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World Economy In Slow Motion

With Declining Commodity Prices, Depreciating Emerging Market Currencies, And Increasing Financial Market Volatility, Downside Risks To The Outlook Have Risen, Particularly For Emerging Market And Developing Economies

Global growth declined in the first half of 2015, reflecting a further slowdown in emerging markets and a weaker recovery in advanced economies. It is now projected at 3.1 percent for 2015 as a whole, slightly lower than in 2014, and 0.2 percentage point below the forecasts in the July 2015 World Economic Outlook (WEO) Update.

Prospects across the main countries and regions remain uneven. Relative to last year, growth in advanced economies is expected to pick up slightly, while it is projected to decline in emerging market and developing economies.

With declining commodity prices, depreciating emerging market currencies, and increasing financial market volatility, downside risks to the outlook have risen, particularly for emerging market and developing economies.

Global activity is projected to gather some pace in 2016. In advanced economies, the modest recovery that started in 2014 is projected to strengthen further. In emerging market and developing economies, the outlook is projected to improve: in particular, growth in countries in economic distress in 2015 (including Brazil, Russia, and some countries in Latin America and in the Middle East), while remaining weak or negative, is projected to be higher next year, more than offsetting the expected gradual slowdown in China.



Prospects across the main countries and regions remain uneven.

The World Economy in Recent Months Growth in advanced economies in the first half of 2015 remained modest. For most emerging market economies, external conditions are becoming more difficult. Financial market volatility rose sharply during the summer, with declining commodity prices and downward pressure on many emerging market currencies.

Capital inflows have slowed, and the liftoff of U.S. policy rates from the zero lower bound is likely to herald some further tightening of external financial conditions.

And while the growth slowdown in China is so far broadly in line with forecasts, its cross-border repercussions appear larger than previously envisaged.

Th is is reflected in weakening commodity prices (especially those for metals) and weak exports to China.

Slowing Global Activity, Tame Inflation Preliminary data suggest that global growth in the first half of 2015 was 2.9 percent, about 0.3 percentage point weaker than predicted in April of this year (Figure 1.1).

Growth was below forecast for both advanced economies and emerging markets.


• Growth in the United States was weaker than expected, despite a strong second quarter. This reflected setbacks to activity in the first quarter, caused by one-off factors, notably harsh winter weather and port closures, as well as much lower capital spending in the oil sector.

Despite weaker growth, the unemployment rate declined to 5.1 percent at the end of August, 0.4 percentage point below its February level (and 1 percentage point below the level a year ago). Lower capital expenditures in the oil sector were also a major contributor to the slowdown in Canada, where economic activity contracted modestly during the first two quarters of 2015.

• The recovery was broadly in line with the April forecast in the euro area, with stronger-than-expected growth in Italy and especially in Ireland and Spain (sustained by recovering domestic demand) offsetting weaker-than-expected growth in Germany.

• In the United Kingdom, GDP expanded at an annualized rate of 2¼ percent in the first half of 2015, with the unemployment rate now back near its precrisis average of about 5½ percent.

• In Japan, a strong rebound in the first quarter was followed by a drop in activity in the second quarter. Over the first half of the year, consumption fell short of expectations and so did net exports. Exports declined substantially in the second quarter.

• Growth in China was broadly in line with previous forecasts. Investment growth slowed compared with


Source: International Monetary Fund

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