AWorldBankGroupFlagshipReportJANUARY2024GlobalEconomicProspectsGlobalEconomicProspectsJANUARY2024GlobalEconomicProspects©2024InternationalBankforReconstructionandDevelopment/TheWorldBank1818HStreetNW,Washington,DC20433Telephone:202-473-1000;Internet:www.worldbank.orgSomerightsreserved123427262524ThisworkisaproductofthestaffofTheWorldBankwithexternalcontributions.Thefindings,interpretations,andconclusionsexpressedinthisworkdonotnecessarilyreflecttheviewsofTheWorldBank,itsBoardofExecutiveDirectors,orthegovernmentstheyrepresent.TheWorldBankdoesnotguaranteetheaccuracy,completeness,orcurrencyofthedataincludedinthisworkanddoesnotassumeresponsibilityforanyerrors,omissions,ordiscrepanciesintheinformation,orliabilitywithrespecttotheuseoforfailuretousetheinformation,methods,processes,orconclusionssetforth.Theboundaries,colors,denominations,andotherinformationshownonanymapinthisworkdonotimplyanyjudgmentonthepartofTheWorldBankconcerningthelegalstatusofanyterritoryortheendorsementoracceptanceofsuchboundaries.NothinghereinshallconstituteorbeconstruedorconsideredtobealimitationuponorwaiveroftheprivilegesandimmunitiesofTheWorldBank,allofwhicharespecificallyreserved.RightsandPermissionsThisworkisavailableundertheCreativeCommonsAttribution3.0IGOlicense(CCBY3.0IGO)http://creativecommons.org/licenses/by/3.0/igo.UndertheCreativeCommonsAttributionlicense,youarefreetocopy,distribute,transmit,andadaptthiswork,includingforcommercialpurposes,underthefollowingconditions:Attribution—Pleasecitetheworkasfollows:WorldBank.2024.GlobalEconomicProspects,January2024.Washington,DC:WorldBank.doi:10.1596/978-1-4648-2017-5.License:CreativeCommonsAttributionCCBY3.0IGOTranslations—Ifyoucreateatranslationofthiswork,pleaseaddthefollowingdisclaimeralongwiththeattribution:ThistranslationwasnotcreatedbyTheWorldBankandshouldnotbeconsideredanofficialWorldBanktranslation.TheWorldBankshallnotbeliableforanycontentorerrorinthistranslation.Adaptations—Ifyoucreateanadaptationofthiswork,pleaseaddthefollowingdisclaimeralongwiththeattribution:ThisisanadaptationofanoriginalworkbyTheWorldBank.ViewsandopinionsexpressedintheadaptationarethesoleresponsibilityoftheauthororauthorsoftheadaptationandarenotendorsedbyTheWorldBank.Third-partycontent—TheWorldBankdoesnotnecessarilyowneachcomponentofthecontentcontainedwithinthework.TheWorldBankthereforedoesnotwarrantthattheuseofanythird-party-ownedindividualcomponentorpartcontainedintheworkwillnotinfringeontherightsofthosethirdparties.Theriskofclaimsresultingfromsuchinfringementrestssolelywithyou.Ifyouwishtoreuseacomponentofthework,itisyourresponsibilitytodeterminewhetherpermissionisneededforthatreuseandtoobtainpermissionfromthecopyrightowner.Examplesofcomponentscaninclude,butarenotlimitedto,tables,figures,orimages.AllqueriesonrightsandlicensesshouldbeaddressedtoWorldBankPublications,TheWorldBankGroup,1818HStreetNW,Washington,DC20433,USA;e-mail:pubrights@worldbank.org.ISSN:1014-8906ISBN(paper):978-1-4648-2017-5ISBN(electronic):978-1-4648-2018-2DOI:10.1596/978-1-4648-2017-5Coverdesign:BillPragluski(CriticalStages)LibraryofCongressControlNumber:2023924021.ThecutoffdateforthedatausedinthereportwasDecember18,2023.SummaryofContentsAcknowledgments..............................................................................................................................xiiiForeword.............................................................................................................................................xvExecutiveSummary..........................................................................................................................xviiAbbreviations.....................................................................................................................................xixChapter1GlobalOutlook.......................................................................................................1Chapter2Box1.1Regionalperspectives:Outlookandrisks...................................................16Box1.2Recentdevelopmentsandoutlookforlow-incomecountries.....................24RegionalOutlooks.................................................................................................51EastAsiaandPacific...............................................................................................53EuropeandCentralAsia.........................................................................................59LatinAmericaandtheCaribbean...........................................................................67MiddleEastandNorthAfrica.................................................................................73SouthAsia..............................................................................................................81Sub-SaharanAfrica.................................................................................................87Chapter3TheMagicofInvestmentAccelerations.................................................................97Box3.1Sparkinginvestmentaccelerations:Lessonsfromcountrycasestudies.....119Chapter4FiscalPolicyinCommodityExporters:AnEnduringChallenge..........................149Box4.1Howdoesprocyclicalfiscalpolicyaffectoutputgrowth?.........................159Box4.2Dofiscalrulesandsovereignwealthfundsmakeadifference?Lessonsfromcountrycasestudies...........................................................171StatisticalAppendix...........................................................................................................................193SelectedTopics..................................................................................................................................200vContentsAcknowledgments.............................................................................................................................xiiiForeword.............................................................................................................................................xvExecutiveSummary...........................................................................................................................xviiAbbreviations.....................................................................................................................................xixChapter1GlobalOutlook......................................................................................................1Summary......................................................................................................................3Globalcontext..............................................................................................................8Globaltrade...........................................................................................................9Commoditymarkets............................................................................................10Globalinflation....................................................................................................11Globalfinancialdevelopments..............................................................................12Majoreconomies:Recentdevelopmentsandoutlook..................................................13Advancedeconomies............................................................................................13China...................................................................................................................15Emergingmarketanddevelopingeconomies..............................................................15Recentdevelopments............................................................................................20EMDEoutlook....................................................................................................20LICsoutlook........................................................................................................23Percapitaincomegrowth.....................................................................................23Globaloutlookandrisks.............................................................................................23Summaryofglobaloutlook..................................................................................23Riskstotheoutlook.............................................................................................29Policychallenges.........................................................................................................36Keyglobalchallenges............................................................................................36Challengesinemergingmarketanddevelopingeconomies...................................39References..................................................................................................................45Chapter2RegionalOutlooks................................................................................................51EastAsiaandPacific............................................................................................53Recentdevelopments...............................................................................................53Outlook..................................................................................................................54Risks........................................................................................................................56EuropeandCentralAsia.......................................................................................59Recentdevelopments.............................................................................................59Outlook.................................................................................................................60Risks......................................................................................................................62viiChapter2LatinAmericaandtheCaribbean.........................................................................67Chapter3Recentdevelopments.............................................................................................67Outlook.................................................................................................................67viiiRisks......................................................................................................................70MiddleEastandNorthAfrica...............................................................................73Recentdevelopments.............................................................................................73Outlook.................................................................................................................74Risks......................................................................................................................76SouthAsia.............................................................................................................81Recentdevelopments.............................................