A N D N O R T H A F R I C A

TABLE 2.4.2 Middle East and North Africa economy forecastsa(Real GDP growth at market prices in percent, unless indicated otherwise)
2014

2015

2016

2017

Estimates

2018

2019

2016

2017

2018

2019

(percentage point difference
from January 2017 projections)

Projections

Algeria

3.8

3.8

3.5

1.8

1.0

1.5

-0.1

-1.1

-1.6

-1.3

Bahrain

4.4

2.9

3.0

1.9

1.9

2.3

1.0

0.1

-0.2

-0.1

Djibouti

6.0

6.5

6.5

7.0

7.0

7.2

0.0

0.0

0.0

0.2

Egypt, Arab Rep.

3.7

4.4

4.1

4.3

5.0

5.3

-0.1

-0.1

-0.1

-0.1

Fiscal year basisb

2.9

4.4

4.3

3.9

4.6

5.3

0.0

-0.1

-0.1

-0.1

Iran, Islamic Rep.

4.3

-1.8

6.4

4.0

4.1

4.2

1.8

-1.2

-0.7

-0.3

Iraq

0.7

4.8

10.1

-3.1

2.6

1.1

-0.1

-4.2

1.9

0.0

Jordan

3.1

2.4

2.0

2.3

2.6

3.0

-0.3

-0.3

-0.5

-0.4

Kuwait

0.5

1.8

2.9

0.2

2.7

2.9

0.9

-2.2

0.1

0.1

Lebanon

1.8

1.3

1.8

2.5

2.6

2.6

0.0

0.3

0.3

0.1

Morocco

2.6

4.5

1.1

3.8

3.7

3.6

-0.4

-0.2

0.2

0.0

Oman

2.5

5.7

2.2

0.9

2.4

2.9

-0.3

-2.0

-1.0

-0.7

Qatar

4.0

3.6

2.2

3.2

2.6

2.5

0.4

-0.4

0.5

1.2

Saudi Arabia

3.7

4.1

1.4

0.6

2.0

2.1

0.4

-1.0

-0.5

-0.5

Tunisia

2.3

1.1

1.0

2.3

3.0

3.5

-1.0

-0.7

-0.7

-0.5

United Arab Emirates

3.1

3.8

2.3

2.0

2.5

3.2

0.0

-0.5

-0.5

-0.1

West Bank and Gaza

-0.2

3.4

4.1

3.5

3.4

3.4

1.0

0.0

-0.1

-0.2

Source: World Bank.
World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here may differ from those containedin other Bank documents, even if basic assessments of economies’ prospects do not significantly differ at any given moment in time.
a. GDP at market prices and expenditure components are measured in constant 2010 U.S. dollars. Excludes Libya, Syria, and Republic of Yemen due to data limitations.
b. The fiscal year runs from July 1 to June 30 in Egypt; the column labeled 2016 reflects the fiscal year ended June 30, 2016.
For additional information, please see www.worldbank.org/gep.

Growth in South Asia remains strong, with regional output projected to grow by 6.8 percent in 2017 and an
average of 7.2 percent in 2018-19. Excluding India, growth is projected to average 5.8 percent in 2017-2019,with some cross-country variation. Robust domestic demand, an uptick in exports, and strong foreign direct
investment inflows underpin this forecast. Domestic risks to the outlook include policy uncertainty related toupcoming elections and possible setbacks to reform progress. External risks include an increase in global
financial volatility, a slowdown in remittances inflows, and rising geopolitical tensions.

Recent developments
Regional output expanded by an estimated 6.7
percent in 2016, despite temporary disruptions
associated with the November withdrawal andreplacement of large-denomination currency notes
in India, the region’s largest economy (Table
2.5.1). In general, South Asian economies benefited from an improvement in exports, low oil prices,
infrastructure spending, and supportive macroeconomic policies last year. In India, activity was
underpinned by favorable monsoon rains that
supported agriculture and rural consumption, an
increase in infrastructure spending, and robust
government consumption (World Bank 2017k).
In Pakistan, agricultural output rebounded
following the end of a drought, while thesuccessful completion of an IMF-supported
program en-hanced macroeconomic conditions
and foreign direct investment (FDI). Nepal’s
economy suffered from lingering effects of the2015 earthquake and trade disruptions with India(World Bank 2017l). However, in some countries, activity in 2016 was set back by a sharp
decline in remittances inflows (e.g., Bangladesh;
World Bank 2016g), inclement weather conditions that reduced agricultural output (e.g., Sri
Lanka), and security challenges (e.g., Afghanistan).

Note: This section was prepared by Temel Taskin and Boaz
Nandwa. Research assistance was provided by Anh Mai Bui.

A pickup in regional growth is underway in 2017.
In India, recent data indicate a rebound this year,with the easing of cash shortages and risingexports (World Bank 2017k). An increase ingovernment spending in India, including on
capital formation, has partially offset soft private
investment. While manufacturing purchasing
managers’ indexes have generally picked up,
industrial production has been mixed (Figure
2.5.1). In Pakistan, favorable weather and increased cotton prices are supporting agricultural
production, and the China-Pakistan Economic
Corridor infrastructure project, as well as a stable
macroeconomic environment, is contributing toan increase in private investment.
Growth in Bangladesh has been supported bysolid agricultural activity and robust services thisyear, despite ongoing security concerns. In Sri
Lanka, a resumption of Chinese-funded investment and infrastructure projects such as theColombo International Financial Centre has lifted
private investment and FDI inflows; in addition,
fiscal consolidation under an IMF program hashelped improve investor sentiment. In Bhutan andMaldives, growth has continued to gain traction
due to accommodative macroeconomic policies, aswell as support from the energy and construction
sectors. Nepal’s growth has rebounded strongly
following a good monsoon, reconstruction efforts,
and normalization of trade across the southernborder with India.

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FIGURE 2.5.1 SAR: Recent developments
In India, the exchange of large-denominated currency in circulation in late
2016 weighed on investment, albeit temporarily. While purchasing
managers’ indexes across the region have generally improved in 2017,industrial production has been mixed.
A. Money supply in India

C. Purchaser managers’ indexes

B. Consumption and investment
in India

D. Industrial production

Sources: Haver Analytics, World Bank.
Note: SAR stands for South Asia Region.
A. M4 stands for broad money supply. Last observation is April 2017.
B. Shaded areas are projections. Last observation is 2016 Q4.
C. Index values higher than 50 indicate expansion. Last observation is April 2017.
D. Last observation is March 2017.

Macroeconomic vulnerabilities continue to recede.
Current account deficits are narrowing further
amid stable oil prices and an uptick in exports.
While remittances inflows declined in somecountries (e.g., Bangladesh, India), foreign reserves
increased and exchange rates remained stable, withrising FDI (e.g., India) and tourist arrivals (e.g.,
Nepal, Sri Lanka). Inflation has remained benign,
hovering below target in Bangladesh, Pakistan,and India. Favorable weather (e.g., India,
Pakistan) and lower oil prices have helped keep
inflation low, and thereby made possible anaccommodative monetary policy. Despite mixed
progress with fiscal consolidation in the region,
deficits generally declined.

Outlook
The regional forecast assumes that monetary
policy across South Asia countries remains broadly

accommodative, encouraging credit to the private
sector; that fiscal policy tightens slightly to curb
the increase in public debt; and that politicaltensions and insecurity abate. Regional growth isforecast to increase to 6.8 percent in 2017 and tostrengthen to an average of 7.2 percent in 201819, reflecting a solid expansion of domestic
demand and exports (Figure 2.5.2). Excluding
India, regional growth will remain broadly stable
at an average of 5.8 percent in 2017-19, as easing
growth in Bangladesh and Nepal offset gains in
Bhutan, Pakistan, and Sri Lanka.
India’s growth is forecast to increase to 7.2 percent
in FY2017 (April 1, 2017 - March 31, 2018) andaccelerate to 7.7 percent by the end of the forecasthorizon—slightly below previous projections. Thisoutlook mainly reflects a more protracted recovery
in private investment than previously envisaged.
Nonetheless, domestic demand is expected toremain strong, supported by ongoing policy
reforms, especially the introduction of thenationwide Goods and Services Tax (GST).
Significant gains by the ruling party in stateelections should support the government’s
economic reform agenda, which aims at unlocking
supply constraints, and creating a businessenvironment that is more conducive to private
investment.
Pakistan’s growth is expected to increase to 5.2
percent in FY2017 (July 1, 2016 - June 30, 2017)
and remain strong over the forecast horizon,
reflecting an upturn in private investment,
increased energy supply, and improved security.
The fiscal deficit should narrow further, as a resultof revenue-led fiscal consolidation. Sri Lanka’s
growth is expected to pick up to about 4.7 percent
in 2017 and accelerate to 5.1 percent by 2019, as
the IMF-supported program helps improve
macroeconomic resilience. Reforms initiated by
the World Bank Development Policy Operationin 2016 are expected to reduce obstacles to private
sector competitiveness in the medium-term andhelp attract FDI. Resumption of the Generalized
System of Preferences Plus (GSP+) tradingarrangement with the European Union will boost
its export sector. Growth in Bangladesh is forecast
to remain robust, averaging 6.6 percent during
FY2018-FY2020. This reflects improving remit-G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

tances as GCC economies recover, as well as risingbusiness confidence and investment.

