World Economic Outlook

The earlier projected increase in growth is strengthening. Notable pickups in investment, trade, and industrial production, coupled with stronger business and consumer confidence, are supporting the recovery. With early 2017 growth generally stronger than expected, upward revisions to projections are broad based, including for the euro area, Japan, China, emerging Europe, and Russia, more than offsetting downward revisions for the United States, the United Kingdom, and India. After disappointing global growth over the past few years, this recent pickup provides an ideal window of opportunity for policymakers to undertake critical reforms to stave off downside risks, raise potential output, and improve living standards more broadly.

Nominal wage growth in most advanced economies remains markedly lower than it was before the Great Recession of 2008–09. This chapter finds that the bulk of the wage slowdown can be explained by labor market slack, inflation expectations, and trend productivity growth. While involuntary part-time employment may have helped support labor force participation and facilitated stronger engagement with the workplace, it also appears to have weakened wage growth. This is the case even in economies where measured slack appears low. 

Global temperatures have increased at an unprecedented pace over the past 40 years, and significant further warming could occur, depending on our ability to restrain greenhouse gas emissions. This chapter finds that increases in temperature have uneven macroeconomic effects, with adverse consequences concentrated in countries with relatively hot climates, such as most low-income countries. In these countries, a rise in temperature lowers per capita output, in both the short and medium term. Sound domestic policies and development alongside investment in adaptation strategies could help to some extent, but given the constraints faced by low-income countries, the international community must play a key role in supporting these countries’ efforts to cope with climate change.

Positive cross-country spillovers from collective fiscal action by the world’s largest economies helped speed the recovery from the global financial crisis nearly a decade ago. But fiscal spillovers still matter today and depend on circumstances in both the countries that generate and receive fiscal shocks. This chapter’s new research shows that fiscal spillovers tend to be low when a shock originates from a country without output gaps. But the impact intensifies when a source or recipient country is in recession and/or benefiting from accommodative monetary policy, suggesting that spillovers are large when domestic multipliers are also large.