................................................81Outlook.................................................................................................................82Risks......................................................................................................................84Sub-SaharanAfrica..............................................................................................87Recentdevelopments.............................................................................................87Outlook.................................................................................................................88Risks......................................................................................................................90References...................................................................................................................94TheMagicofInvestmentAccelerations.................................................................97Introduction...............................................................................................................99Contributions.....................................................................................................100Mainfindings.....................................................................................................101Databaseandidentificationmethodology.................................................................102Database.............................................................................................................102Identificationmethodology................................................................................102Featuresofinvestmentaccelerations..........................................................................103Numberofaccelerations.....................................................................................103Distributionofaccelerationsovertimeandacrosscountries................................103Amplitudeanddurationofaccelerations.............................................................104Correlatesofinvestmentaccelerations.......................................................................105Outputgrowthanditsunderlyingchannels........................................................105Othermacroeconomicandfinancialcorrelates....................................................107Developmentoutcomes......................................................................................110Driversofinvestmentaccelerations...........................................................................110Initialconditions................................................................................................111Macroeconomicpoliciesandstructuralreforms..................................................112Institutionalquality............................................................................................113Robustness.........................................................................................................113Policiestostartinvestmentaccelerations...................................................................114Fiscalandmonetarypolicies...............................................................................114Structuralpolicies...............................................................................................115Chapter3Institutionalquality............................................................................................116Interventionsatthemicrolevel..........................................................................117Designingapolicypackage.................................................................................117Conclusion...............................................................................................................118Annex3.1Identificationofinvestmentaccelerations................................................132Annex3.2Methodologicalannex..............................................................................135Annex3.3Investmentaccelerationsusingdifferentfilteringalgorithms....................138Annex3.4Robustnessexercises.................................................................................139References.................................................................................................................142Chapter4FiscalPolicyinCommodityExporters:AnEnduringChallenge.........................149Introduction.............................................................................................................151Fiscalpolicyprocyclicality.........................................................................................154Conceptualdefinitions.......................................................................................154Determinantsoffiscalprocyclicality...................................................................156Fiscalpolicyvolatility...............................................................................................162Conceptualdefinitions.......................................................................................162Basicfeaturesoffiscalpolicyvolatility................................................................162Determinantsoffiscalvolatility..........................................................................164Implicationsoffiscalpolicyvolatilityforgrowth................................................165Linksbetweenprocyclicalityandvolatility..........................................................166Fiscalinstitutionsandframeworks............................................................................167Fiscalrules..........................................................................................................167Sovereignwealthfunds.......................................................................................168Medium-termexpenditureframeworks..............................................................168Institutionalqualityandgovernance...................................................................169Conclusions..............................................................................................................170Annex4.1Determinantsoffiscalprocyclicality........................................................179Annex4.2Linkagesbetweenfiscalpolicyvolatilityandeconomicgrowth.................181Annex4.3Additionaltables......................................................................................184References.................................................................................................................187StatisticalAppendix...........................................................................................................................193DataandForecastConventions.........................................................................................................199SelectedTopics..................................................................................................................................200Boxes1.1Regionalperspectives:Outlookandrisks.........................................................161.2Recentdevelopmentsandoutlookforlow-incomecountries...........................243.1Sparkinginvestmentaccelerations:Lessonsfromcountrycasestudies............1194.1Howdoesprocyclicalfiscalpolicyaffectoutputgrowth?................................159ixBoxes4.2Dofiscalrulesandsovereignwealthfundsmakeadifference?LessonsfromFigurescountrycasestudies.......................................................................................171x1.1Globaleconomicprospects............................................................................51.2Globaleconomicprospects(continued)..........................................................71.3Globaltrade..................................................................................................91.4Commoditymarkets...................................................................................101.5Globalinflation...........................................................................................111.6Globalfinancialdevelopments....................................................................121.7Majoreconomies:Recentdevelopmentsandoutlook··································14B1.1.1Regionaloutlooks.......................................................................................17B1.1.2Regionalrisks..............................................................................................181.8Recentdevelopmentsinemergingmarketanddevelopingeconomies..........211.9Outlookinemergingmarketanddevelopingeconomies.............................22B1.2.1LICs:Recentdevelopments.........................................................................25B1.2.2LICs:Outlookandrisks..............................................................................261.10Percapitaincomegrowth............................................................................291.11Globaloutlook............................................................................................301.12Riskstotheoutlook....................................................................................311.13Riskstotheoutlook(continued)..................................................................321.14Growthoutcomesunderalternativescenarios..............................................351.15Globalpolicychallenges..............................................................................371.16EMDEmonetarypolicychallenges.............................................................381.17EMDEfiscalpolicychallenges....................................................................401.18EMDEstructuralpolicychallenges.............................................................422.1.1China:Recentdevelopments.......................................................................542.1.2EAPexcludingChina:Recentdevelopments...............................................552.1.3EAP:Outlook.............................................................................................562.1.4EAP:Risks..................................................................................................572.2.1ECA:Recentdevelopments.........................................................................602.2.2ECA:Outlook............................................................................................612.2.3ECA:Risks..................................................................................................632.3.1LAC:Recentdevelopments.........................................................................682.3.2LAC:Outlook.............................................................................................692.3.3LAC:Risks..................................................................................................702.4.1MNA:Recentdevelopments.