Risks
A number of downside risks continue to cloud theoutlook. Setbacks to the assumed pace ofstructural reform would impede the unlocking of
supply constraints, dampen productivity growth,and hold up integration into global value chains.
This would hurt the business environment,
reducing investment and FDI inflows to theregion (IMF 2017d, 2017e). Security concerns insome countries (e.g., Afghanistan, Pakistan) could
also hold back investment and business confidence. For several countries in the region, increased political or geopolitical tensions could pose
major obstacles to economic and financial activity(e.g., Afghanistan, India, Pakistan). Upcoming
elections in Nepal (between 2017 and 2019),
Bangladesh and Pakistan (in 2018), and India (in2019) could be accompanied by heightened policy
uncertainty, and election results could surprisefinancial markets.
Despite progress in fiscal consolidation, public
debt remains high across the region. In some cases
debt is associated with investments that will pay
for themselves (Bhutan), but in others there havebeen concerns about sustainability (e.g., Maldives)or about fiscal strains posed by an unevenrepayment profile (e.g., Sri Lanka and, to someextent, Pakistan). In addition, contingent
liabilities are building up, including from the debt
of power utilities in Pakistan and prospects of debt
write-offs for farmers in several states in India.
Compared to other EMDE regions, South Asia isless integrated into the global economy and,
therefore, would be less affected by thematerialization of a range of negative external
shocks. However, two external risks remain aconcern. First, weaker-than-expected recovery inexternal demand, or a widespread increase in tradeprotectionism in advanced economies, could
weigh on exports (World Bank 2017n). In
addition, an abrupt market reassessment about
U.S. monetary policy tightening could lead tocapital outflows, and hence to tighter domestic
credit conditions (Rai and Suchanek 2014).

S O U TH A S I A

101

FIGURE 2.5.2 SAR: Outlook and risks
Regional growth is expected to rebound in 2017 and strengthen thereafter.
Domestic demand and exports underlie this pickup. The outlook forremittances inflows is uncertain, as they could be affected by tighter
immigration policies in some advanced economies and continued fiscal
consolidation in GCC countries. Changing environmental patterns pose
growing risks to the region, as natural events have affected an increasing
number of people in recent years. An abrupt market reassessment about
U.S. monetary policy tightening could lead to tighter domestic financial
conditions, which have been benign of late.
A. GDP growth

B. Contributions to growth in SAR

C. Growth in remittance inflows

D. Sources of remittances, 2015

E. People affected by natural
disasters

F. Sovereign bond spreads

Sources: International Disaster Database, J.P. Morgan, World Bank.
Note: SAR stands for South Asia Region.
A.B. Shaded areas are projections.
E. Average annual number of people affected by disasters.
F. J.P. Morgan Emerging Market Bond Index. Last observation is May 23, 2017.

Second, the outlook for remittances is uncertain.
The main risks would be from tighter immigration
policies in advanced economies, especially in the
United States and the United Kingdom, andcontinued fiscal consolidation in oil-exporting
Gulf Cooperation Council (GCC) countries. Any

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substantial decline in remittances would dampen
consumption and investment in major recipients(e.g., Bangladesh, Nepal).
Finally, changing environmental patterns pose
growing risks. The number of people affected fromextreme weather events has increased substantiallyin recent years (Figure 2.5.3). Natural disasters
from extreme weather conditions often adversely
affect agricultural output in the region, as recently
experienced in India, Pakistan, and Sri Lanka(IMF 2016g).

TABLE 2.5.1 South Asia forecast summary(Real GDP growth at market prices in percent, unless indicated otherwise)
2014

2015

2016

2017

Estimates
EMDE South Asia, GDPa, b

6.7

6.9

6.7

2018

2019

7.1

2017

2018

2019

(percentage point difference
from January 2017 projections)

Projections
6.8

2016

7.3

-0.1

-0.3

-0.2

-0.1

(Average including countries with full national accounts and balance of payments data only)c
EMDE South Asia, GDPc

6.7

6.9

6.7

6.8

7.1

7.3

GDP per capita (U.S. dollars)

5.3

5.6

5.4

5.5

5.8

PPP GDP

6.7

6.9

6.7

6.8

7.1

Private consumption

6.2

6.5

6.6

6.6

Public consumption

8.9

2.6

5.5

Fixed investment

2.7

6.3

4.6

Exports, GNFSd

5.4

-4.9

Imports, GNFSd

1.1

Net exports, contribution to growth

1.0

-0.1

-0.3

-0.3

-0.1

6.0

0.0

-0.2

-0.2

-0.1

7.3

-0.1

-0.3

-0.3

-0.1

6.9

7.1

0.2

-0.1

-0.3

-0.3

5.8

5.8

5.8

-1.5

-1.4

-1.7

-1.8

5.9

7.3

8.0

-1.9

-1.5

-0.1

0.7

3.0

6.0

6.3

6.2

0.8

0.4

-0.8

-1.2

-1.0

0.4

4.4

5.9

6.3

-1.2

-0.7

-0.7

-0.6

-0.9

0.6

0.1

-0.2

-0.3

0.5

0.2

0.0

-0.1

14/15

15/16

16/17

17/18

18/19

19/20

16/17

17/18

18/19

19/20

5.3

5.5

5.7

5.7

5.8

6.0

0.4

0.2

0.1

0.2

India

7.2

7.9

6.8

7.2

7.5

7.7

-0.2

-0.4

-0.3

-0.1

Pakistan (factor cost)

4.0

4.7

5.2

5.5

5.8

5.8

0.0

0.0

0.0

0.0

Bangladesh

6.6

7.1

6.8

6.4

6.7

7.0

0.0

-0.1

0.0

0.0

Memo items: GDPb
South Asia excluding India

Source: World Bank.
World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here may differ from those contained inother Bank documents, even if basic assessments of countries’ prospects do not differ at any given moment in time.
a. EMDE refers to emerging market and developing economy. GDP at market prices and expenditure components are measured in constant 2010 U.S. dollars.
b. National income and product account data refer to fiscal years (FY) for the South Asian countries, while aggregates are presented in calendar year (CY) terms. The fiscal year runs from
July 1 through June 30 in Bangladesh and Pakistan, from July 16 through July 15 in Nepal, and April 1 through March 31 in India.
c. Sub-region aggregate excludes Afghanistan, Bhutan, and Maldives, for which data limitations prevent the forecasting of GDP components.
d. Exports and imports of goods and non-factor services (GNFS).
For additional information, please see www.worldbank.org/gep.

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17103

S O U TH A S I ATABLE 2.5.2 South Asia country forecasts(Real GDP growth at market prices in percent, unless indicated otherwise)
2014

2015

2016

2017

Estimates

2018

2019

2016

2017

2018

2019

(percentage point difference
from January 2017 projections)

Projections

Calendar year basisa
Afghanistan

1.3

1.1

2.2

2.6

3.4

3.1

0.0

0.6

0.4

-0.5

Bhutan

5.7

6.5

6.8

6.8

7.7

10.5

-0.6

-3.1

-3.9

-1.2

Maldives

6.0

2.8

4.1

4.5

4.6

4.6

0.6

0.6

0.0

0.0

Sri Lanka

5.0

4.8

4.4

4.7

5.0

5.1

-0.4

-0.3

-0.1

0.0

Fiscal year basisa

14/15

15/16

16/17

17/18

18/19

19/20

16/17

17/18

18/19

19/20

Bangladesh

6.6

7.1

6.8

6.4

6.7

7.0

0.0

-0.1

0.0

0.0

India

7.2

7.9

6.8

7.2

7.5

7.7

-0.2

-0.4

-0.3

-0.1

Nepal

3.3

0.4

7.5

5.5

4.5

4.5

1.0

0.7

-0.2

-0.2

Pakistan (factor cost)

4.0

4.7

5.2

5.5

5.8

5.8

0.0

0.0

0.0

0.0

Source: World Bank.
World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here may differ from those contained inother Bank documents, even if basic assessments of countries’ prospects do not significantly differ at any given moment in time.
a. Historical data are reported on a market price basis. National income and product account data refer to fiscal years (FY) for the South Asian countries with the exception of Afghanistan,
Bhutan, Maldives, and Sri Lanka, which report in calendar year (CY). The fiscal year runs from July 1 through June 30 in Bangladesh and Pakistan, from July 16 through July 15 in Nepal,
and April 1 through March 31 in India.
For additional information, please see www.worldbank.org/gep.

