World Economic Outlook
World Economic Outlook, April 2019
Growth Slowdown, Precarious Recovery
April 2019
Full Report and Executive Summary
After strong growth in 2017 and early 2018, global economic activity slowed notably in the second half of last year, reflecting a confluence of factors affecting major economies. China’s growth declined following a combination of needed regulatory tightening to rein in shadow banking and an increase in trade tensions with the United States. The euro area economy lost more momentum than expected as consumer and business confidence weakened and car production in Germany was disrupted by the introduction of new emission standards; investment dropped in Italy as sovereign spreads widened; and external demand, especially from emerging Asia, softened. Elsewhere, natural disasters hurt activity in Japan. Trade tensions increasingly took a toll on business confidence and, so, financial market sentiment worsened, with financial conditions tightening for vulnerable emerging markets in the spring of 2018 and then in advanced economies later in the year, weighing on global demand. Conditions have eased in 2019 as the US Federal Reserve signaled a more accommodative monetary policy stance and markets became more optimistic about a US–China trade deal, but they remain slightly more restrictive than in the fall.
Chapter 1: Global Prospects and Policies
Following a broad-based upswing in cyclical growth that lasted nearly two years, the global economic expansion decelerated in the second half of 2018. Activity softened amid an increase in trade tensions and tariff hikes between the United States and China, a decline in business confidence, a tightening of financial conditions, and higher policy uncertainty across many economies. Against this global backdrop, a combination of country- and sector-specific factors further reduced momentum. After peaking at close to 4 percent in 2017, global growth remained strong, at 3.8 percent in the first half of 2018, but dropped to 3.2 percent in the second half of the year.
Chapter 2: The Rise of Corporate Market Power and Its Macroeconomic Effects
This chapter investigates whether corporate market power has increased and, if so, what the macroeconomic implications are. The three main takeaways from a broad analysis of cross-country firm-level patterns are that (1) market power has increased moderately across advanced economies, as indicated by firms’ price markups over marginal costs rising by close to 8 percent since 2000, but not in emerging market economies; (2) the increase has been fairly widespread across advanced economies and industries, but within them, it has been concentrated among a small fraction of dynamic—more productive and innovative—firms; and (3) although the overall macroeconomic implications have been modest so far, further increases in the market power of these already-powerful firms could weaken investment, deter innovation, reduce labor income shares, and make it more difficult for monetary policy to stabilize output.
Chapter 3: The Price of Capital Goods: A Driver of Investment Under Threat?
Over the past three decades, the price of machinery and equipment has fallen dramatically relative to other prices in advanced and emerging market and developing economies alike. Could rising trade tensions, a slowing pace of trade integration, and sluggish productivity growth threaten this potential driver of investment going forward? This chapter sets out to answer this question by documenting key patterns in the price of capital goods, its drivers, and its impact on real investment rates.
Chapter 4: Drivers of Bilateral Trade and Spillovers from Tariffs
The presence of large and rising bilateral trade balances has raised concerns that asymmetric obstacles to trade may distort the international trade system. This chapter examines the drivers of bilateral trade balances, distinguishing between the roles of macroeconomic factors, the international division of labor, and bilateral tariffs. It also examines how, through their impact on the ways production is organized within and across countries, tariffs affect productivity, output, and employment.