......................................................................742.4.2MNA:Outlook...........................................................................................752.4.3MNA:Risks................................................................................................762.5.1SAR:Recentdevelopments.........................................................................822.5.2SAR:Outlook.............................................................................................832.5.3SAR:Risks..................................................................................................85Figures2.6.1SSA:Recentdevelopments..........................................................................88Tables2.6.2SSA:Outlook............................................................................................892.6.3SSA:Risks..................................................................................................913.1Evolutionofinvestmentgrowth...............................................................1003.2Frequencyofinvestmentaccelerations......................................................1043.3Investmentgrowthduringaccelerations....................................................1053.4Publicversusprivateinvestmentduringinvestmentaccelerations..............1063.5Growthofoutputduringinvestmentaccelerations....................................1073.6ContributionstoGDPgrowthduringinvestmentaccelerations................1083.7Totalfactorproductivitygrowth,employmentgrowth,andsectoralshiftsaroundinvestmentaccelerations......................................................1093.8Macroeconomicindicatorsaroundinvestmentaccelerations.....................1103.9Developmentoutcomesduringinvestmentaccelerations...........................1113.10Initialconditionsandthestartofinvestmentaccelerations........................1123.11Policyimprovementsandthestartofinvestmentaccelerations..................1133.12Enablingfactorsforinvestmentaccelerations............................................1143.13Policypackagesandpotentialgrowth........................................................117B3.1.1InvestmentaccelerationsintheRepublicofKoreaandMalaysia...............120B3.1.2InvestmentaccelerationsinPolandandTürkiye.......................................122B3.1.3InvestmentaccelerationsinColombiaandUruguay..................................124B3.1.4InvestmentaccelerationsinChileandMorocco........................................126B3.1.5InvestmentaccelerationsinIndiaandUganda..........................................1274.1Commodities:Pricevolatilityandimportanceforexportsandrevenues....1524.2Procyclicalityofgovernmentexpenditures................................................1554.3Fiscalprocyclicalityandmacroeconomicfactorsincommodityexporters..1564.4Fiscalprocyclicality,fiscalrules,andinstitutionalfactors..........................158B4.1.1Theamplificationeffectofprocyclicalfiscalpolicyonoutput...................1604.5Fiscalpolicyvolatility................................................................................1634.6Exchangerateregimesandcapitalaccountopenness.................................1654.7Fiscalpolicyvolatilityandprocyclicality...................................................1664.8Fiscalvolatility,growth,andfiscalframeworks..........................................167B4.2.1Fiscalrules,fiscalexpenditures,andSWFsincommodityexporters..........172B4.2.2FiscalexpendituresandSWFsinChile,Botswana,andTimor-Leste........174B4.2.3Institutionalqualityandfiscalprocyclicality.............................................1761.1RealGDP.....................................................................................................4B1.2.1Low-incomecountryforecasts....................................................................271.2Emergingmarketanddevelopingeconomies..............................................442.1.1EastAsiaandPacificforecastsummary.......................................................582.1.2EastAsiaandPacificcountryforecasts........................................................582.2.1EuropeandCentralAsiaforecastsummary.................................................64xiTables2.2.2EuropeandCentralAsiacountryforecasts..................................................652.3.1LatinAmericaandtheCaribbeanforecastsummary...................................712.3.2LatinAmericaandtheCaribbeancountryforecasts....................................722.4.1MiddleEastandNorthAfricaforecastsummary........................................782.4.2MiddleEastandNorthAfricaeconomyforecasts.......................................792.5.1SouthAsiaforecastsummary......................................................................862.5.2SouthAsiacountryforecasts.......................................................................862.6.1Sub-SaharanAfricaforecastsummary.........................................................922.6.2Sub-SaharanAfricacountryforecasts..........................................................93B3.1.1Investmentandoutputgrowthduringandoutsideinvestmentaccelerations.............................................................................................129B3.1.2Economicindicatorsduringandoutsideinvestmentaccelerations............129B3.1.3Policychangesandreformsduringinvestmentaccelerations.....................130A3.1.1Investmentaccelerations:Distributionovercountrygroups......................133A3.1.2ListofinvestmentaccelerationsinEMDEs...............................................134A3.2.1Institutionalqualityandinitialconditionsasdriversofthelikelihoodofinvestmentaccelerations...........................................................................136A3.2.2Institutionalqualityandpoliciesasdriversofthelikelihoodofinvestmentaccelerations.............................................................................................137A3.3.1Investmentaccelerationsusingdifferentfilteringalgorithms.....................138A3.4.1Investmentaccelerationsusingdifferentdurationparameters....................139A3.4.2Investmentaccelerationsusingdifferentdurationandgrowthparameters................................................................................................140A3.4.3Baselineregressionswithadditionalcontrols.............................................141A3.4.4Baselineregressionsbasedoninvestmentgrowth(notinpercapitaterms)...........................................................................142A4.1.1Driversoffiscalprocyclicality...................................................................180A4.1.2Institutionaldriversoffiscalprocyclicality................................................180A4.1.3Outputgrowthandcommodityprices......................................................180A4.1.4Governmentspendingandcommodityprices...........................................181A4.2.1Determinantsoffiscalpolicyvolatility:Cross-sectionalregressions...........182A4.2.2Determinantsoffiscalpolicyvolatility;bytypeofcommodity..................183A4.2.3EffectsoffiscalpolicyvolatilityonGDPpercapitagrowth.......................183A4.3.1Listofeconomiesforanalysisoffiscalprocyclicalityandvolatility............184A4.3.2Variablesforanalysisoffiscalprocyclicality..............................................185A4.3.3Variablesforanalysisoffiscalpolicyvolatility...........................................186xiiAcknowledgmentsThisWorldBankFlagshipReportisaproductoftheProspectsGroupintheDevelopmentEconomics(DEC)VicePresidency.TheprojectwasmanagedbyM.AyhanKoseandCarlosArteta,underthegeneralguidanceofIndermitS.Gill.ThereportwaspreparedbyateamthatincludedLozziTeixeira,andwithextensivesupportfromMarieAlbert,FranciscoArroyoMarioli,JohntheWorldBank’smediaanddigitalcommunica-Baffes,BramGootjes,JongrimHa,SamuelHill,tionsteams.GraemeLittlerprovidededitorialReinaKawai,PhilipKenworthy,Jeetendrasupport,withcontributionsfromAdrianaMaxi-Khadan,DohanKim,EmilianoLuttini,JosephmilianoandMichaelHarrup.Mawejje,ValerieMercer-Blackman,AlenMu-labdic,NikitaPerevalov,DominikPeschel,Ker-TheprintpublicationwasproducedbyAdrianastenStamm,NaotakaSugawara,TakumaTanaka,Maximiliano,incollaborationwithCindyFisher,GarimaVasishtha,GuillermoVerduzco,ColletteMariaHazelMacadangdang,andJewelMcFadden.Wheeler,andShuYu.Regionalprojectionsandwrite-upswereproducedResearchassistancewasprovidedbyGuillermoincoordinationwithcountryteams,countryCaballero,MattiaCoppo,FrancoDiazLaura,directors,andtheofficesoftheregionalchiefJiayueFan,MariaHazelMacadangdang,Rafaelaeconomists.MartinhoHenriques,MuneebAhmadNaseem,VasilikiPapagianni,LorëzQehaja,JuanFelipeManyreviewersprovidedextensiveadviceandSerranoAriza,ShijieShi,KaltrinaTemaj,Urjacomments.Theanalysisalsobenefitedfromcom-SinghThapa,andJunchengZhou.ModelingandmentsandsuggestionsbystaffmembersfromdataworkwasprovidedbyShijieShi.WorldBankcountryteamsandotherWorldBankVicePresidenciesaswellasExecutiveDirectorsinOnlineproductswereproducedbyGraemeLit-theirdiscussionofthereportonDecember14,tler,withassistancefromtheOpenKnowledge2023.However,bothforecastsandanalysisareRepository.JoeRebellomanagedcommunicationsthoseoftheWorldBankstaffandshouldnotbeandmediaoutreachwithateamthatincludedattributedtoExecutiveDirectorsortheirnationalNanditaRoy,KristenMilhollin,andMarianaauthorities.xiiiForewordAmidabarrageofshocksduringthepastfourwithanincreaseinper-capitaincomegrowth,ayears,theglobaleconomyhasprovedtobesur-step-upinproductivity,andareductioninpov-prisinglyresilient.Majoreconomiesareemergingerty.Sincethe1950s,countriesacrosstheworldmostlyunscathedafterthefastestriseininteresthavemanagedtogeneratenearly200windfall-ratesin40years—withouttheusualscarsofsteepproducinginvestmentbooms—episodesinwhichunemploymentratesorfinancialcrashes.Globalper-capitainvestmentgrowthacceleratedto4inflationisbeingtamedwithouttippingthepercentormoreandstayedthereformorethanworldintoarecession.Itisrareforcountriestosixyears.Thesecretsauceforsparkingsuchepi-bringinflationratesdownwithouttriggeringasodeswasacomprehensivepolicypackage:con-downturn,butthistimea“softlanding”seemssolidationofgovernmentfinances,expansionofincreasinglypossible.tradeandfinancialflows,strongerfiscalandfinancialinstitutions,andabetterinvestmentYetbeyondthenexttwoyears,theoutlookisclimateforprivateenterprise.dark.Theendof2024willmarkthehalfwaypointofwhatwasexpectedtobeatransformativeIfeachdevelopingeconomythatengineeredsuchdecadefordevelopment—whenextremepovertyaninvestmentboominthe2000sand2010swerewastobeextinguished,whenmajorcommunica-torepeatthefeatinthe2020s,prospectsforblediseasesweretobeeradicated,andwhendevelopingeconomieswouldmoveathirdofthegreenhouse-gasemissionsweretobecutnearlyinwayclosertotheirfulleconomicpotential.Ifallhalf.Whatloomsinsteadisawretchedmilestone:developingeconomiesalsorepeatedtheirbest10-theweakestglobalgrowthperformanceofanyyearperformancetoimprovehealth,education,half-decadesincethe1990s,withpeopleinoneandlaborforceparticipation