Growth in Sub-Saharan Africa is projected to recover to 2.6 percent in 2017 from the sharp deceleration to 1.3
percent in 2016, and to strengthen somewhat in 2018. The upturn reflects recovering global commodity prices
and improvements in domestic conditions. Most of the rebound will come from Angola and Nigeria—thelargest oil exporters. However, investment is expected to recover only very gradually, reflecting still tight foreignexchange liquidity conditions in oil exporters and low investor confidence in South Africa. Fiscal consolidation
will slow the pace of recovery in metals exporters. Growth is expected to remain solid among non-resourceintensive countries. External downside risks to the outlook include stronger-than-expected tightening of global
financing conditions, weaker-than-envisioned improvements in commodity prices, and the threat ofprotectionism. A key domestic risk is the lack of implementation of reforms that are needed to maintain durable
macroeconomic stability and sustain growth.

Recent developments
After slowing sharply in 2016, growth in SubSaharan Africa (SSA) is recovering, supported bymodestly rising commodity prices, strengthening
external demand, and the end of drought inseveral countries. Despite recent declines, oilprices are 10 percent higher than their averagelevels in 2016. Metals prices have strengthened
more than expected. Meanwhile, above-average
rainfalls are boosting agricultural production andelectricity generation in countries that were hit
earlier by El Niño-related droughts (e.g., South
Africa, Zambia). Security threats subsided inseveral countries. In Nigeria, militants’ attacks on
oil pipelines decreased. The economic recession in
Nigeria is receding. In the first quarter of 2017,
GDP fell by 0.5 percent (y/y), compared with a
1.7 percent contraction in the fourth quarter of
2016. The Purchasing Managers’ Index for
manufacturers returned to expansionary territory
in April (Figure 2.6.1), indicating growth in the
sector after contraction in the first quarter. Nonresource-intensive countries, including those in
the West African Economic and Monetary Union(WAEMU), have been expanding at a solid pace.
Note: This section was prepared by Gerard Kambou. Research
assistance was provided by Xinghao Gong.

Several factors are preventing a more vigorous
recovery. In Angola and Nigeria, foreign exchange
controls are distorting the foreign exchange
market, thereby constraining activity in the nonoil sector. In South Africa, political uncertainty
and low business confidence are weighing on
investment. The previously delayed fiscal
adjustment to lower oil revenues in the Central
African Economic and Monetary Community(CEMAC) has started, restraining domestic
demand. In Mozambique, the government’s
default in January and heavy debt burden aredeterring investment. In contrast to oil and metals
prices, world cocoa prices dropped, reducing
exports and fiscal revenues in cocoa producers(e.g., Côte d’Ivoire, Ghana). In many countries,
banks are seeking to limit credit risk by tightening
lending standards and reducing credit to theprivate sector. Lastly, the drought in East Africa,
which reduced agricultural production at the endof 2016, continued into 2017, adversely affecting
activity in some countries (e.g., Kenya, Uganda),
and contributing to famine in others (e.g.,
Somalia, South Sudan).
Current account deficits of oil and metals
exporters are narrowing, helped by the pickup incommodity prices. Oil exports are rebounding in
Nigeria on the back of an uptick in oil production
from fields previously damaged by militants’106

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FIGURE 2.6.1 SSA: Recent developments
At the start of 2017, a modest pickup in activity was underway in theregion’s largest economies. Inflation began to ease, but was still high in oilexporters. A drought in East Africa pushed up food prices in several
countries. Current account and fiscal balances are improving somewhat
among oil and metals exporters, helped by the increase in commodity
prices. However, they remain under pressure in non-resource-intensive
countries, reflecting the continued expansion in public investment.
A. Manufacturing purchasing
managers’ indexes and crude oil
production

B. Inflation

C. Current account balance

D. Fiscal balance

Sources: Central Bank of Nigeria, Haver Analytics, International Monetary Fund, World Bank.
Notes: SSA stands for Sub-Saharan Africa. Oil-exporting SSA consists of Angola, Ghana, andNigeria; metal-exporting SSA consists of Botswana, Mozambique, Namibia, South Africa, andZambia. Non-resource-intensive countries include agriculture-based economies and commodity
importers.
A. SA stands for seasonally adjusted.
B.-.D. Unweighted average of available countries in the region.
C.D. e stands for estimate; f for forecast.

attacks. Mining companies across the region are
resuming production and exports. In contrast,
current account balances have remained underpressure in a number of non-resource-intensive
countries. In these countries, capital goods
imports have been strong, reflecting ambitious
public investment programs. Capital inflows in
the region are rebounding from their low level in2016. Nigeria tapped the Eurobond market twicein the first quarter of 2017, followed by Senegal in
May. Sovereign spreads have declined across theregion from their November 2016 peak, with thenotable exception of Ghana where they rose due
to concerns about fiscal policy slippages. This
trend reflects low financial market volatility, and abroader rebound in investor risk appetite for

emerging market and developing economies(EMDE) assets.
Regional inflation is gradually decelerating fromits high level in 2016. Although a process of
disinflation has started in Angola and Nigeria,
inflation in both countries remains elevated,owing to a highly depreciated parallel market
exchange rate. Inflation eased in metals exporters,
reflecting stabilizing currencies after sharp depreciations, and lower food prices due to improved
weather conditions (e.g., South Africa, Zambia).
An exception is Mozambique, where inflation was
still above 21 percent (y/y) in April, reflecting
continued depreciation. Inflationary pressuresincreased in non-resource-intensive countries. In
East Africa, drought led to a spike in food prices,notably in Kenya. However, in countries where
the drought has been less severe, inflation has
remained within central banks’ targets. Low
inflation in Tanzania, Uganda, and Zambia, andsteadily falling inflation in Ghana allowed central
banks to cut interest rates in early 2017.
Fiscal deficits remain elevated across the region.
Oil and metals exporters are still running sizablefiscal deficits. Fiscal balances have deteriorated inseveral non-resource-intensive countries, reflecting
a continued expansion in public infrastructure.
Large fiscal deficits and, in some cases, steep
exchange rate depreciations, have resulted in risingpublic debt ratios in the region (Box 2.6.1). A
number of countries have embarked on fiscal
consolidation to stabilize government debt (e.g.,Chad, South Africa). In early April, S&P Global
Ratings and Fitch downgraded South Africa’s
sovereign credit rating to sub-investment status on
account of heightened political uncertainty.

Outlook
Growth in SSA is forecast to pick up to 2.6
percent in 2017, and average 3.4 percent in 201819, slightly above population growth (Figure
2.6.2). The recovery is predicated on moderately
rising commodity prices and reforms to tackle
macroeconomic imbalances. The forecasts are
below those in January, reflecting a slower-thananticipated recovery in several oil and metals
exporters. Per capita output growth—which isG L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

