World Economic Outlook

Front Matter

Chapter 1. Recent Developments and Prospects
Global growth in 2014 was a modest 3.4 percent, reflecting a pickup in growth in advanced economies relative to the previous year and a slowdown in emerging market and developing economies. Complex forces that affected global activity in 2014 are still shaping the outlook: medium- and long-term trends, global shocks, and many country- or region-specific factors. Growth is projected to be stronger in 2015 relative to 2014 in advanced economies, but weaker in emerging markets, reflecting more subdued prospects for some large emerging market economies and oil exporters. The chapter discusses recent developments in and prospects for the world economy, explores potential risks (both downside and upside), and makes policy recommendations. A special feature looks at developments in commodity markets, focusing specifically on investment in an era of low oil prices.

Chapter 2. Country and Regional Perspectives
Global growth is forecast at 3.5 percent in 2015 and 3.8 percent in 2016, with uneven prospects across the main countries and regions of the world. The distribution of risks to near-term global growth has become more balanced relative to the October World Economic Outlook but is still tilted to the downside. The decline in oil prices could boost activity more than expected. Geopolitical tensions continue to pose threats, and risks of disruptive shifts in asset prices remain relevant. In some advanced economies, protracted low inflation or deflation also pose risks to activity. The chapter takes a region-by-region look at the recent development in the world economy and the outlook for 2015, with particular attention to notable development in countries within each region.

Chapter 3. Where Are We Headed? Perspectives on Potential Output
This chapter finds that potential output growth across advanced and emerging market economies has declined in recent years. In advanced economies, this decline started as far back as the early 2000s and worsened with the global financial crisis. In emerging market economies, in contrast, it began only after the crisis. The chapter’s analysis suggests that potential output growth in advanced economies is likely to increase slightly from current rates as some crisis-related effects wear off, but to remain below precrisis rates in the medium term. The main reasons are aging populations and the gradual increase in capital growth from current rates as output and investment recover from the crisis. In contrast, in emerging market economies, potential output growth is expected to decline further, owing to aging populations, weaker investment, and lower total factor productivity growth as these economies catch up to the technological frontier.

Chapter 4. Private Investment: What’s the Holdup?
Private fixed investment in advanced economies contracted sharply during the global financial crisis, and there has been little recovery since. Investment has generally slowed more gradually in the rest of the world. Although housing investment fell especially sharply during the crisis, business investment accounts for the bulk of the slump, and the overriding factor holding it back has been the overall weakness of economic activity. In some countries, other contributing factors include financial constraints and policy uncertainty. These findings suggest that addressing the general weakness in economic activity is crucial for restoring growth in private investment.

• Full Text
• Press Points

• Is There a Global Slump in Private Investment?
• Is the Slump in Private Investment Due to Housing or Is It Broader?
• How Much of the Slump in Business Investment Reflects Weak Economic Activity?
• Which Firms Have Cut Back More on Investment? The Roles of Financial Constraints and Policy Uncertainty
• Have Firms’ Investment Decisions Become Disconnected from Profitability and Financial Market Valuations?
• Policy Implications
• References

Annexes
4.1	Aggregate Data
4.2	Firm-Level Data
4.3	Instrumental Variables Estimation
4.4	Local Projection Methods
4.5	Accelerator Model Estimation Results
Box
4.1	After the Boom: Private Investment in Emerging Market and Developing Economies
Tables
4.1	Firm-Level Evidence: Financial Constraint Channel
4.2	Firm-Level Evidence: Policy Uncertainty Channel
4.3	Investment, Tobin’s Q, Profits, and Cash
4.1.1	Data Sources
4.2.1	Aggregate Firm-Level Investment versus National Investment
4.3.1	Investment-Output Relationship: Instrumental Variables Estimation
4.5.1	Baseline Accelerator Model
4.5.2	Accelerator Model: In-Sample versus Out-of-Sample Estimates
4.5.3	Selected Euro Area Economies: Baseline and Augmented Accelerator Model—Equalized Sample
Figures
Chart	Data	4.1	Real Private Investment
Chart	Data	4.2	Real Private Investment, 2008–14
Chart	Data	4.3	Categories of Real Fixed Investment
Chart	Data	4.4	Decomposition of the Investment Slump, 2008–14
Chart	Data	4.5	Shares and Relative Prices of Investment Categories
Chart	Data	4.6	Real Business Investment and Output Relative to Forecasts: Historical Recessions versus Global Financial Crisis
Chart	Data	4.7	Real Business Investment: Actual and Predicted Based on Weak Economic Activity
Chart	Data	4.8	Accelerator Model: Real Business Investment
Chart	Data	4.9	Real Business Investment: Accelerator Model Residuals and Investment Losses Relative to Precrisis Forecasts, 2008–14
Chart	Data	4.10	Selected Euro Area Economies: Accelerator Model—Role of Financial Constraints and Policy Uncertainty
Chart	Data	4.11	Firm Survey Responses: Factors Limiting Production
Chart	Data	4.12	Firm Investment since the Crisis, by Firm Type
Chart	Data	4.13	Tobin’s Q and Real Business-Investment-to-Capital Ratios
Chart	Data	4.14	Investment: Actual and Predicted Based on Tobin’s Q
Chart	Data	Annex 4.3.1	Actual versus Predicted Real Business Investment—Robustness
Chart	Data	Annex 4.5.1	Accelerator Model: In Sample versus Out of Sample
Chart	Data	Annex 4.5.2	Accelerator Model: Controlling for the User Cost of Capital
Chart	Data	4.1.1	Real Private Fixed Investment
Chart	Data	4.1.2	Private Investment and Output Forecast Errors: Historical versus Post-2011 Slowdown
Chart	Data	4.1.3	Contributors to the Private Investment Slowdown since 2011
Data Download: Private and Business Investment

Statistical Appendix