,theywouldcloseoutofeveryfourdevelopingeconomiespoorermostoftheremaininggap.Thatis,thepotentialthantheywerebeforethepandemic.growthindevelopingeconomiesinthe2020swouldbesimilartowhatitwasduringthe2010s.TheforecastsinGlobalEconomicProspectsimplythatmosteconomies—advancedaswellasdevel-Anadditionalavenueisopentothetwo-thirdsofoping—aresettogrowmoreslowlyin2024anddevelopingeconomiesthatrelyoncommodity2025thantheydidinthedecadebeforeCOVID-exports.Theycandobettersimplybyapplying19.GlobalgrowthisexpectedtoslowforathirdtheHippocraticprincipletofiscalpolicy:first,doyearinarow—to2.4percent—beforetickingupnoharm.Theseeconomiesarepronetodebilitat-to2.7percentin2025.Thoserates,however,ingboom-and-bustcyclesbecausecommoditywouldstillbefarbelowthe3.1percentaverageofpricescanriseorfallsuddenly.Theirfiscalpoli-the2010s.Per-capitainvestmentgrowthin2023ciestendtomakemattersworse.Fiscalprocycli-and2024isexpectedtoaveragejust3.7per-calityis30percentstrongerincommodity-cent—barelyhalftheaverageoftheprevioustwoexportingdevelopingeconomiesthanitisindecades.Withoutcorrectiveaction,globalgrowthotherdevelopingeconomies.Fiscalspendingwillremainwellbelowpotentialfortheremain-amongcommodityexportersalsotendstobe40derofthe2020s.percentmorevolatilethaninotherdevelopingeconomies.Butwhiletheforecastsinthisreportaredismal,itspolicyanalysisprovideshope.Theresultisachronicdragontheirgrowthprospects.ThedragcanbereducedbyputtinginThereportincludesthefirstsystematicassess-placeafiscalframeworktodisciplinegovernmentmentofwhatittakestogeneratethemostdesira-spending,adoptingflexibleexchange-ratesystems,blekindofinvestmentboom—onethatcomesxvandavoidingrestrictionsoninternationalmove-andamongcountries;…andtoensurethelastingmentsofcapital,amongotherthings.Ifinstitutedprotectionoftheplanetanditsnaturalresources.”asapackage,thesepolicymeasurescouldhelpBut2030isstillmorethanahalf-decadeaway.commodityexportersindevelopingeconomiesThatislongenoughforemergingmarketsandincreasepercapitaGDPgrowthby1percentagedevelopingeconomiestoregainsomeofthelostpointeveryfourorfiveyears.ground—iftheirgovernmentsactnow.The2020shavesofarbeenaperiodofbrokenIndermitS.Gillpromises.GovernmentsacrosstheworldhaveSeniorVicePresidentandChiefEconomistfallenshortofthe“unprecedented”goalstheypromisedtomeetby2030:“toendpovertyandTheWorldBankGrouphungereverywhere;tocombatinequalitieswithinxviExecutiveSummaryGlobalgrowthissettoslowfurtherthisyear,amidthelaggedandongoingeffectsoftightmonetarypolicy,restrictivefinancialconditions,andfeebleglobaltradeandinvestment.DownsideriskstotheoutlookincludeanescalationoftherecentconflictintheMiddleEastandassociatedcommoditymarketdisruptions,financialstressamidelevateddebtandhighborrowingcosts,persistentinflation,weaker-than-expectedactivityinChina,tradefragmentation,andclimate-relateddisasters.Againstthisbackdrop,policymakersaroundtheworldfaceenormouschallenges.Eventhoughinvestmentinemergingmarketanddevelopingeconomies(EMDEs)islikelytoremainsubdued,lessonslearnedfromepisodesofinvestmentgrowthaccelerationoverthepastsevendecadeshighlighttheimportanceofmacroeconomicandstructuralpolicyactionsandtheirinteractionwithwell-functioninginstitutionsinboostinginvestmentandthuslong-termgrowthprospects.Commodity-exportingEMDEsfaceauniquesetofchallengesamidfiscalpolicyprocyclicalityandvolatility.Thisunderscorestheneedforaproperlydesignedfiscalframeworkthat,combinedwithastronginstitutionalenvironment,canhelpbuildbuffersduringcommoditypriceboomsthatcanbedrawnuponduringsubsequentslumpsinprices.Atthegloballevel,cooperationneedstobestrengthenedtoprovidedebtrelief,facilitatetradeintegration,tackleclimatechange,andalleviatefoodinsecurity.Globaloutlook.Globalgrowthisexpectedtopoorestcountries;tackleclimatechangeandslowto2.4percentin2024—thethirdconsecu-fostertheenergytransition;facilitatetradeflows;tiveyearofdeceleration—reflectingthelaggedandalleviatefoodinsecurity.EMDEcentralandongoingeffectsoftightmonetarypoliciestobanksneedtoensurethatinflationexpectationsreinindecades-highinflation,restrictivecreditremainwellanchoredandthatfinancialsystemsconditions,andanemicglobaltradeandinvest-areresilient.Elevatedpublicdebtandborrowingment.Near-termprospectsarediverging,withcostslimitfiscalspaceandposesignificantsubduedgrowthinmajoreconomiesalongsidechallengestoEMDEs—particularlythosewithimprovingconditionsinemergingmarketandweakcreditratings—seekingtoimprovefiscaldevelopingeconomies(EMDEs)withsolidsustainabilitywhilemeetinginvestmentneeds.fundamentals.Meanwhile,theoutlookforCommodityexportersfacetheadditionalEMDEswithpronouncedvulnerabilitiesremainschallengeofcopingwithcommoditypriceprecariousamidelevateddebtandfinancingfluctuations,underscoringtheneedforstrongcosts.Downsideriskstotheoutlookpredomi-policyframeworks.Toboostlonger-termgrowth,nate.TherecentconflictintheMiddleEast,structuralreformsareneededtoacceleratecomingontopoftheRussianFederation’sinvestment,improveproductivitygrowth,andinvasionofUkraine,hasheightenedgeopoliticalclosegendergapsinlabormarkets.risks.Conflictescalationcouldleadtosurgingenergyprices,withbroaderimplicationsforRegionalprospects.Althoughsomeimprove-globalactivityandinflation.OtherrisksincludementsingrowthareexpectedinmostEMDEfinancialstressrelatedtoelevatedrealinterestregions,theoveralloutlookremainssubdued.rates,persistentinflation,weaker-than-expectedGrowththisyearisprojectedtosofteninEastgrowthinChina,furthertradefragmentation,AsiaandPacific—mainlyonaccountofslowerandclimatechange-relateddisasters.growthinChina—EuropeandCentralAsia,andSouthAsia.OnlyaslightimprovementinAgainstthisbackdrop,policymakersfacegrowth,fromaweakbasein2023,isexpectedforenormouschallengesanddifficulttrade-offs.LatinAmericaandtheCaribbean.MoremarkedInternationalcooperationneedstobestrength-pickupsingrowthareprojectedfortheMiddleenedtoprovidedebtrelief,especiallyfortheEastandNorthAfrica,supportedbyincreasedoilxviiproduction,andSub-SaharanAfrica,reflectingwereparticularlyconducivetosparkinginvest-recoveryfromrecentweakness.In2025,growthmentaccelerationswhencombinedwithwell-isprojectedtostrengtheninmostregionsasthefunctioninginstitutions.Abenignexternalglobalrecoveryfirms.environmentalsoplayedacrucialroleincatalyz-inginvestmentaccelerationsinmanycases.TheMagicofInvestmentAccelerations.Invest-mentpowerseconomicgrowth,helpsdrivedownFiscalPolicyinCommodityExporters:Anpoverty,andwillbeindispensablefortacklingEnduringChallenge.Fiscalpolicyhasbeenclimatechangeandachievingotherkeydevelop-about30percentmoreprocyclicalandabout40mentgoalsinemergingmarketanddevelopingpercentmorevolatileincommodity-exportingeconomies(EMDEs).Withoutfurtherpolicyemergingmarketanddevelopingeconomiesaction,investmentgrowthintheseeconomiesis(EMDEs)thaninotherEMDEs.Bothprocycli-likelytoremaintepidfortheremainderofthiscalityandvolatilityoffiscalpolicy—whichsharedecade.Butitcanbeboosted.Thischapterofferssomeunderlyingdrivers—hurteconomicgrowththefirstcomprehensiveanalysisofinvestmentbecausetheyamplifybusinesscycles.Structuralaccelerations—periodsinwhichthereisapolicies,includingexchangerateflexibilityandsustainedincreaseininvestmentgrowthtoatheeasingofrestrictionsoninternationalrelativelyrapidrate—inEMDEs.Duringthesefinancialtransactions,canhelpreducebothfiscalepisodesoverthepastsevendecades,investmentprocyclicalityandfiscalvolatility.Byadoptinggrowthtypicallyjumpedtomorethan10percentaverageadvanced-economypoliciesregardingperyear,whichismorethanthreetimestheexchangerateregimes,restrictionsoncross-growthrateinother(non-acceleration)years.borderfinancialflows,andtheuseoffiscalrules,Countriesthathadinvestmentaccelerationsoftencommodity-exportingEMDEscanincreasetheirreapedaneconomicwindfall:outputgrowthGDPpercapitagrowthbyabout1percentageincreasedbyabout2percentagepointsandpointeveryfourtofiveyearsthroughtheproductivitygrowthincreasedby1.3percentagereductioninfiscalpolicyvolatility.Suchpoliciespointsperyear.Otherbenefitsalsomaterializedshouldbesupportedbysustainable,well-inthemajorityofsuchepisodes:inflationfell,designed,andstability-orientedfiscalinstitutionsfiscalandexternalbalancesimproved,andthethatcanhelpbuildbuffersduringcommoditynationalpovertyratedeclined.Mostaccelerationspriceboomstoprepareforanysubsequentslumpfollowed,orwereaccompaniedby,policyshiftsinprices.Astrongcommitmenttofiscaldisci-intendedtoimprovemacroeconomicstability,plineiscriticalfortheseinstitutionstobestructuralreforms,orboth.Thesepolicyactionseffectiveinachievingtheirobjectives.xviiiAbbreviationsAEadvancedeconomyCACentralAsiaCECentralEuropeCPIconsumerpriceindexEAPEastAsiaandPacificECAEuropeandCentralAsiaECBEuropeanCentralBankEEEasternEuropeEMBIEmergingMarketBondIndex(J.P.Morgan)EMDEsemergingmarketanddevelopingeconomiesEUEuropeanUnionFDIforeigndirectinvestmentFYfiscalyearG20GroupofTwenty(Argentina,Australia,Brazil,Canada,China,France,Germany,India,Indonesia,Italy,Japan,theRepublicofKorea,Mexico,theRussianFederation,SaudiGCCArabia,SouthAfrica,Türkiye,theUnitedKingdom,theUnitedStates,theEuropeanGDPUnion,andtheAfricanUnion)GEPGulfCooperationCouncilGFCgrossdomesticproductGNFSGlobalEconomicProspectsIMFglobalfinancialcrisisLACgoodsandnonfactorservicesLICInternationalMonetaryFundMNALatinAmericaandtheCaribbeanOECDlow-incomecountryOPECMiddleEastandNorthAfricaOPEC+OrganisationforEconomicCo-operationandDevelopmentOrganizationofthePetroleumExportingCountriesPMIOPECandAzerbaijan,Bahrain,BruneiDarussalam,Kazakhstan,Malaysia,Mexico,PPPOman,theRussianFederation,SouthSudan,andSudanRHSpurchasingmanagers’indexSARpurchasingpowerparitySCCright-handscaleSOESouthAsiaSSASouthCaucasusTFPstate-ownedenterpriseWAEMUSub-SaharanAfricaWDItotalfactorproductivityWestAfricanEconomicandMonetaryUnionWorldDevelopmentIndicatorsxixCHAPTER1GLOBALOUTLOOKGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER13Globalgrowthisexpectedtoslowto2.4percentin2024—thethirdconsecutiveyearofdeceleration—reflectingthelaggedandongoingeffectsoftightmonetarypoliciestoreinindecades-highinflation,restrictivecreditconditions,andanemicglobaltradeandinvestment.Near-termprospectsarediverging,withsubduedgrowthinmajoreconomiesalongsideimprovingconditionsinemergingmarketanddevelopingeconomies(EMDEs)withsolidfundamentals.Meanwhile,theoutlookforEMDEswithpronouncedvulnerabilitiesremainsprecariousamidelevateddebtandfinancingcosts.Downsideriskstotheoutlookpredominate.TherecentconflictintheMiddleEast,comingontopoftheRussianFederation’sinvasionofUkraine,hasheightenedgeopoliticalrisks.Conflictescalationcouldleadtosurgingenergyprices,withbroaderimplicationsforglobalactivityandinflation.Otherrisksincludefinancialstressrelatedtoelevatedrealinterestrates,persistentinflation,weaker-than-expectedgrowthinChina,furthertradefragmentation,andclimatechange-relateddisasters.Againstthisbackdrop,policymakersfaceenormouschallengesanddifficulttrade-offs.Internationalcooperationneedstobestrengthenedtoprovidedebtrelief,especiallyforthepoorestcountries;tackleclimatechangeandfostertheenergytransition;facilitatetradeflows;andalleviatefoodinsecurity.EMDEcentralbanksneedtoensurethatinflationexpectationsremainwellanchoredandthatfinancialsystemsareresilient.ElevatedpublicdebtandborrowingcostslimitfiscalspaceandposesignificantchallengestoEMDEs—particularlythosewithweakcreditratings—seekingtoimprovefiscalsustainabilitywhilemeetinginvestmentneeds.Commodityexportersfacetheadditionalchallengeofcopingwithcommoditypricefluctuations,underscoringtheneedforstrongpolicyframeworks.Toboostlonger-termgrowth,structuralreformsareneededtoaccelerateinvestment,improveproductivitygrowth,andclosegendergapsinlabormarkets.Summarycreditratings,remainingclosetopre-pandemicaveragerates.AlthoughoverallgrowthisalsoGlobaleconomicactivitycontinuestosoften,expectedtofirmsomewhatfromits2023lowinamidtheeffectsoftightmonetarypolicies,EMDEswithweakcreditratings,theoutlookforrestrictivefinancialconditions,andweakglobalmanysuchcountriesremainsprecarious,giventradegrowth.Afterasharpslowdownin2022andelevateddebtandfinancingcosts,andidiosyncrat-anotherdeclinelastyear,globaloutputgrowthisicheadwindssuchasconflict.settoedgedownin2024,markingthethirdconsecutiveyearofdeceleration.TherecentGlobalheadlineandcoreinflationhavecontinuedconflictintheMiddleEasthasheightenedtodeclinefrom2022peaks.Nonetheless,inflationgeopoliticalrisksandraiseduncertaintyinremainsabovetargetinmostadvancedeconomiescommoditymarkets,withpotentialadverseandabouthalfofinflation-targetingEMDEs.implicationsforglobalgrowth.ThiscomeswhileGlobalinflationisprojectedtoremainaboveitstheworldeconomyiscontinuingtocopewiththe2015-19averagebeyond2024(figure1.1.B).lingeringeffectsoftheoverlappingshocksoftheMonetarytighteninginadvancedeconomiesispastfouryears—theCOVID-19pandemic,theconcluding,butrealpolicyinterestratesareRussianFederation’sinvasionofUkraine,andtheexpectedtoremainelevatedforsometime,asriseininflationandsubsequentsharptighteninginflationreturnstotargetonlygradually.Thiswillofglobalmonetaryconditions.keepthestanceofadvanced-economymonetarypoliciesrestrictiveinthenear-term,followingtheNear-termprospectsarediverging(figure1.1.A).largestandfastestincreaseinU.S.realpolicyratesGrowthinadvancedeconomiesasawholeandinsincetheearly1980s(figure1.1.C).Chinaisprojectedtoslowin2024towellbelowits2010-19averagepace.Meanwhile,aggregateLong-termyieldsonadvanced-economygrowthissettoimproveinEMDEswithstronggovernmentbondswerevolatilein2023,reflectingshiftingexpectationsaboutthepathofNote:ThischapterwaspreparedbyCarlosArteta,PhilfutureinterestratesandsizablemovementsinKenworthy,NikitaPerevalov,GarimaVasishtha,andCollettetermpremia.AlthoughyieldshaveretreatedfromWheeler,withcontributionsfromJohnBaffes,SamuelHill,Alentheirlate-Octoberpeaks,theystillimplyincreasedMulabdic,DominikPeschel,andTakumaTanaka.fiscalvulnerabilities,giventhatmedianglobal4CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024TABLE1.1RealGDP1PercentagepointdifferencesfromJune2023projections(Percentchangefrompreviousyearunlessindicatedotherwise)World202120222023e2024f2025f2023e2024f2025fAdvancedeconomies6.23.02.62.42.7UnitedStates5.52.51.51.21.60.50.0-0.3Euroarea5.81.92.51.61.70.80.0-0.6Japan5.93.40.40.71.61.40.8-0.6Emergingmarketanddevelopingeconomies2.61.01.80.90.80.0-0.6-0.7EastAsiaandPacific7.03.74.03.94.01.00.20.2China7.53.45.14.54.40.00.00.0Indonesia8.43.05.24.54.3-0.4-0.1-0.1Thailand3.75.35.04.94.9-0.4-0.1-0.1EuropeandCentralAsia1.52.62.53.23.10.10.0-0.1RussianFederation7.11.22.72.42.7-1.4-0.4-0.3Türkiye5.6-2.12.61.30.91.3-0.30.0Poland11.45.54.23.13.92.80.10.1LatinAmericaandtheCaribbean6.95.10.52.63.41.0-1.2-0.2Brazil7.23.92.22.32.5-0.20.00.2Mexico5.02.93.11.52.20.70.3-0.1Argentina5.83.93.62.62.11.90.1-0.2MiddleEastandNorthAfrica10.75.0-2.52.73.21.10.70.1SaudiArabia3.85.81.93.53.5-0.50.41.2Iran,IslamicRep.23.98.7-0.54.14.2-0.30.20.5Egypt,ArabRep.24.73.84.23.73.2-2.70.81.7SouthAsia3.36.63.83.53.92.01.71.3India28.35.95.75.65.9-0.2-0.5-0.8Bangladesh29.17.26.36.46.5-0.20.5-0.5Pakistan26.97.16.05.65.80.00.00.0Sub-SaharanAfrica5.86.2-0.21.72.40.8-0.6-0.6Nigeria4.43.72.93.84.1-0.6-0.3-0.6SouthAfrica3.63.32.93.33.7-0.3-0.10.1Angola4.71.90.71.31.50.10.30.61.23.00.52.83.10.4-0.2-0.1Memorandumitems:-2.1-0.50.05.52.81.51.31.8RealGDP17.23.44.34.04.00.70.0-0.5High-incomecountries4.24.83.55.55.6Middle-incomecountries6.04.23.23.53.80.10.0-0.1Low-incomecountries5.23.22.52.93.1EMDEsexcludingChina7.93.94.84.44.4-1.7-0.5-0.4Commodity-exportingEMDEs7.25.34.24.24.5Commodity-importingEMDEs7.83.34.94.14.10.30.10.0Commodity-importingEMDEsexcludingChina6.43.33.02.93.1EM711.15.60.22.33.10.60.10.2World(PPPweights)3108.4104.9102.2-0.20.0-0.1Worldtradevolume4107.5103.4100.083.181.078.00.00.0-0.3110.2107.7106.60.20.0-0.10.30.0-0.3-1.5-0.50.1Commodityprices5LeveldifferencesfromJune2023projectionsWBGcommoditypriceindex100.9142.5-1.0-3.7-7.6Energyindex95.4152.670.499.8-1.4-5.7-11.0Oil(US$perbarrel)112.1122.1Non-energyindex3.1-1.0-6.4-0.20.2-0.9Source:WorldBank.Note:e=estimate;f=forecast.EM7=Brazil,China,India,Indonesia,Mexico,theRussianFederation,andTürkiye.WBG=WorldBankGroup.WorldBankforecastsarefrequentlyupdatedbasedonnewinformation.Consequently,projectionspresentedheremaydifferfromthosecontainedinotherWorldBankdocuments,evenifbasicassessmentsofcountries’prospectsdonotdifferatanygivendate.ForthedefinitionofEMDEs,developingcountries,commodityexporters,andcommodityimporters,pleaserefertotable1.2.TheWorldBankiscurrentlynotpublishingeconomicoutput,income,orgrowthdataforTurkmenistanandRepúblicaBolivarianadeVenezuelaowingtolackofreliabledataofadequatequality.TurkmenistanandRepúblicaBolivarianadeVenezuelaareexcludedfromcross-countrymacroeconomicaggregates.1.HeadlineaggregategrowthratesarecalculatedusingGDPweightsataverage2010-19pricesandmarketexchangerates.2.GDPgrowthratesareonafiscalyearbasis.Aggregatesthatincludethesecountriesarecalculatedusingdatacompiledonacalendaryearbasis.ForIndiaandtheIslamicRepublicofIran,thecolumnfor2022referstoFY2022/23.ForBangladesh,theArabRepublicofEgypt,andPakistan,thecolumnfor2022referstoFY2021/22.Pakistan'sgrowthratesarebasedonGDPatfactorcost.3.Worldgrowthratesarecalculatedusingaverage2010-19purchasingpowerparity(PPP)weights,whichattributeagreatershareofglobalGDPtoemergingmarketanddevelopingeconomies(EMDEs)thanmarketexchangerates.4.Worldtradevolumeofgoodsandnonfactorservices.5.IndexesareexpressedinnominalU.S.dollars(2010=100).OilreferstotheBrentcrudeoilbenchmark.The“LeveldifferencesfromJune2023projections”(lastthreecolumns)arebasedonanupdatednon-energyindex,whichdiffersslightlyfromwhatwasreportedintheJune2023edition.Forweightsandcompositionofindexes,seehttps://worldbank.org/commodities.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER15governmentdebthasrisenby20percentagepointsFIGURE1.1GlobaleconomicprospectsofGDPsince2007,whenU.S.yieldswerelastattheircurrentlevels.ThedragongrowthfromGrowthratesinadvancedeconomiesasawholeandinChinaaremonetarytighteningisexpectedtopeakin2024projectedtoslowin2024towellbelowtheir2010-19averagepaces.inmostmajoreconomies,assuminganorderlyAlthoughgrowthisforecasttofirmslightlyinmanyEMDEs,itwillremainevolutionofbroaderfinancialconditions.Thusbelowpre-pandemicaverageratesincountrieswithweakcreditratings.far,headwindstogrowthfromelevatedinterestGlobalinflationisprojectedtocontinuerecedingonlygradually,asrateshavebeenoffset,tosomedegree,bydemandsoftens.Advanced-economymonetarypoliciesareexpectedtohouseholdsandfirmsspendingoutofsavingsremaintight—includingintheUnitedStates,followingthelargestandbuffers,resilientriskappetite,andextendedfastestincreaseinrealpolicyratessincetheearly1980s.Globaltrade,maturitiesonstocksoflow-costdebt,aswellasbyvirtuallystagnantin2023,issettoresumeslowgrowthin2024.Inall,2020-expansionaryfiscalpolicyinsomecases,most24markstheweakeststarttoadecadeforglobalgrowthsincethe1990s.notablytheUnitedStates.RisinginterestrateshavedrivenborrowingcostswellabovenominalgrowthratesinmanyEMDEs,particularlythosewithweakerGlobaltradegrowthin2023wastheslowestcreditworthiness,squeezingfiscalspace.outsideglobalrecessionsinthepast50years,withgoodstradecontractingamidanemicglobalA.Growth,byeconomyandEMDEB.Globalconsumerpriceinflationindustrialproduction.Servicestradehascontinuedcreditratingtorecoverfromtheeffectsofthepandemic,butataslowerpacethanpreviouslyexpected.GlobalPercent2023e2024f2010-19averagePercent90percent2015-19averagetradegrowthisprojectedtopickupto2.3percent810Jun-23Jan-24in2024,partlyreflectingarecoveryofdemandfor6goodsand,morebroadly,inadvanced-economy48trade(figure1.1.D).2604TherecentconflictintheMiddleEasthassofar2hadonlyamutedimpactoncommodityprices.InAdvanced02023asawhole,mostcommoditypriceseconomiesweakenedtovaryingdegrees;however,theyremainabovepre-pandemiclevels.DespiterecentUnitedvolatilitytriggeredmainlybytheconflict,andStatesassuminghostilitiesdonotescalate,averageoilpricesin2024areprojectedtoedgedownasEuroglobalgrowthweakensandoilproductionareaincreases.MetalpricesaresettodeclineagainasChinatheslowergrowthinChinafurtherweighsonStrongermetaldemand.FoodpricesareexpectedtosoftenWeakerfurtherthisyearamidamplesuppliesformajor19Q4cropsbutremainelevated.20Q220Q4Againstthisbackdrop,globalgrowthisestimated21Q2tohaveweakenedlastyearto2.6percent(table21Q41.1).Althoughthisis0.5percentagepointhigher22Q2thanlastJune’sforecast,itismainlyduetobetter-22Q4than-expectedgrowthintheUnitedStates.Global23Q2growthisforecasttoslowagain,to2.4percent23Q4in2024.Thisdecelerationreflectssoftening24Q2labormarkets,reducedsavingsbuffers,waning24Q4pent-updemandforservices,thelaggedeffectsof25Q2monetarytightening,andfiscalconsolidation.25Q4EMDEcreditratingC.U.S.realinterestratecyclesD.ContributionstoglobaltradegrowthPercentagepointsPercentagepointsPercentagepointsEMDEsPercent1.55515Magnitude4Speed,perquarter(RHS)Advancedeconomies43World(RHS)101.032250.5110001979Q2-0.0-1-11981Q32010-192023e2025f1982Q4-2024f1984Q31987Q1-average1989Q11993Q2-2000Q32004Q2-2007Q12011Q2-2019Q12022Q1-2023Q3E.GlobalgrowthF.EMDEbondyieldsminusnominalgrowthratesPercent4Percentagepoints3210EMDEs10Investmentgrade5Non-investmentgrade0-51990-94-101995-992000-042005-092010-142015-192020-242004201020162023Sources:ConsensusEconomics;FederalReserveBankofSt.Louis;J.P.Morgan;Moody’sAnalytics;OxfordEconomics;WorldBank.Note:e=estimate;f=forecast;CPI=consumerpriceindex;EMBI=EmergingMarketBondIndex;EMDEs=emergingmarketanddevelopingeconomies.GDPaggregatescalculatedusingrealU.S.dollarGDPweightsataverage2010-19pricesandmarketexchangerates.CreditratingsareMoody’ssovereignforeigncurrencyratings.A.EMDEaggregatesshowthemedian.“Stronger”isdefinedascreditratingsofBandabove.“Weaker”isdefinedasratingsofCaaandbelow.B.Model-basedGDP-weightedprojectionsofcountry-levelinflationusingOxfordEconomics’GlobalEconomicModel,usingglobaloilpriceforecastsfromtable1.1.UncertaintybandsarethedistributionofforecasterrorsfortotalCPIfromConsensusEconomicsforanunbalancedpanelof18economies.C.