World economy to grow by 3.0% in 2015, 3.4% in 2016
– The world economy is expected to grow by 3.0% in 2015, unchanged from our August forecast, and by 3.4% in 2016, marginally weaker than projected last time. Growth in emerging market economies has weakened further; recoveries have remained hesitant in the advanced economies.
– The projected pickup in global growth next year will be supported by accommodative monetary policies and lower oil prices. Growth should strengthen further in 2017 as recoveries take hold in some key emerging markets. But considerable risks remain.
– We expect the US Federal Reserve to lead the turn in official interest rates in December, with the Bank of England following next February. Recent months have been marked, especially during August, by increased turbulence in equity markets, weakness in a number of emerging market currencies, and declines in commodity prices. These developments seem largely due to concerns about weakening growth and financial vulnerabilities in several emerging market economies, especially China.
Weakness in oil and other commodity prices has halted increases in consumer price inflation rates in the advanced economies; indeed they have fallen back below zero in the Euro Area and Japan. Stubbornly low domestic price and wage inflation contributed to the Fed’s decisions in September and October not to raise interest rates. Along with other recent developments, it also contributed to the announcement by the ECB in late October that it would consider in December further reductions in its benchmark interest rates as well as further expansions of its asset purchase programme. Annual inflation in the advanced economies is projected to turn up in the coming months, but to remain below central banks’ targets at least through 2016.
Many of the risks highlighted in recent Reviews remain relevant, but certain risks may have increased. First, persistently low inflation. With headline consumer price inflation having again fallen below or close to zero in the advanced economies, the risk of persistent below-target inflation has increased. We welcome the ECB’s announcement that it will in December undertake a comprehensive review of its monetary stance and the settings of its policy instruments. In the US, the Fed will need to maintain a ‘data-dependent’ approach to its interest rate decisions, focused particularly on actual and expected price and wage developments.
A second set of risks relates to the economic transition and slowdown in China. Slowing growth in China has had significant global repercussions, with emerging-market exporters of primary products having been particularly hard-hit. Looking ahead, risks include the possibility that the Chinese economy slows by more than our projections indicate, perhaps because of a sharper decline in investment than we assume, and that the government responds by taking action, including support of investment through additional credit expansion, and also currency depreciation, that could both increase China’s financial vulnerabilities, given its levels of debt, and have damaging repercussions abroad.