S U B- S A H A R A N A F R IC A

BOX 2.6.1 Deteriorating public finances in Sub-Saharan Africa
Public debt ratios have risen sharply, post-crisis. In several
countries, government debt has increased by more than 10
percentage points of GDP between 2014 and 2016 andnow exceeds 50 percent of GDP (World Bank 2017n).
These include four commodity exporters (Angola,
Mozambique, Republic of Congo, and Zambia) and two
commodity importers (Burundi, Ethiopia).
Rising fiscal deficits have been the key driver of debt
accumulation in most countries. Angola and the Republicof Congo, hit by a large drop in oil revenues, delayed or
slowed fiscal consolidation. Both countries have run large
fiscal deficits, which reached 17 percent of GDP in the
Republic of Congo in 2016. Among metals exporters,
Mozambique undertook large external borrowing throughstate-owned enterprises. Zambia’s large fiscal deficits havebeen driven by elevated expenditure overruns. In nonresource-intensive countries, borrowing to finance large
public investment projects underpinned the rise in public
debt in Ethiopia.
Other contributory factors included exchange rate
depreciation and civil conflict. Large exchange rate
depreciations contributed to the increase in fiscal debt/
GDP ratios in Mozambique and Zambia. Foreign
currency debt accounted for 80 percent and 67 percent of

total debt in Mozambique and Zambia, respectively, in
2016. Political instability and its adverse effects on growth
have pushed up debt-to-GDP ratios in Burundi, where thegovernment has continued to resort to central bankadvances and the issuance of treasury bills to financepersistently high fiscal deficits.
Debt servicing costs have risen but remain sustainable formost countries. The rise in government debt, exchange
rate depreciation, and increased recourse to nonconcessional borrowing for infrastructure development
have resulted in rising debt servicing costs. However, formost countries in the region, the interest-to-revenue ratio
remains sustainable, helped by the high share ofconcessional borrowing. A notable exception is Nigeria,
where the federal government’s interest-to-revenue ratiorose from 33 percent in 2015 to 59 percent in 2016. In
Mozambique, debt levels have increased sharply to an
estimated 125 percent of GDP at end-2016, and theinterest-to-revenue ratio has risen to above 15 percent,which is weighing on the ability of the government tomeet debt service payments. As monetary policies inadvanced economies continue to normalize, and global
interest rates increase, pro-active public debt management
will be needed to manage rollover risks in the region.

projected to increase from -0.1 percent in 2017 to
0.7 percent in 2018-19—will remain insufficientto achieve poverty reduction goals in the region if
the constraints to more vigorous growth persist(Bhorat and Tarp 2016).

subdued recovery in the region’s largest economies
reflects the slower-than-expected adjustment to
low commodity prices in Angola and Nigeria, andhigher-than-anticipated policy uncertainty inSouth Africa.

Growth in South Africa is projected to recoverfrom 0.6 percent in 2017 to 1.5 percent in 201819. A rebound in net exports is expected to only
partially offset weaker than previously forecast
growth of private consumption and investment, asborrowing costs rise following the sovereign rating
downgrade to sub-investment level. For Nigeria,
growth is expected to rise from 1.2 percent in2017 to 2.5 percent in 2018-19, helped by arebound in oil production, as security in the oilproducing region improves, and by an increase in
fiscal spending. In Angola, growth is projected toincrease from 1.2 percent in 2017 to 1.5 percent
in 2019, reflecting a slight pickup of activity in theindustrial sector as energy supplies improve. The

In other oil exporters, growth is expected tostrengthen in Ghana as increased oil and gas
production boosts exports and domestic electricity
production. Growth will be weaker thanpreviously projected in CEMAC, as larger-thanenvisioned fiscal adjustment reduces public
investment. In several metals exporters, highinflation and tight fiscal policy will be a greaterdrag on activity than previously expected.
Growth in non-resource-intensive countries should
remain solid, on the basis of infrastructure
investment, resilient services sectors, and therecovery of agricultural production. Ethiopia andTanzania in East Africa, and Côte d’Ivoire and

107

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FIGURE 2.6.2 SSA: Outlook and risks
Regional growth is expected to rebound to 2.6 percent in 2017, and toreach 3.5 percent in 2019, reflecting a modest recovery in Angola, Nigeria,
and South Africa. Growth in non-resource-intensive countries is expected
to remain solid, supported by domestic demand. Weaker-than-forecast
commodity prices, worsening drought conditions, and cutbacks to U.S.
official development assistance pose significant downside risks to theregional outlook.
A. GDP growth

B. Growth forecasts

C. SSA countries affected by drought

D. U.S. official development
assistanceSources: EM-DAT, OECD Geographical Distribution of Financial Flows to Developing Countries,
The International Disaster Database, World Bank.
Notes: SSA stands for Sub-Saharan Africa. Non-resource-intensive countries include agriculturalbased economies and commodity importers.
A. GDP-weighted averages.
C. Chart shows number of SSA countries experiencing at least one drought in any given year.
D. Regional assistance is not included.

Senegal in WAEMU will continue to expand at arobust pace on the back of public investment,
although some countries (e.g., Ethiopia, Côte
d’Ivoire) may not reach the high growth rates of
the recent past. Many countries need to containdebt accumulation and rebuild policy buffers.

Risks
The regional outlook is subject to significant
external risks. A sharp increase in global interest
rates could discourage sovereign bond issuance,
which has become a key financing strategy forgovernments in recent years, as they haveincreasingly looked to global markets for the funds
to finance domestic investment (Papadavid 2016).
If sustained, increases in global interest rates could
further reduce the ability of governments in theregion to access foreign bond markets. In addition,
weaker-than-expected growth in advanced
economies or in large emerging markets could
reduce demand for exports, depress commodity
prices, and curtail foreign direct investment inmining and infrastructure in the region (Chen and
Nord 2017). Finally, the announcement ofproposed cutbacks to U.S. official development
assistance will be a source of concern for some of
the region’s smaller economies and fragile states.
On the domestic front, in countries where
significant fiscal adjustments are needed, failure to
implement appropriate policies could weaken
macroeconomic stability and slow the recovery.
This risk is particularly significant for Angola,
CEMAC countries, Mozambique, and Nigeria. In
addition, increased militants’ activity (e.g.,
Nigeria), political uncertainty ahead of key
elections (e.g., South Africa), and drought poserisks to the outlook. Weather-related risks areelevated in East Africa. Inadequate rainfalls have
led to abnormal seasonal dryness in areas of
Kenya, southern Ethiopia, South Sudan, andUganda (Famine Early Warning Systems Network2017). Worsening drought conditions will severely
affect agricultural production, push food prices
higher, and increase food insecurity.

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

109

S U B- S A H A R A N A F R IC ATABLE 2.6.1 Sub-Saharan Africa forecast summary(Real GDP growth at market prices in percent, unless indicated otherwise)
2014

2015

2016

2017

Estimates
EMDE SSA, GDPa

4.6

3.1

1.3

2018

2019

3.2

2017

2018

2019

(percentage point difference
from January 2017 projections)

Projections
2.6

2016

3.5

-0.2

-0.3

-0.4

-0.2

b

(Average including countries with full national accounts and balance of payments data only)
EMDE SSA, GDP

b

4.6

3.1

1.3

2.6

3.2

3.5

-0.2

-0.3

-0.4

-0.2

1.9

0.4

-1.3

-0.1

0.6

0.9

-0.2

-0.3

-0.4

-0.2

PPP GDPPrivate consumption

4.9
2.9

3.3
5.7

1.6
1.2

2.8
2.2

3.5
2.6

3.7
2.8

-0.1
-0.3

-0.3
-0.7

-0.4
-0.8

-0.3
-0.6

Public consumption

1.6

-3.3

2.0

2.5

2.7

2.8

-0.1

-0.2

-0.3

-0.2

Fixed investment

9.6

0.7

3.4

5.1

7.0

7.2

0.1

-0.3

0.0

0.1

Exports, GNFSc

7.0

2.4

1.1

2.7

3.0

3.3

-0.4

0.7

0.4

0.7

Imports, GNFSc

3.7

0.5

1.9

2.9

3.5

3.7

-0.4

-0.2

-0.2

-0.1

Net exports, contribution to growth

0.9

0.6

-0.2

-0.1

-0.2

-0.1

0.1

0.3

0.2

0.3

SSA excluding South Africa
and Nigeria

5.3

4.3

3.5

4.3

4.7

4.8

-0.4

-0.6

-0.4

-0.4

SSA excluding South Africa,
Nigeria, and Angola

5.4

4.5

4.1

4.8

5.2

5.2

-0.4

-0.6

-0.5

-0.6

5.4

2.9

-0.4

1.7

2.6

2.7

-0.2

-0.2

-0.3

-0.3

GDP per capita (U.S. dollars)Memo items: GDPd

Oil exporters

e

5.5

4.0

2.8

3.6

4.1

4.3

-1.5

-1.2

-1.2

-1.2

South Africa

CFA countries

1.6

1.3

0.3

0.6

1.1

2.0

-0.1

-0.5

-0.7

0.2

Nigeria

6.3

2.7

-1.6

1.2

2.4

2.5

0.1

0.2

-0.1

0.0

Angola

4.8

3.0

0.0

1.2

0.9

1.5

-0.4

0.0

0.0

0.6

Source: World Bank.
World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here may differ from those containedin other Bank documents, even if basic assessments of countries’ prospects do not differ at any given moment in time.
a. EMDE refers to emerging market and developing economies. GDP at market prices and expenditure components are measured in constant 2010 U.S. dollars. Excludes Central African
Republic, São Tomé and Príncipe, Somalia, and South Sudan.
b. Sub-regional aggregate excludes Central African Republic, São Tomé and Príncipe, Somalia, and South Sudan, for which data limitations prevent the forecasting of GDP components.
c. Exports and imports of goods and non-factor services (GNFS).
d. Includes Angola, Cameroon, Chad, Democratic Republic of Congo, Gabon, Ghana, Nigeria, Republic of Congo, and Sudan.
e. Includes Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Côte d’Ivoire, Equatorial Guinea, Gabon, Mali, Niger, Republic of Congo, Senegal, and Togo.
For additional information, please see www.worldbank.org/gep.

