World Economic Outlook: World Economy to gain Momentum after disappointing 2016

With buoyant financial markets and a long-awaited cyclical recovery in manufacturing and trade, world growth is projected to rise from 3.1 percent in 2016 to 3.5 percent in 2017 and 3.6 percent in 2018. This was revealed in the International Monetary Fund, IMF report titled the World Economic Outlook, April 2017: Gaining Momentum?

The report also revealed that binding structural impediments continue to hold back a stronger recovery, and the balance of risks remains tilted to the downside, especially over the medium term.

The world economy gained speed in the fourth quarter of 2016 and the momentum is expected to persist. Global growth is projected to increase from an estimated 3.1 percent in 2016 to 3.5 percent in 2017 and 3.6 percent in 2018. Activity is projected to pick up markedly in emerging market and developing economies because conditions in commodity exporters experiencing macroeconomic strains are gradually expected to improve, supported by the partial recovery in commodity prices, while growth is projected to remain strong in China and many other commodity importers.

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Emerging market and developing economies have become increasingly important in the global economy in recent years. They now account for more than 75 percent of global growth in output and consumption, almost double the share of just two decades ago. The external environment has been important for this transformation. Terms of trade, external demand, and, in particular, external financial conditions are increasingly influential determinants of medium-term growth in these economies as they become more integrated into the global economy.

Although changes to the global growth forecast for 2017 and 2018 since the October 2016 WEO are small, there have been meaningful changes to forecasts for country groups and individual countries. In line with stronger-than-expected momentum in the second half of 2016, the forecast envisages a stronger rebound in advanced economies. And while growth is still expected to pick up notably for the emerging market and developing economies group, weaker-than-expected activity in some large countries has led to small downward revisions to the group’s growth prospects for 2017.

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Headline inflation has been picking up in advanced economies due to higher commodity prices, but core inflation dynamics remain subdued and heterogeneous (consistent with diversity in output gaps). Core inflation has improved little where it had been the weakest (for instance, in Japan and parts of the euro area). Headline inflation has also picked up in many emerging markets and developing economies due to higher commodity prices, but in a number of cases it has receded as pass-through from the sharp currency depreciations in 2015 and early 2016 continues to fade.

 

Risks remain skewed to the downside, however, especially over the medium term, with pervasive uncertainty surrounding policies. Buoyant market sentiment implies that there is now more tangible upside potential for the near term, but in light of the sources of uncertainties discussed below, a sharp increase in risk aversion is possible.

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