“Magnitude”isthetrough-to-peakchangeand“speed”istheaveragechangeperquarterduringperiodsofrisingrealrates.RealrateistheU.S.policyrateminusone-year-aheadexpectedinflationfromconsumersurveys,adjustedforpersistenterrors.D.Tradeingoodsandservicesismeasuredastheaverageofexportandimportvolumes.F.LinesshowmediansofannualaverageU.S.dollarbondyieldsminustrailing10-yearaveragesofnominalGDPgrowthinU.S.dollars.BondyieldsareconstructedbyaddingEMBIsovereignspreadstotheU.S.10-yearyield.Unbalancedpanelofupto61EMDEs.6CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024Over2020-24,theforecastentailstheweakestmentandproductivitygrowth,slowinglaborforcestarttoadecadeforglobalgrowthsincegrowthamidpopulationaging,andthediminish-the1990s—anotherperiodcharacterizedbyinggrowthbenefitsofimprovementsineducationgeopoliticalstrainsandaglobalrecession(figureandhealth(KoseandOhnsorge2023).1.1.E;Kose,Sugawara,andTerrones2020).Globalgrowthisprojectedtopickupto2.7AggregateEMDEoutputisprojectedtocontinuepercentin2025,asinflationcontinuestoslow,followingalowerpaththanwasexpectedbeforeinterestratesdecline,andtradegrowthfirms.thepandemic.Assuch,progressclosingthegapinpercapitaincomewithadvancedeconomieswillAdvanced-economygrowthissettobottomoutatremainlimited,withEMDEsexcludingChina1.2percentin2024asgrowthintheUnitedandIndiamakingnorelativegainsbetween2019Statesslows,whileeuroareagrowth,whichwasand2025(figure1.2.A).ManyvulnerableEMDEsfeeblelastyear,picksupslightlyaslowerinflationarefallingfurtherbehind—thisyear,percapitaboostsrealwages.In2025,growthinadvancedincomeisforecasttobebelowits2019levelineconomiesisforecasttopickupto1.6percentasoveronethirdofLICsandmorethanhalfoftheeuroareacontinuestorecoverandU.S.countriesmarredbyfragilityandconflict(figuregrowthedgesuptowarditslong-termtrendrate1.2.B).amiddeclininginflationandmoresupportivemonetarypolicy.Riskstotheoutlookremaintiltedtothedownside,althoughtheyhavebecomesomewhatGrowthinEMDEsisforecasttoaverage3.9morebalancedsinceJune,followingcontinuedpercentayearover2024-25.China’sgrowthisdeclinesininflationandthestabilizationofexpectedtoslownotablythisyear,astepidadvanced-economybankingsystemsafterstressesconsumersentimentandacontinueddownturninearlylastyear.TherecentconflictintheMiddlethepropertysectorweighondemandandactivity.East,comingontopofRussia’sinvasionofExcludingChina,EMDEgrowthissettofirmUkraine,hassharplyheightenedgeopoliticalrisksfrom3.2percentin2023to3.5percentthisyear(figure1.2.C).Intensificationoftheseconflicts,orand3.8percentin2025.Thispickupreflectsaincreasinggeopoliticaltensionselsewhere,couldreboundintradeandimprovingdomesticdemandhaveadverseglobalrepercussionsthroughinseverallargeeconomies,asinflationcontinuescommodityandfinancialmarkets,trade,andtorecede.Nonetheless,elevatedborrowingcostsconfidence.RecentattacksoncommercialvesselswillcontinuetosqueezefiscalspaceinEMDEs:transitingtheRedSeahavealreadystartedtoU.S.dollar-denominatedbondyieldsarewelldisruptkeyshippingroutes,erodingslackinabovethegrowthratesofnominalGDPinmanysupplynetworksandincreasingthelikelihoodofcountries,especiallythosewithweakercreditwor-inflationarybottlenecks.Inasettingofescalatingthiness(figure1.1.F).Althoughgrowthinlow-conflicts,energysuppliescouldalsobesubstantial-incomecountries(LICs)isforecasttofirm,thislydisrupted,leadingtoaspikeinenergyprices.willfollowafeeblerecoveryfrom2020,withThiswouldhavesignificantspilloverstootherviolenceandpoliticalinstabilityinsomecountriescommoditypricesandheightengeopoliticalandcurtailingactivitylastyear.economicuncertainty,whichinturncoulddampeninvestmentandleadtoafurtherInall,theEMDErecoveryfromthe2020weakeningofgrowth.pandemicrecessionremainsmodest.ThisreflectsthenegativeeffectsofheadwindssuchastightMoreover,arangeofpossibledevelopments—globalfinancialconditions,aweakrecoveryinincludingunexpectedlystubborninflationinglobaltrade,sharpdomesticmonetarytighteningadvancedeconomiesrequiringhigherinterestratestotameinflation,themarkedslowdowninChina,thanassumed,orrisingtermpremiainbondandincreasedconflict.Italsoreflectsthelonger-yields—couldprecipitateasouringofriskappetitetermdowntrendinEMDEpotentialgrowth,inglobalfinancialmarketsandasharptighteningincludinginChina,duetodeceleratinginvest-offinancialconditions,withadverseeffectsonGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER17EMDEs.Weaker-than-projectedgrowthinChinaFIGURE1.2Globaleconomicprospects(continued)couldcauseasharperdecelerationinglobaleconomicactivitythanexpected.TheslowdownEMDEsaresettomakelimitedprogresscatchinguptoadvanced-inglobalpotentialgrowthcouldbeexacerbatedbyeconomylevelsofpercapitaincome;excludingChinaandIndia,nofurtherincreasesintraderestrictionsandrelativegainsareprojectedbetween2019and2025.ManyvulnerableescalatingfragmentationoftradeandinvestmentEMDEsarefallingfurtherbehind—percapitaincomeisforecasttoremainnetworks.Furthermore,theadverseeffectsofbelowits2019levelthisyearinone-thirdofLICsandhalfofeconomiesclimatechangecouldworsenbeyondcurrentfacingfragileandconflict-affectedsituations.Therecentconflictintheexpectations,withchangingweatherpatternsMiddleEasthasheightenedgeopoliticalrisks,andanescalationcouldcontributingtomorefrequentandseverenaturaldisruptgoodsandcommoditiestradeandglobalgrowth.Climatechange-disasters,aswellasworseningtheincidenceofrelatednaturaldisasterscouldincreaseextremepoverty.Theextremepoverty(figure1.2.D).materializationofdownsideriskswouldleadtoweakerglobalgrowthrelativetobaselineprojections.EMDEswithweakcreditratingshaveOntheupside,resilienteconomicactivityandalreadyseenfinancialpressurescrystalizeandlackaccesstointernationaldeclininginflationintheUnitedStatescouldbebondmarkets.sustained,eveninthefaceofsubstantialheadwinds,ifaidedbyfurtherlaborsupplyA.ChangeinpercapitaincomeB.ShareofEMDEswithlowerGDPimprovements.Thereisthereforeapossibilitythatrelativetoadvancedeconomiessincepercapitain2024thanin2019U.S.growthcontinuestobestrongerthan2019projectedaspricepressuresrecedeandmonetaryPercentofcountriespolicyiseased,whichwouldbolsterglobalIndex,0=201970activity.30China60IfanyoftheaforementioneddownsideriskswereIndiatomaterialize,theycouldleadtoweakergrowth20EMDEsexcl.ChinaandIndia50thanprojectedinthebaseline.Alternativedownsidescenarios—includinghigheroilpricesFCS40duetoanescalationofgeopoliticaltensions,10financialstressinEMDEsthatleadstosurgingsovereignspreads,andweakergrowthinChina030resultinginadverseglobalspilloversviacommodi-tyandotherchannels—showthatineachcase20globalgrowthin2024wouldbereducedby0.2percentagepointbelowthebaseline(figure1.2.E).-1010Incontrast,anupsidescenariowithhigher-than-expectedU.S.growthduetocontinuingstrong-200supplyconditionscouldboostglobalgrowthby20190.2percentagepointthisyear.20212023e2025fEMDEsLICsFCSTheweakglobalgrowthoutlookandthevariousC.GeopoliticalriskindexandD.Impactofclimatechangeondownsideriskshighlightthechallengesfacingconflictsextremepovertyby2030policymakersaroundtheworld.Atthegloballevel,coordinatedimprovementsindebtrelief,Index,100=1985-2019LatestconflictintheMillionsofpeopleNaturaldisastersandespeciallyforthepoorestcountries,willbeMiddleEast105hazardsnecessarytofreeupresourcesforgrowth-Laborproductivityenhancinginvestmentsinhumanandphysical8009/11attackLibyancivilwarInvasionof90capital.Otherwise,mountingdebt-servicecostsUkraine75HealthandslowprogressindebtrestructuringcouldexacerbatethedifficultiesfacingmanyEMDEs.600Already,abouthalfofLICsandmanymiddle-60Agricultureproductivity400U.S.air45andfoodpricechannel200strikeonBaghdad301500Minimum-impactMaximum-impactclimatechange2000climatechange2002scenarioscenario20052007201020122015201820202023E.ChangesinglobalgrowthunderF.Governmentbondissuancebyalternativescenariosnon-investment-gradeEMDEsPercentagepointdeviation2024US$,billionsBa-BCaa-Cfrombaseline20251200.3800.2400.1WeakerStronger00.0ChinaU.S.1990-0.119931996-0.219992002-0.32005HigheroilFinancial2008pricestress20112014201720202023Sources:CaldaraandIacoviello(2022);Dealogic;Jafinoetal.(2020);Moody’sAnalytics;OxfordEconomics;UNWorldPopulationProspects;WorldBank.Note:e=estimate;f=forecast;AEs=advancedeconomies;EMDEs=emergingmarketanddevelopingeconomies;FCS=fragileandconflict-affectedsituations;LICs=low-incomecountries.GDPaggregatesarecalculatedusingrealU.S.dollarGDPweightsataverage2010-19pricesandmarketexchangerates.GDPpercapitaaggregatesarecalculatedasaggregatedGDPdividedbytheaggregatepopulation.A.DatashowpercentagepointdifferencesrelativetothepercentchangeinGDPpercapitainAEs.C.Geopoliticalriskindexreflectsanautomatedtext-searchofelectronicarticlesfrom10newspapers,relatedtoadversegeopoliticalevents.LastobservationisDecember11,2023.D.Numberofadditionalpeopleinextremepovertyin2030duetoclimatechangefromJafinoetal.(2020).Climatechangeisintroducedtobaselinescenarios,withtheminimumandmaximumimpactsrepresentingtheuncertaintysurroundingphysicalimpactsandlocaladaptationpolicies.E.Panelshowsthedeviationinglobalgrowthunderalternativescenariosrelativetothebaseline.ScenariosareproducedusingtheOxfordEconomics’GlobalEconomicModel.F.Panelshowsrolling12-monthtotalsforbondissuancebyEMDEgovernments,categorizedbyMoody’slong-termforeigncurrencysovereigncreditratings.LastobservationisNovember2023.8CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024incomecountriesareeitherin,orathighriskof,ratings,thesepressureshavealreadycrystallizeddebtdistress.Enhancedinternationalcooperationsuchthatinternationalcapitalmarketshaveisalsorequiredtotackletheexistentialthreatofeffectivelybeenclosedtothemfortwoyearsclimatechange,includingbyacceleratingtheclean(figure1.2.F).Inthefaceofexigentborrowingenergytransition,helpingcountriesimprovecosts,governmentsinEMDEs,includingLICs,energysecurityandaffordability,andincentivizingneedtoscaleuprevenuemobilizationandtheinvestmentsneededtopursueapathtowardspendingefficiencyandbolsterdebtmanagement.resilient,low-carbongrowth.Inaddition,theMeasurestostrengthengovernmentinstitutionsglobalcommunityneedstoguardagainstthemorebroadlycansupporttheseefforts.fragmentationoftradeandinvestmentnetworks,includingbyprioritizingarules-basedinternation-Commodity-exportingEMDEsfaceparticularaltradingsystemandexpandingtradeagreements.fiscalchallengesfromfluctuationsincommodityFurthermore,globalcooperationiscriticaltoprices(chapter4).Asustainable,welldesigned,addressthepressingissuesofmountingfoodstability-orientedfiscalframework,combinedwithinsecurityandconflict.stronginstitutions,canhelpgovernmentsbuildbuffersduringcommoditypriceboomsthatcanPolicymakersatthenationallevelalsofacebedrawnuponduringsubsequentslumps.formidablechallenges,whichwillrequirecarefulcalibrationofcompetingpriorities.WithinflationReversingtheongoingweakeningofpotentialprojectedtocontinuemoderating,policyinterestgrowthanditsunderlyingdrivers,includingratesaresettoeaseacrossmanyEMDEsoverinvestmentandproductivitygrowth,willrequire2024and2025.However,monetarypolicyeasingdecisivestructuralreforms,includingmeasurestoinEMDEscouldbeconstrainedbynarrowingpromotetradeandfinancialliberalization,developinterestratedifferentialsrelativetoadvancedhumancapitalandinfrastructure,closegendereconomies,whichcouldheightentheriskofgaps,increaselaborforceparticipation,andcapitaloutflowsandcurrencydepreciations.promoteinnovation.Suchreforms—togetherwithRenewedsurgesinadvancedeconomyyields—policiesthatensuremacroeconomicstability,driven,forinstance,byupsideinflationsurprisesincludingtheadoptionofinflationtargetingorrisingtermpremia—couldalsotriggerwherenotalreadycrediblyinplace—canformdisruptionsinEMDEfinancialmarkets.Carefulcomprehensivepackagesofbeneficialpolicies.attentiontorisksisthereforerequiredtoensureImplementingthesepolicypackages,withthatmonetarypolicysupportssustainablegrowthjudicioussequencing,canhelptosparksustainedwhilehelpingtodurablybringdowninflation,investmentaccelerations,whichhaveastrongandtomaintainfinancialstability,particularlyintrackrecordofdeliveringtransformativegrowthEMDEswithlargefiscalandcurrentaccount(chapter3).Thepresenceofwell-functioningdeficits.institutionsalsoraisesthechancesofignitinganinvestmentaccelerationandsecuringimprovedFiscalpolicyspaceinEMDEsremainsnarrowlong-termgrowthperformance.amidweakrevenuesandrisingdebt-servicingcosts.Thecrisesofrecentyears—particularlytheGlobalcontextpandemicandthesteepriseinlivingcostsresultingpartlyfromtheinvasionofUkraine—eglobalcontextremainschallenging.Globalhaveseengovernmentsrunninguppublicdebttradegrowthhasbeenexceptionallyweakasaandreprioritizingspendingawayfrominvestmentresultofsubduedglobaldemand,thecontinuedtowardshorter-termsupportforhouseholdsandpost-pandemicrotationofconsumptionfromfirms.Elevateddebt,combinedwithtightgoodstowardservices,andmorerestrictivetradefinancialconditionsandtepidgrowth,isputtingpolicies.Notwithstandingrecentvolatility,pricesfurtherpressureonlonger-termfiscalsustainabil-ofmostcommoditieshavefallenbackfromtheirity,whileincreasingvulnerabilitytoexternal2022peaksbutremainabovepre-pandemiclevels.financialshocks.ForEMDEswithweakcreditismoderationhascontributedtoadeclineinGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER19globalheadlineinflation.Coreinflation,however,FIGURE1.3Globaltradehasbeenmorepersistent,especiallyinsomeadvancedeconomieswherelabormarketsremainGlobalgoodstradecontractedin2023,markingthefirstannualdeclinetight.issuggeststhatpolicyinterestratesinoutsideofglobalrecessionsinthepast20years.Servicestradegrowthadvancedeconomieswilldeclineonlygradually,slowedinthesecondhalfoflastyear,followinganinitialreboundfromthecontributingtohigherlonger-termmarketratespandemic.Afterstagnatingin2023,globaltradeingoodsandservicesisthanthosethatprevailedbeforethepandemic.projectedtogrowby2.3percentin2024.TherecoveryinglobaltradeinEMDEfinancialconditionsremainrestrictive,2021-24isprojectedtobetheweakestfollowingaglobalrecessioninthewithlesscreditworthysovereignsfacinggreaterpasthalfcentury.financialstrains,asreflectedinsharpcurrencydepreciationsandcapitaloutflows.A.GrowthofglobalgoodstradeandB.GlobalPMInewexportordersindustrialproductionGlobaltradePercent,year-on-yearIndex,50+=expansionGlobaltradeingoodsandserviceswasvirtuallyflatin2023,growingbyanestimated0.220GoodstradeIndustrialproduction55ManufacturingServicespercent—theslowestexpansionoutsideglobalrecessionsinthepast50years.Goodstrade10contractedlastyear,reflectingdeclinesinkeyadvancedeconomiesanddecelerationinEMDEs,050andmirroringthesharpslowdowninthegrowthofglobalindustrialproduction.Thismarkedthe-10firstsustainedcontractioningoodstradeoutsideaglobalrecessioninthepast20years(figure1.3.A).45Reflectingstagnantgoodstradeandfadingpandemic-eradisruptions,globalsupplychain-202001pressureshavereturnedtopre-pandemicaverages2003afterrecedingtorecordlowsinmid-2023.Services2005tradeslowedinthesecondhalfof2023,following2007aninitialreboundfromthepandemic(figure20091.3.B).20112013Afterlaggingthepaceofglobalgrowthin2023,2015globaltradeisprojectedtopickupto2.3percent2017in2024,mirroringprojectedgrowthinglobal2019output(figure1.3.C).Thisreflectsapartial2021normalizationoftradepatternsfollowing2023exceptionalweaknesslastyear(WTO2023).Jan-21Goodstradeisenvisagedtostartexpandingagain,Apr-21whilethecontributionofservicestototaltradegrowthisexpectedtodecrease,aligningmoreJul-21closelywiththetradecompositionpatternsNov-21observedbeforethepandemic.However,intheFeb-22nearterm,theresponsivenessofglobaltradetoJun-22globaloutputisexpectedtoremainlowerthanSep-22beforethepandemic,reflectingsubduedJan-23investmentgrowth.ThisisbecauseinvestmentApr-23tendstobemoretrade-intensivethanothertypesAug-23ofexpenditures.GlobaltouristarrivalsareNov-23expectedtoreturntopre-pandemiclevelsin2024,C.GlobaltradegrowthD.GlobaltradearoundglobalrecessionsPercentJanuary2024June2023Index,100=t-1Pastglobalrecessions61402020recession4120210002023e2024f2025f802022t-1tt+1t+2t+3t+4Sources:CPBNetherlandsBureauforEconomicPolicyAnalysis;HaverAnalytics;WorldBank.Note:e=estimate;f=forecast.A.Panelshowsgoodstradevolumesandindustrialproduction,basedonthefirst10monthsofdataineachyearforcomparabilitypurposes.LastobservationisOctober2023.B.Panelshowsmanufacturingandservicessubcomponentsoftheglobalpurchasingmanagers’index(PMI)newexportordersseries.PMIreadingsabove(below)50indicateexpansion(contraction).LastobservationisNovember2023.C.Tradeingoodsandservicesismeasuredastheaverageofexportandimportvolumes.“June2023”referstotheforecastspresentedintheJune2023editionoftheGlobalEconomicProspectsreport.D.Panelshowsglobaltraderecoveryafterglobalrecessions.Year“t”denotestheyearoftheglobalrecessions:1975,1982,1991,2009,and2020.Pastglobalrecessionsshowtherangeforthefourglobalrecessionspriorto2020.althoughtherecoveryissettolaginsomecountrieswherereopeningwasdelayed.Theglobaltradegrowthforecastfor2024hasbeenreviseddownby0.5percentagepointsinceJune,reflectingweaker-than-expectedgrowthinChinaandinglobalinvestment.Asaresult,therecoveryoftradenowprojectedfor2021-24istheweakestfollowingaglobalrecessioninthepasthalfcentury(figure1.3.D).Geopoliticaluncertainty,especiallyinlightofongoingarmedconflicts,andthepossibilityofa10CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024FIGURE1.4CommoditymarketsmoreprotractedslowdowninChinaposedownsideriskstothetradeoutlook.AnotherDespitetherecentconflictintheMiddleEast,mostcommoditypricesdownsideriskarisesfromthepossibilityoffurtherdeclinedin2023duetomoderatingdemand,buttheyremainabovepre-measurestorestrictinternationaltrade.Therecentpandemiclevels.Currently,OPEC+sparecapacitystandsatjustover5increaseintheuseofrestrictivetradepolicies,asmb/d.However,oilpriceswerehighlyvolatileinthesecondhalfof2023wellassubsidiesandindustrialpoliciesaimedatamidOPEC+productioncutsandtheMiddleEastconflict.Historicallocalizingproduction,hasacceleratedtheprecedentsuggeststhatanescalationoftheconflictcouldposeamajorreshoringofactivitiesbyU.S.andEuropeanupsiderisktooilprices.Metalpricesfellin2023,owingtosluggishUnion(EU)multinationals,althoughsomeofthisdemandfrommajoreconomies,notablyChina.Foodcommoditypricesreflectsadesirebyfirmstodiversifysourcingtomoderatedaswell,reflectingimprovedsuppliesformajorcrops.reduceexposuretoadverseshocks(Aiyar,Consumerfoodpriceinflationhaseasedbutremainselevated.Presbitero,andRuta2023;Freundetal.2023).ContinuationofthistrendcouldresultinmoreA.CommoditypricesB.OPEC+sparecapacityfragmentedsupplychainsandslowertradegrowththanprojectedinthebaseline.Index,100=February2022Mb/dOtherOPEC+1407RussianFederationCommoditymarkets6SaudiArabia1205Theaveragepricesofmostcommodities,inU.S.4dollarterms,fellin2023amidmoderating1003demand(figure1.4.A).However,theyremain2morethan40percentabovepre-pandemiclevels.80Energy1Crudeoilpriceswerevolatilelastyear,including0inthewakeoftheconflictintheMiddleEast;60Metalsandmineralstheyaveraged$83/bbl,downfrom$100/bblinAgriculture2022.ProductioncutsbyOPEC+,whichweredeepenedandextendedinNovember2023,have40Commoditypriceindexmostlybeenoffsetbyrobustoutputelsewhere,includingintheIslamicRepublicofIranandtheJan-21UnitedStates.Currently,OPEC+sparecapacityApr-21standsatjustover5mb/d(figure1.4.B).OilAug-21pricesareexpectedtoedgedownto$81/bblinNov-212024asglobalactivityslowsandChina’seconomyMar-22continuestodecelerate.AnescalationoftheJun-22conflictintheMiddleEastisamajorupsideriskSep-22tooilprices.Indeed,sincethe1970s,aseriesofJan-23significantgeopoliticalevents,oftenmarkedbyApr-23militaryconflict,haveexertedapronouncedAug-23impactonoilsupplies(figure1.4.C).FurtherNov-23extensionsofproductioncutsbyOPEC+(toJan-22beyondanexpectedphase-outofcutsinthefirstMar-22quarterof2024)andstronger-than-expectedMay-22demandcouldalsoresultinhigherprices.Jul-22Sep-22NaturalgasandcoalpricesdeclinedconsiderablyNov-22in2023ascountriesinEuropereducedenergyJan-23demandandmaintainedgasinventoriesabove90Mar-23percentoftheirstoragecapacity.NaturalgaspricesMay-23areexpectedtofallfurtherin2024and2025asJul-23productionincreases,andasliquefiednaturalgasSep-23exportsrise.KeyupsideriskstogaspricesincludeNov-23C.Conflict-drivenoilsupplyD.MetalsdemandgrowthdisruptionsMb/dPercent,year-on-year60OECDChinaLibyaNnov2c01i1v-ilwarOthernon-OECDWorld(Feb-Oct2011)40Iraqwar(Mar-Dec2003)20Kuwaitinvasion0(Aug1990-Jan1991)-20Iran-Iraqwar(Oct1980-Jan1981)Jan-21Apr-21IranianrevolutionJul-21(Nov1978-Apr1979)Oct-21Jan-22AraboilembargoApr-22(Oct1973-Mar1974)Jul-22Oct-22-6-4-20Jan-23Apr-23Jul-23Oct-23E.ChangeingrainssupplyF.Foodpriceinflationmmt,annualchange1990-2022averagePercent,year-on-year25018World20015Advancedeconomies15012EMDEs1009506030-50-3-10020102011201220132014201520162017201820192020202120222023Jan-20Apr-20Jul-20Oct-20Feb-21May-21Aug-21Dec-21Mar-22Jun-22Sep-22Jan-23Apr-23Jul-23Nov-23Sources:HaverAnalytics;IEA(2014,2023);U.S.DepartmentofAgriculture;WorldBank(2023a);WorldBureauofMetalStatistics.Note:EMDEs=emergingmarketanddevelopingeconomies;OECD=OrganisationforEconomicCo-operationandDevelopment.A.DataaremeasuredinU.S.dollars.LastobservationisNovember2023.B.SparecapacityforOPEC+membersasreportedinIEA(2023),withdataextendedtoDecember2023assumingnochangeinsupply.OtherOPEC+includesAlgeria,Angola,Azerbaijan,theRepublicofCongo,EquatorialGuinea,Gabon,Iraq,Kazakhstan,Kuwait,Mexico,Nigeria,Oman,theUnitedArabEmirates,andothers.C.OilsupplydisruptionsduringgeopoliticaleventsasdefinedbyIEA(2014).D.Panelshowsyear-on-yearpercentchangeinmetalconsumptionsinceJanuary2021.LastobservationisOctober2023.E.mmt=millionmetrictons.Yearsrepresentcropseason(forexample,2021refersto2021-22).Supplyisthesumofbeginningstocksandproduction.DataasofDecember2023.F.Panelshowsyear-on-yeargroupmedianinflationforthefoodcomponentoftheconsumerpriceindexforupto117countries(samplevariesacrossmonths),ofwhichupto23areadvancedeconomiesandupto94areEMDEs.LastobservationisNovember2023.