110

C H A P TE R 2. 6

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

TABLE 2.6.2 Sub-Saharan Africa country forecastsa(Real GDP growth at market prices in percent, unless indicated otherwise)
2014

2015

2016

2017

Estimates

2018

2019

2016

2017

2018

2019

(percentage point difference
from January 2017 projections)

Projections

Angola

4.8

3.0

0.0

1.2

0.9

1.5

-0.4

0.0

0.0

0.6

Benin

6.4

2.1

4.0

5.5

6.0

6.3

-0.6

0.3

0.7

1.0

Botswanab
Burkina Faso

4.1
4.0

-1.7
4.0

2.9
5.4

4.0
6.1

4.2
6.3

4.3
6.3

-0.2
0.2

0.0
0.6

-0.1
0.3

0.0
0.3

BurundiCabo Verde

4.7
0.6

-3.9
1.5

-0.6
3.9

1.5
3.3

2.0
3.7

2.6
3.7

-0.1
0.9

-1.0
0.0

-1.5
0.2

-0.9
0.2

Cameroon
Chad
Comoros

5.9
6.9
2.1

5.8
1.8
1.0

4.5
-7.0
2.2

3.9
0.2
3.3

4.4
3.2
4.0

4.6
3.1
4.0

-1.1
-3.5
0.2

-1.8
0.5
0.8

-1.7
-1.5
1.0

-1.5
-3.2
1.0

Congo, Dem. Rep.
Congo, Rep.

9.0
6.8

6.9
2.6

2.2
-2.1

4.7
1.0

4.9
1.5

4.9
1.5

-0.5
-6.7

0.0
-3.3

-0.1
-2.2

-0.1
-2.2

Côte d'Ivoire
Equatorial Guinea
Ethiopiab
Gabon
Gambia, The

8.5
-0.7
10.3
4.3
0.9

9.2
-8.3
9.6
4.0
4.1

7.8
-7.3
7.5
2.3
2.1

6.8
-5.9
8.3
1.3
2.5

6.5
-7.0
8.0
2.4
3.8

6.3
-6.0
7.9
2.9
4.0

0.0
-1.6
-0.9
-0.9
1.6

-1.2
-0.2
-0.6
-2.5
1.7

-1.6
-0.4
-0.6
-2.2
1.2

-1.8
0.6
-0.7
-1.7
1.4

Ghana

4.0

3.9

3.6

6.1

7.8

6.2

0.0

-1.4

-0.6

-2.2

GuineaGuinea-Bissau
Kenya

0.4
2.5
5.3

0.1
4.8
5.7

4.6
4.9
5.8

4.4
5.1
5.5

4.6
5.1
5.8

4.6
5.1
6.1

-0.6
0.0
-0.1

-0.2
0.0
-0.5

0.0
0.0
-0.3

0.0
0.0
0.0

LesothoLiberia
Madagascar
Malawi

4.5
0.7
3.3
5.7

1.6
0.0
3.8
2.8

2.5
-1.2
4.4
2.5

3.0
3.0
3.5
4.4

3.4
5.3
6.4
4.9

3.6
5.7
4.7
5.3

0.1
-3.7
0.3
0.0

-0.7
-2.8
-1.0
0.2

-0.6
0.0
1.6
0.4

-0.4
0.4
-0.1
0.8

Mali
Mauritania

7.0
5.6

6.0
1.4

5.6
2.0

5.3
3.5

5.2
2.7

5.1
4.6

0.0
-2.0

0.2
-0.7

0.2
-1.1

0.1
0.8

Mauritius
Mozambique

3.7
7.4

3.5
6.6

3.5
3.3

3.4
4.8

3.5
6.1

3.3
6.7

0.3
-0.3

-0.1
-0.4

-0.3
-0.5

-0.5
0.1

Namibia
Niger
Nigeria
RwandaSenegal

6.5
7.0
6.3
7.0
4.3

5.3
3.6
2.7
6.9
6.5

1.2
4.7
-1.6
5.9
6.6

3.0
5.2
1.2
6.0
6.7

4.0
5.5
2.4
6.8
6.9

4.2
5.5
2.5
7.0
7.0

-0.4
-0.3
0.1
-0.1
0.0

-2.0
-0.1
0.2
0.0
-0.1

-1.4
-0.5
-0.1
-0.2
-0.1

-1.2
-0.5
0.0
0.0
0.0

Seychelles
Sierra Leone
South Africa

3.3
4.6
1.6

3.5
-20.6
1.3

4.4
5.0
0.3

4.2
5.4
0.6

3.8
5.6
1.1

3.5
5.9
2.0

0.6
1.1
-0.1

0.7
-1.5
-0.5

0.3
-0.3
-0.7

0.0
0.0
0.2

Sudan

2.7

4.9

4.7

4.1

3.9

3.9

1.2

0.4

0.2

0.2

Swaziland
Tanzania

2.7
7.0

1.9
7.0

-0.6
6.9

1.7
7.2

3.1
7.2

3.2
7.4

0.3
0.0

-0.2
0.1

0.0
0.1

0.1
0.3

Togo
UgandabZambiaZimbabwe

5.9
5.6
5.0
3.8

5.4
5.6
2.9
0.5

5.0
4.8
3.3
0.7

4.6
4.6
4.1
2.3

5.5
5.2
4.5
1.8

5.5
5.6
4.7
1.7

-0.4
0.2
0.4
0.3

-0.4
-1.0
0.1
-1.5

0.0
-0.8
0.3
-1.6

0.0
-0.4
0.5
-1.7

Source: World Bank.
World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here may differ from those contained inother Bank documents, even if basic assessments of countries’ prospects do not significantly differ at any given moment in time.
a. GDP at market prices and expenditure components are measured in constant 2010 U.S. dollars. Excludes Central African Republic, São Tomé and Príncipe, Somalia, and South Sudan.
b. Fiscal-year based figures.
For additional information, please see www.worldbank.org/gep.

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

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STATISTICAL
APPENDIXS T A TI S T I C A L A P P E N D IX

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117

TABLE 1 Real GDP Growth
Annual estimates and forecastsa

Quarterly growthb

2014

2015

2016e 2017f

2018f 2019f

15Q4

16Q1

16Q2

16Q3

16Q4 17Q1e

World

2.8

2.7

2.4

2.7

2.9

2.9

2.5

2.2

2.4

2.3

2.6

2.7

Advanced Economies

1.9

2.1

1.7

1.9

1.8

1.7

1.8

1.5

1.7

1.7

1.8

2.0

United States

2.4

2.6

1.6

2.1

2.2

1.9

1.9

1.6

1.3

1.7

2.0

2.0

Euro Area

1.2

2.0

1.8

1.7

1.5

1.5

2.3

1.7

2.2

1.7

1.4

1.7

Japan

0.3

1.1

1.0

1.5

1.0

0.6

0.9

0.5

0.9

1.1

1.7

1.6

United Kingdom

3.1

2.2

1.8

1.7

1.5

1.5

1.7

1.6

1.7

2.0

1.9

2.0

4.3

3.6

3.5

4.1

4.5

4.7

3.7

3.6

3.7

3.5

4.0

4.0

6.8

6.5

6.3

6.2

6.1

6.1

6.5

6.3

6.4

6.4

6.5

6.5

Cambodia

7.1

7.0

6.9

6.9

6.9

6.7

..

..

..

..

..

..

China

7.3

6.9

6.7

6.5

6.3

6.3

6.8

6.7

6.7

6.7

6.8

6.9

Fiji

5.6

3.6

2.0

3.7

3.5

3.3

..

..

..

..

..

..

Indonesia

5.0

4.9

5.0

5.2

5.3

5.4

5.2

4.9

5.2

5.0

4.9

5.0

Lao PDR

7.5

7.4

7.0

7.0

6.8

7.2

..

..

..

..

..

..

Malaysia

6.0

5.0

4.2

4.9

4.9

5.0

4.6

4.1

4.0

4.3

4.5

5.6

Mongolia

6.9

2.2

1.0

-0.2

1.9

8.0

-2.2

3.0

-0.3

-7.3

9.8

4.2

Myanmar

8.0

7.3

6.5

6.9

7.2

7.3

..

..

..

..

..

..

Papua New Guinea

7.4

6.8

2.4

3.0

3.2

3.4

..

..

..

..

..

..

Philippines

6.1

6.1

6.9

6.9

6.9

6.8

6.7

6.9

7.1

7.1

6.6

6.4

Solomon Islands

2.0

3.3

3.0

3.3

3.0

3.0

..

..

..

..

..

..

Thailand

0.9

2.9

3.2

3.2

3.3

3.4

2.7

3.1

3.6

3.2

3.0

3.3

Timor-Leste

5.9

4.3

5.1

4.0

5.0

6.0

..

..

..

..

..

..

Vietnam

6.0

6.7

6.2

6.3

6.4

6.4

7.0

5.5

5.6

6.6

6.8

5.1

2.3

1.0

1.5

2.5

2.7

2.8

1.4

1.6

2.0

0.3

2.1

..

Albania

1.8

2.6

3.2

3.5

3.5

3.8

1.8

3.3

3.4

3.1

4.0

..

Armenia

3.6

3.0

0.2

2.7

3.1

3.4

..

..

..

..

..

..

Azerbaijan

2.0

1.1

-3.8

-1.4

0.6

1.3

0.1

-2.9

-2.4

-2.3

-2.5

..

Belarus

1.7

-3.9

-2.6

-0.4

0.5

1.2

-4.5

-3.7

-1.5

-3.6

-1.9

..

Bosnia and Herzegovina

1.1

3.0

2.8

3.2

3.7

4.0

..

..

..

..

..

..

Bulgaria

1.3

3.6

3.4

3.0

3.2

3.3

3.6

3.6

3.5

3.2

3.5

3.4

Croatia

-0.4

1.6

2.9

2.9

2.5

2.6

1.8

2.7

2.8

2.9

3.4

..

Georgia

4.6

2.9

2.7

3.5

4.0

4.5

3.0

3.3

2.8

2.2

2.7

..

Hungary

4.0

3.1

2.0

3.7

3.7

3.0

3.4

1.1

2.8

2.2

1.6

4.1

Kazakhstan

4.2

1.2

1.0

2.4

2.6

2.9

1.0

-0.3

-0.3

1.5

2.5

..

Kosovo

1.2

4.1

3.6

3.9

4.2

4.4

..

..

..

..

..

..

Kyrgyz Republic

4.0

3.9

3.8

3.4

4.0

4.8

..

..

..

..

..

..

Macedonia, FYR

3.6

3.8

2.4

2.8

3.3

3.8

6.0

2.4

2.9

2.0

2.4

..

Moldova

4.8

-0.5

4.1

4.0

3.7

3.5

..

..

..

..

..

..

Montenegro

1.8

3.4

2.5

3.3

3.0

2.0

..

..

..

..

..

..

Poland

3.3

3.9

2.8

3.3

3.2

3.2

4.6

2.6

3.1

2.0

3.3

4.2

Romania

3.1

3.9

4.8

4.4

3.7

3.5

4.0

4.3

6.0

4.3

4.8

5.7

Russia

0.7

-2.8

-0.2

1.3

1.4

1.4

-3.2

-0.4

-0.5

-0.4

0.3

0.5

Serbia

-1.8

0.8

2.8

3.0

3.5

3.5

1.1

3.9

2.0

2.8

2.5

1.0

Tajikistan

6.7

6.0

6.9

5.5

5.9

6.1

..

..

..

..

..

..

Turkey

5.2

6.1

2.9

3.5

3.9

4.1

7.4

4.5

5.3

-1.3

3.5

..

Turkmenistan

10.3

6.5

6.2

6.3

6.5

6.5

..

..

..

..

..

..

Ukraine

-6.6

-9.8

2.3

2.0

3.5

4.0

-2.4

0.1

1.5

2.3

4.8

2.4

Uzbekistan

8.1

8.0

7.8

7.6

7.7

7.8

..

..

..

..

..

..

Emerging Market and Developing
Economies
East Asia and Pacific

Europe and Central Asia

118

S T A TI S T I C A L A P P E N D IX

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

TABLE 1 Real GDP Growth (continued)
Annual estimates and forecastsa

Quarterly growthb

2014

2015

2016e 2017f 2018f 2019f

15Q4

16Q1

16Q2

16Q3

16Q4 17Q1e

0.9

-0.8

-1.4

0.8

2.1

2.5

-1.2

-1.4

-0.8

-0.6

-0.2

..

Argentina

-2.5

2.6

-2.3

2.7

Belize

4.1

1.0

-1.5

2.1

3.2

3.2

2.6

0.6

-3.7

-3.7

-2.1

..

2.0

2.0

..

..

..

..

..

..

Bolivia

5.5

4.9

4.3

Brazil

0.5

-3.8

-3.6

3.7

3.7

3.4

6.0

4.9

3.2

5.0

..

..

0.3

1.8

2.1

-5.8

-5.4

-3.6

-2.9

-2.5

Chile

1.9

2.3

..

1.6

1.8

2.0

2.3

1.9

2.5

1.7

1.8

0.5

0.1

Colombia

4.4

Costa Rica

3.7

3.1

2.0

2.0

3.1

3.4

3.4

2.7

2.5

1.2

1.6

1.1

4.7

4.3

3.8

3.6

3.5

3.7

5.1

4.6

3.4

4.2

..

Dominica
Dominican Republic

3.9

2.2

0.6

3.0

2.1

2.1

..

..

..

..

..

..

7.6

7.0

6.6

5.3

5.0

4.8

..

..

..

..

..

..

Ecuador

4.0

0.2

-1.5

-1.3

-0.4

0.3

-2.0

-4.0

-2.1

-1.2

1.5

..

El Salvador

1.4

2.3

2.4

2.0

1.8

1.7

2.4

2.1

2.4

2.4

2.6

..

Guatemala

4.2

4.1

3.1

3.5

3.5

3.6

4.0

2.9

3.7

2.6

3.0

..

Guyana

3.8

3.1

3.3

3.5

3.6

3.7

..

..

..

..

..

..

Haitic

2.8

1.2

1.4

0.5

1.7

2.3

..

..

..

..

..

..

Honduras

3.1

3.6

3.6

3.4

3.3

3.3

5.0

3.7

4.0

2.9

3.8

..

Jamaica

0.7

1.0

1.4

2.0

2.1

2.3

..

..

..

..

..

..

Mexico

2.3

2.6

2.3

1.8

2.2

2.5

2.5

2.2

2.6

2.0

2.3

2.8

Nicaragua

4.8

4.9

4.7

4.3

4.2

4.2

6.2

3.3

6.7

4.7

4.2

..

Panama

6.1

5.8

4.9

5.2

5.4

5.8

..

..

..

..

..

..

Paraguay

4.7

3.0

4.1

3.6

3.8

3.8

0.7

1.5

6.5

5.4

3.4

..

Peru

2.4

3.3

3.9

2.8

3.8

3.6

4.8

4.4

3.7

4.5

3.0

2.1

St. Lucia

0.5

1.6

0.8

0.5

0.7

0.7

..

..

..

..

..

..

St. Vincent and the Grenadines

-0.5

2.1

1.8

2.5

2.8

2.9

..

..

..

..

..

..

Suriname

0.4

-2.7

-10.4

0.9

2.2

1.2

..

..

..

..

..

..

Trinidad and Tobago

-0.6

-0.6

-5.1

0.3

3.4

3.3

..

..

..

..

..

..

Uruguay

3.2

0.4

1.5

1.6

2.4

3.4

-1.3

0.0

1.3

1.1

3.4

..

Venezuela, RB

-3.9

-8.2

-12.0

-7.7

-1.2

0.7

..

..

..

..

..

..

3.4

2.8

3.2

2.1

2.9

3.1

3.9

2.6

1.9

2.2

2.4

..

Algeria

3.8

3.8

3.5

1.8

1.0

1.5

..

..

..

..

..

..

Bahrain

4.4

2.9

3.0

1.9

1.9

2.3

2.8

4.5

2.5

3.9

1.1

..

Djibouti

6.0

6.5

6.5

7.0

7.0

7.2

..

..

..

..

..

..

Egypt, Arab Rep.c

2.9

4.4

4.3

3.9

4.6

5.3

4.0

3.6

4.5

3.4

3.8

..

Iran, Islamic Rep.

4.3

-1.8

6.4

4.0

4.1

4.2

..

..

..

..

..

..

Iraq

0.7

4.8

10.1

-3.1

2.6

1.1

..

..

..

..

..

..

Jordan

3.1

2.4

2.0

2.3

2.6

3.0

2.6

2.3

1.9

1.8

2.0

..

Kuwait

0.5

1.8

2.9

0.2

2.7

2.9

..

..

..

..

..

..

Lebanon

1.8

1.3

1.8

2.5

2.6

2.6

..

..

..

..

..

..

Morocco

2.6

4.5

1.1

3.8

3.7

3.6

..

..

..

..

..

..

Oman

2.5

5.7

2.2

0.9

2.4

2.9

..

..

..

..

..

..

Qatar

4.0

3.6

2.2

3.2

2.6

2.5

3.9

1.4

1.8

3.9

1.7

..

Saudi Arabia

3.7

4.1

1.4

0.6

2.0

2.1

4.3

2.6

0.9

1.2

2.2

..

Tunisia

2.3

1.1

1.0

2.3

3.0

3.5

0.7

0.6

1.1

1.3

1.2

..

United Arab Emirates

3.1

3.8

2.3

2.0

2.5

3.2

..

..

..

..

..

..

West Bank and Gaza

-0.2

3.4

4.1

3.5

3.4

3.4

..

..

..

..

..

..

Latin America and the Caribbean

Middle East and North Africa

S T A TI S T I C A L A P P E N D IX

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

119

TABLE 1 Real GDP Growth (continued)
Annual estimates and forecastsa

Quarterly growthb

2014

2015

2016e 2017f

2018f

2019f

15Q4

16Q1

16Q2

16Q3

16Q4

17Q1e

6.7

6.9

6.7

6.8

7.1

7.3

6.8

8.5

7.0

7.3

6.9

..

Afghanistan

1.3

1.1

2.2

2.6

3.4

3.1

..

..

..

..

..

..

Bangladeshc d

6.1

6.6

7.1

6.8

6.4

6.7

..

..

..

..

..

..

Bhutan

5.7

6.5

6.8

6.8

7.7

10.5

..

..

..

..

..

..

cd

South Asia

7.2

7.9

6.8

7.2

7.5

7.7

6.9

8.6

7.2

7.4

7.0

..

Maldives

6.0

2.8

4.1

4.5

4.6

4.6

..

..

..

..

..

..

Nepalc d

6.0

3.3

0.4

7.5

5.5

4.5

..

..

..

..

..

..

Pakistanc d

4.0

4.0

4.7

5.2

5.5

5.8

..

..

..

..

..

..

Sri Lanka

5.0

4.8

4.4

4.7

5.0

5.1

2.8

5.1

2.4

4.6

5.3

..

4.6

3.1

1.3

2.6

3.2

3.5

1.4

-0.2

-0.2

-0.5

-0.2

..

Angola

4.8

3.0

0.0

1.2

0.9

1.5

..

..

..

..

..

..

Benin

6.4

2.1

4.0

5.5

6.0

6.3

..

..

..

..

..

..

Botswanac

4.1

-1.7

2.9

4.0

4.2

4.3

-3.5

2.3

3.9

6.9

4.2

..

Burkina Faso

4.0

4.0

5.4

6.1

6.3

6.3

..

..

..

..

..

..

Burundi

4.7

-3.9

-0.6

1.5

2.0

2.6

..

..

..

..

..

..

Cabo Verde

0.6

1.5

3.9

3.3

3.7

3.7

..

..

..

..

..

..

Cameroon

5.9

5.8

4.5

3.9

4.4

4.6

..

..

..

..

..

..

Chad

6.9

1.8

-7.0

0.2

3.2

3.1

..

..

..

..

..

..

Comoros

2.1

1.0

2.2

3.3

4.0

4.0

..

..

..

..

..

..

Congo, Dem. Rep.

9.0

6.9

2.2

4.7

4.9

4.9

..

..

..

..

..

..

Congo, Rep.

6.8

2.6

-2.1

1.0

1.5

1.5

..

..

..

..

..

..

Côte d'Ivoire

8.5

9.2

7.8

6.8

6.5

6.3

..

..

..

..

..

..

Equatorial Guinea

-0.7

-8.3

-7.3

-5.9

-7.0

-6.0

..

..

..

..

..

..

c

India

Sub-Saharan Africa

10.3

9.6

7.5

8.3

8.0

7.9

..

..

..

..

..

..

Gabon

4.3

4.0

2.3

1.3

2.4

2.9

..

..

..

..

..

..

Gambia, The

0.9

4.1

2.1

2.5

3.8

4.0

..

..

..

..

..

..

Ghana

4.0

3.9

3.6

6.1

7.8

6.2

..

..

..

..

..

..

Guinea

0.4

0.1

4.6

4.4

4.6

4.6

..

..

..

..

..

..

Guinea-Bissau

2.5

4.8

4.9

5.1

5.1

5.1

..

..

..

..

..

..

Kenya

5.3

5.7

5.8

5.5

5.8

6.1

5.7

5.9

6.2

5.7

..

..

Lesotho

4.5

1.6

2.5

3.0

3.4

3.6

..

..

..

..

..

..

Liberia

0.7

0.0

-1.2

3.0

5.3

5.7

..

..

..

..

..

..

Madagascar

3.3

3.8

4.4

3.5

6.4

4.7

..

..

..

..

..

..

Malawi

5.7

2.8

2.5

4.4

4.9

5.3

..

..

..

..

..

..

Mali

7.0

6.0

5.6

5.3

5.2

5.1

..

..

..

..

..

..

Mauritania

5.6

1.4

2.0

3.5

2.7

4.6

..

..

..

..

..

..

Mauritius

3.7

3.5

3.5

3.4

3.5

3.3

..

..

..

..

..

..

Mozambique

7.4

6.6

3.3

4.8

6.1

6.7

..

..

..

..

..

..

Namibia

6.5

5.3

1.2

3.0

4.0

4.2

..

..

..

..

..

..

Niger

7.0

3.6

4.7

5.2

5.5

5.5

..

..

..

..

..

..

Nigeria

6.3

2.7

-1.6

1.2

2.4

2.5

1.8

-0.7

-1.6

-2.4

-1.6

-0.7

Rwanda

7.0

6.9

5.9

6.0

6.8

7.0

..

..

..

..

..

..

Senegal

4.3

6.5

6.6

6.7

6.9

7.0

..

..

..

..

..

..

Seychelles

3.3

3.5

4.4

4.2

3.8

3.5

..

..

..

..

..

..

Sierra Leone

4.6

-20.6

5.0

5.4

5.6

5.9

..

..

..

..

..

..

Ethiopia

120

S T A TI S T I C A L A P P E N D IX

G L O B A L E CO N O MI C P R OS P E C TS | J U NE 2 0 17

TABLE 1 Real GDP Growth (continued)
Annual estimates and forecastsa

Quarterly growthb

2014

2015

2016e 2017f 2018f 2019f

15Q4

16Q1

16Q2

16Q3

16Q4 17Q1e

South Africa

1.6

1.3

0.3

0.6

1.1

2.0

0.6

-0.6

0.3

0.7

0.7

..

Sudan

2.7

4.9

4.7

4.1

3.9

3.9

..

..

..

..

..

..

Swaziland

2.7

1.9

-0.6

1.7

3.1

3.2

..

..

..

..

..

..

Tanzania

7.0

7.0

6.9

7.2

7.2

7.4

..

..

..

..

..

..

Togo

5.9

5.4

5.0

4.6

5.5

5.5

..

..

..

..

..

..

Ugandac

5.6

5.6

4.8

4.6

5.2

5.6

..

..

..

..

..

..

Zambia

5.0

2.9

3.3

4.1

4.5

4.7

..

..

..

..

..

..

Zimbabwe

3.8

0.5

0.7

2.3

1.8

1.7

..

..

..

..

..

..

Sub-Saharan Africa (continued)

Sources: World Bank and Haver Analytics.
a. Aggregate growth rates calculated using constant 2010 U.S. dollars GDP weights.
b. Year-over-year quarterly growth of not-seasonally-adjusted real GDP, except for the United States, Ecuador, and Tunisia, where only seasonally-adjusted data are available.
Year-over-year quarterly growth in the United Kingdom is calculated using seasonally-adjusted real GDP.
Regional averages are calculated based on data from following countries.
East Asia and Pacific: China, Indonesia, Malaysia, Mongolia, Philippines, Thailand, and Vietnam.
Europe and Central Asia: Albania; Azerbaijan; Belarus; Bulgaria; Croatia; Georgia; Hungary; Kazakhstan; Macedonia, FYR; Poland; Romania; Russia; Serbia; Turkey; and Ukraine.
Latin America and the Caribbean: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Paraguay, Peru, and Uruguay.
Middle East and North Africa: Bahrain, Egypt, Jordan, Qatar, Saudi Arabia, and Tunisia.
South Asia: India and Sri Lanka.
Sub-Saharan Africa: Botswana, Kenya, Nigeria, and South Africa.
c. Annual GDP is on fiscal year basis, as per reporting practice in the country.
d. GDP data for Pakistan are based on factor cost. For Bangladesh, Nepal, and Pakistan, the column labeled 2017 refers to FY2016/17. For India, the column labeled 2016 refers to
FY2016/17.
For additional information, please see www.worldbank.org/gep.

GLOBAL ECONOMIC PROSPECTS | JUNE 2017

SELECTED TOPICS

121

Global Economic Prospects: Selected Topics, 2015-17
Growth and Business Cycles
Low-income countries
Recent developments and outlook

June 2017, Box 1.1

Recent developments and outlook

January 2017, Box 1.1

Recent developments and outlook

June 2016, Box 1.1

Graduation, recent developments, and prospects

January 2015, Chapter 1

Regional perspectives
Recent developments and outlook

June 2017, Box 1.2

Recent developments and outlook
Recent developments and outlook

January 2017, Box 1.2
June, 2016, Box 1.2

Recent investment slowdown
Europe and Central Asia

January 2017, Box 2.2.1

Latin America and the Caribbean

January 2017, Box 2.3.1

Middle East and North Africa

January 2017, Box 2.4.1

South Asia

January 2017, Box 2.5.1

Sub-Saharan Africa

January 2017, Box 2.6.1

Regional Integration and spillovers
East Asia and PacificJanuary 2016, Box 2.1.1

Europe and Central Asia

January 2016, Box 2.2.1

Latin America and the Caribbean

January 2016, Box 2.3.1

Middle East and North Africa

January 2016, Box 2.4.1

South Asia

January 2016, Box 2.5.1

Sub-Saharan Africa

January 2016, Box 2.6.1

Investment developments and outlook: East Asia and PacificJanuary 2017, Box 2.1.1

Weak investment in uncertain times: Causes, implications and policy responses

January 2017, Chapter 3

Implications of rising uncertainty for investment in EMDEs

January 2017, Box 3.2

Implications of the investment slowdown in China

January 2017, Box 3.3

Interactions between public and private investment

January 2017, Box 3.4

Quantifying uncertainties in global growth forecasts

June 2016, SF 2

Who catches a cold when emerging markets sneeze?

January 2016, Chapter 3

Sources of the growth slowdown in BRICS

January 2016, Box 3.1

Understanding cross-border growth spillovers

January 2016, Box 3.2

Within-region spillovers

January 2016, Box 3.3

Recent developments in emerging and developing country labor markets

June 2015, Box 1.3

What does weak growth mean for poverty in the future?

January 2015, Box 1.1

What does a slowdown in China mean for Latin America and the Caribbean?

January 2015, Box 2.2

How resilient is Sub-Saharan Africa?

January 2015, Box 2.4

Other topics

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SELECTED TOPICSGLOBAL ECONOMIC PROSPECTS | JUNE 2017

Global Economic Prospects: Selected Topics, 2015-17
Commodity Markets
From commodity discovery to production: Vulnerabilities and policies in LICs

January 2016, Chapter 1

After the commodities boom: What next for low-income countries?

June 2015, Chapter 1, SF

Low oil prices in perspective

June 2015, Box 1.2

Understanding the plunge in oil prices: Sources and implications

January 2015, Chapter 4

What do we know about the impact of oil prices on output and inflation? A brief survey

January 2015, Box 4.1

Globalization of Trade and Financial Flows
Arm’s-Length Trade: A Source of Post-Crisis Trade Weakness

June 2017, SF

The U.S. economy and the world

January 2017, Special Focus

Regulatory convergence in mega-regional trade agreements

January 2016, Box 4.1.1

Can remittances help promote consumption stability?

January 2016, Chapter 4

Potential macroeconomic implications of the Trans-Pacific Partnership Agreement

January 2016, Chapter 4

Regulatory convergence in mega-regional trade agreements

January 2016, Box 4.1.1

China’s integration in global supply chains: Review and implications

January 2015, Box 2.1

What lies behind the global trade slowdown?

January 2015, Chapter 4

Monetary and Exchange Rate Policies
Investment-less credit booms

January 2017, Box 3.1

Recent credit surge in historical context

June 2016, SF1

Peg and control? The links between exchange rate regimes and capital account policies

January 2016, Chapter 4

Negative interest rates in Europe: A glance at their causes and implications

June 2015, Box 1.1

Hoping for the best, preparing for the worst: Risks around U.S. rate liftoff and policy options

June 2015, SF1.1

Countercyclical monetary policy in emerging markets: Review and evidence

January 2015, Box 1.2

Fiscal Policy
Debt Dynamics in Emerging Markets and Developing Economies: Time to Act?

June 2017, SF

Having fiscal space and using it: Fiscal challenges in developing economies

January 2015, Chapter 3

Revenue mobilization in South Asia: Policy challenges and recommendations

January 2015, Box 2.3

Fiscal policy in low-income countries

January 2015, Box 3.1

What affects the size of fiscal multipliers?

January 2015, Box 3.2

Chile’s fiscal rule—An example of success

January 2015, Box 3.3

Narrow fiscal space and the risk of a debt crisis

January 2015, Box 3.4

GLOBAL ECONOMIC PROSPECTS | JUNE 2017

SELECTED TOPICS

Development Economics Prospects Group (DECPG):
Selected Other Publications on the Global Economy, 2015-17
Commodity Markets Outlook
Investment weakness in commodity exporters

January 2017, SF

OPEC in historical context: Commodity agreements and market fundamentals

October 2016, SF

Energy and food prices: Moving in tandem?

July 2016, SF

Resource development in an era of cheap commodities

April 2016, SF

Weak growth in emerging market economies: What does it imply for commodity markets?

January 2016, SF

Understanding El Niño: What does it mean for commodity markets?

October 2015, SF

How important are China and India in global commodity consumption

July 2015, SF

Anatomy of the last four oil price crashes

April 2015, SF

Putting the recent plunge in oil prices in perspective

January 2015, SF

High-Frequency Monitoring
Global Monthly
Global Weekly

123

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SELECTED TOPICSGLOBAL ECONOMIC PROSPECTS | JUNE 2017

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G

lobal activity is firming broadly as expected. Manufacturing andtrade are picking up, confidence is improving, international financing
conditions remain benign, and commodity prices are stabilizing.
Growth in emerging market and developing economies (EMDEs) is set
to recover, as obstacles to growth in commodity exporters diminish,
while activity in commodity importers remains robust. Risks to theglobal outlook remain tilted to the downside. These include increased
trade protectionism, elevated economic policy uncertainty, thepossibility of financial market disruptions, and, over the longer term,
weaker potential growth. A policy priority for EMDEs is to rebuild
monetary and fiscal space that could be drawn on were such risks
to materialize. Over the longer term, structural policies that support
investment and trade are critical to boost EMDE productivity andpotential growth.
In addition to discussing global and regional economic developments
and prospects, this edition of Global Economic Prospects includes
two Special Focus essays of critical importance for emerging anddeveloping economies: an analysis of fiscal positions in EMDEs and a
deeper look at the type of firms most affected by post-crisis trade
weakness.

Global Economic Prospects is a World Bank Group Flagship Reportthat examines global economic developments and prospects, witha special focus on emerging market and developing countries,
on a semiannual basis (in January and June). The January edition
includes in-depth analyses of topical policy challenges faced by these
economies, while the June edition contains shorter analytical pieces.