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER111supplydisruptionsfromtheMiddleEastlinkedtoFIGURE1.5Globalinflationtheconflictandacolder-than-usualwinterinEurope.Globalheadlineconsumerpriceinflationdeclinedsubstantiallyin2023butremainsabovetargetinmostinflation-targetingadvancedeconomiesandMetalpricesfellby10percentin2023onaccountabouthalfofinflation-targetingEMDEs.Inmajoradvancedeconomies,aofsluggishdemandfrommajoreconomies—notablefallingoodsinflationwasoffsetbypersistentservicesinflation.notablyChina,whichaccountsfor60percentofGlobalheadlineinflationisprojectedtomoderatefurtherover2024-25,globalmetalconsumption,inthemidstofwithcoreinflationslowingandcommoditypricesdeclining,buttoremainprotractedweaknessinthecountry’spropertyaboveitspre-pandemicaveragebeyond2024.Survey-basedinflationsector(figure1.4.D).Metalpricesareexpectedtoexpectationsareconsistentwithcontinuedgradualdisinflationin2024-25.fallfurtherin2024,beforepickingupin2025asChina’spropertysectorstabilizesanddemandforA.HeadlineconsumerpriceinflationB.Shareofcountrieswithinflationmetalsusedinthegreentransition(suchascopperabovetargetandnickel)increases.Agreater-than-expecteddownturninChina’srealestatesectorisakeyPercentPercentofcountriesdownsiderisktoprices.10012WorldFoodprices—thebiggestcomponentoftheagriculturepriceindex—fellby9percentin2023,Advancedeconomiesreflectingamplesuppliesofmajorcrops,particularlygrains(figure1.4.E).Ricewasthe10EMDEs80exception—itspricerose27percentintheyearamidrestrictionsonexportsofnon-basmatirice860fromIndia,theworld’stopriceexporter.Foodpricesareexpectedtodeclinenearly1percentin640Advancedeconomies2024and4percentin2025.Keyupsideriskstofoodpricesincludeincreasesinenergycosts,420EMDEsadverseweatherevents(possiblyasaresultofanintensificationoftheongoingElNiño),further2traderestrictions,andgeopoliticaluncertaintyintheBlackSearegion.Longer-termrisksinclude00theeffectsofclimatechangeandtheexpansionofbiofuelmandates.Feb-20Nov-20FoodinsecurityremainsakeychallengeamidAug-21high,albeitdeclining,consumerfoodpriceMay-22inflation(figure1.4.F).ThenumberofpeopleFeb-23whoareseverelyfoodinsecuregloballyisNov-23estimatedtohaverisenfrom624millionin2017Feb-21to900millionin2022(FAOetal.2023).TheMay-21recentsurgeinricepricesislikelytoexacerbateSep-21foodinsecurityasriceisastaplefoodforoverhalfJan-22theworld’spopulation,providingmorethan20May-22percentofthecaloriesconsumedworldwide.Aug-22Dec-22GlobalinflationApr-23Aug-23GlobalheadlineconsumerpriceinflationdeclinedNov-23substantiallyin2023(figure1.5.A).Moderatingenergyandfoodpriceinflation,alongwithC.GoodsandservicesinflationD.Evolutionofheadlineandcoreslowingconsumerdemandforgoodsandtheinflationsince2019PercentU.S.servicesPercentagepointsPeak2022toNov2318U.S.goods15Euroareaservices2019topeak202212Euroareagoods109063-100-3Jul-19Dec-19May-20Oct-20Apr-21Sep-21Feb-22Jul-22Jan-23Jun-23Nov-23HeadlineCoreHeadlineCoreHeadlineCoreWorldAEsEMDEsE.GlobalconsumerpriceinflationF.Survey-basedinflationexpectationsPercent90percent2015-19averagePercentDecember10Jun-23Jan-2410MarchJanuary886644220020222023202420222023202419Q420Q2AdvancedeconomiesEMDEs20Q421Q221Q422Q222Q423Q223Q424Q224Q425Q225Q4Sources:AREAER(database);ConsensusEconomics;Eurostat;FederalReserveBankofSt.Louis;HaverAnalytics;OxfordEconomics;WorldBank.Note:AEs=advancedeconomies;CPI=consumerpriceindex;EMDEs=emergingmarketanddevelopingeconomies.A.Panelshowsmedianyear-on-yearheadlineinflation.Sampleincludes35advancedeconomiesandupto100EMDEs.LastobservationisNovember2023.B.Panelshowstheshareofeconomieswithinflation-targetingframeworkswhereyear-on-yearinflationismorethan0.5percentagepointabovetarget(orthemidpointofthetargetrange).LastobservationisNovember2023.C.U.S.goodsinflationistheweightedaverageofdurablesandnon-durablesinflation,withtheirrespectivesharesintheCPIbasketastheweights.LastobservationisNovember2023.D.Panelshowsthepercentagepointdifferenceinthemedian6-monthannualizedinflationratesfromtheaverage2019leveltothepeakin2022,andfromthepeakin2022toNovember2023.E.Model-basedGDP-weightedprojectionsofyear-on-yearcountry-levelCPIinflationusingOxfordEconomics’GlobalEconomicModel,usingglobaloilpriceforecastsfromtable1.1.The90percentuncertaintybandsconstructedfromthedistributionofforecasterrorsfortotalCPIfromConsensusEconomicsforanunbalancedpanelof18economies.F.PanelshowsmedianheadlineCPIinflationexpectationsfor32advancedeconomiesand51EMDEsderivedfromConsensusEconomicssurveysinrespectivemonthsof2023.12CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024FIGURE1.6Globalfinancialdevelopmentsrecoveryofglobalsupplychains,exertedsignificantdownwardpressureongoodsinflation.Advanced-economymonetarypoliciesareexpectedtoremaintight—Nonetheless,inflationremainsabovetargetsinincludingintheUnitedStates,followingthelargestandfastestincreaseinmostadvancedeconomiesandinabouthalfofrealpolicyratessincetheearly1980s.InOctober,advanced-economyinflation-targetingEMDEs(figure1.5.B).Inthegovernmentbondyieldsreachedtheirhighestlevelssincethelate2000s,majoradvancedeconomies,therotationofthoughtheyhavesincepulledback.Privatesectordebt-serviceratiosdemandfromgoodstoservicescontinued.remainmanageablebuthavebeentrendingup,particularlyinChina.DeclininggoodsinflationamideasingimportCentralbanksinagrowingnumberofEMDEshavestartedtocutratespriceswaspartlyoffset,however,bypersistentaheadofadvancedeconomies.FinancialstrainsareevidentintheoneservicesinflationtiedtotightdomesticlaborfourthofEMDEswithweakcreditratings:theystoppedissuingmarkets(figure1.5.C).Asaresult,coreinflation,internationalbondstwoyearsagoandmanyhaveexperiencedsharpwhichsurgedlessthanheadlineinflationin2021-currencydepreciation.22,hasalsodeclinedlesssinceits2022peak(figure1.5.D).A.U.S.realinterestratecyclesB.Advanced-economy10-yearbondyieldsThedeclineincoreinflationhasproceededunderPercentagepointsPercentagepointsmarkedlydifferentgrowthconditionsacross1.5Percentcountries.IntheUnitedStates,disinflationhas15Magnitude6occurredalongsideresilientactivityandlowunemployment,thankspartlytoincreasinglaborSpeed,perquarter(RHS)4supply,improvingsupplychains,andfallingoilprices.Thedeclineintheeuroareainflationwas101.02accompaniedbyweakgrowth,reflectingthenegativesupplyshocksfromearliersharpenergy50.50priceincreases.InmostEMDEs,headlineandcoreinflationrecededlastyearasgrowth00.0weakened.Nevertheless,incountriesfacing1979Q2-financialstress,inflationremainedveryhigh,in1981Q3associationwithcurrencydepreciations.1982Q4-1984Q3In2024-25,globalinflationisexpectedtodecline1987Q1-further,underpinnedbytheprojectedweaknessin1989Q1globaldemandgrowthandslightlylower1993Q2-commodityprices.Subdueddemandreflectsthe2000Q3effectsoftightmonetaryandcreditconditionsand2004Q2-softeninglabormarkets.Thus,globalheadline2007Q1inflation,onayear-on-yearbasis,isforecastto2011Q2-recedeto3.7percentin2024and3.4percentin2019Q12025—stillabovethepre-pandemic(2015-19)2022Q1-averagebutclosertocentralbankinflationtargets2023Q3(figure1.5.E).Surveysofinflationexpectations2007similarlysuggestasteadydeclineininflation,but2009tolevelsin2024thatarestillhigherthanpre-2011pandemicaverages(figure1.5.F).Inparticular,2013Consensusforecastsindicatelowerinflationthis2015yearthanlastin85percentofEMDEs.20172019Globalfinancialdevelopments20212023Monetarytighteninginadvancedeconomiesisconcluding,withsubsequenteasingofpolicyC.Privatesectordebt-serviceratiosD.Monetarypolicyratechangesz-scoreUnitedStatesNetshareofcentralbankstightening/loosening,2.0ChinaOtheradvancedeconomiespercent1.0OtherEMDEs100Advancedeconomies50EMDEs0.00-1.0-50-2.0-10011Q111Q412Q313Q214Q114Q415Q316Q217Q117Q418Q319Q220Q120Q421Q322Q223Q2Jan-19Jun-19Nov-19Apr-20Oct-20Mar-21Aug-21Feb-22Jul-22Dec-22May-23Nov-23E.GovernmentbondissuancebyF.CurrencydepreciationinEMDEsnon-investment-gradeEMDEswithweakcreditratingsUS$,billionsBa-BCaa-CIndex,100=December14,202212010080904080InterquartilerangeMedianCrisisthreshold70600199019931996199920022005200820112014201720202023Dec-22Jan-23Feb-23Mar-23Apr-23May-23Jun-23Jul-23Aug-23Sep-23Oct-23Nov-23Dec-23Sources:BIS(database);Bloomberg;Dealogic;FederalReserveBankofSt.Louis;HaverAnalytics;LaevenandValencia(2020);Moody’sAnalytics;WorldBank.Note:AEs=advancedeconomies;EMDEs=emergingmarketanddevelopingeconomies.A.“Magnitude”isthetrough-to-peakchangeand“speed”istheaveragechangeperquarterduringperiodsofrisingrealrates.RealrateistheU.S.policyrateminusone-year-aheadexpectedinflationfromconsumersurveys,adjustedforpersistenterrors.B.GDP-weightedaverageof10-yeargovernmentbondyieldsfortheeuroarea,theUnitedKingdom,andtheUnitedStates.Euroareaisthe10-yearGermanyield.LastobservationisDecember18,2023.C.Privatesectordebt-serviceratios(z-scores)aredefinedastheratioofinterestpaymentsplusamortizationtoincome.Linesfor“otheradvancedeconomies”and“otherEMDEs”areGDP-weightedaveragez-scoresofprivatesectordebt-serviceratiosfortherespectivecountrygroups.D.Tightening/looseningisthepercentageofcentralbanksraisingpolicyinterestratesminusthepercentageloweringpolicyratesinthelastthreemonths.Sampleincludes17AEsand58EMDEs.E.Panelshowsrolling12-monthtotalsforbondissuancebyEMDEgovernments,categorizedbyMoody'slong-termforeigncurrencysovereigncreditratings.LastobservationisNovember2023.F.PanelshowsthechangeintheU.S.dollarvalueofEMDEcurrencies.Crisisthresholdrepresentsadepreciationof30percentwithinoneyear,themaincurrencycrisiscriterioninLaevenandValencia(2020).WeakcreditratingsrefertoMoody’ssovereignforeigncurrencyratingsofCaaandbelow.LastobservationisDecember14,2023.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER113interestrateslikelytoproceedatameasuredpace.equitysecuritiesbyforeigninvestors,andadeclineThis,alongsidesofteninginflation,couldkeeprealintheexchangevalueoftherenminbi.policyrateselevatedforanextendedperiod,followingthelargestandfastestincreaseinrealEconomieswithweakcreditratings—roughlyoneU.S.policyratessincetheearly1980s(figureinfourEMDEs—continuetofaceprohibitively1.6.A).IntheUnitedStates,tightmonetarypolicyhighfinancingcosts.Lackingaccesstomarket-reflectsbetter-than-expectedgrowthoutturns.Inbasedfinancing,thesecountriesceasedinterna-theeuroarea,persistentcoreinflationhasplayedationalbondissuancetwoyearsago(figure1.6.E).largerrole.ReflectingboththeoutlookforpolicyInaddition,andincontrasttootherEMDEs,ratesandvolatiletermpremia,governmentbondtheircurrenciesdepreciatedsubstantiallylastyieldsinadvancedeconomiesinOctoberreachedyear—somebyasmuchas30percent,athresholdtheirhighestlevelssincethelate2000s.Althoughoftenassociatedwithcurrencycrises(figure1.6.F).yieldshavepulledbacksincethen,theyremainatlevelsthatwillputupwardpressureonthecostofMajoreconomies:Recentcapitalforgovernmentsandfirmsasdebtsaredevelopmentsandoutlookrolledover(figure1.6.B).AdvancedeconomiesHighfinancingcostshavebeenreflectedincreditmarketdevelopments.Advanced-economybanksAggregategrowthinadvancedeconomieswashavebeenreportingrestrictivelendingstandards,resilientformostoflastyear,slowinglessthanandbankcreditgrowthhasslowedsharply.Inpreviouslyexpected.However,thislargelyaddition,corporatebankruptciesandcreditcardreflecteddevelopmentsintheUnitedStates,wheredelinquencieshavepickedup.Althoughprivateconsumerspending,inparticular,remainedrobustsectordebt-serviceratiosremaingenerallyandfiscalpolicywasexpansionary.Growthinmanageable,reflectingthestockofdebtissuedatadvancedeconomiesisforecasttoslowin2024—lowfixedrates,theyhavebeentrendingup,mostforthethirdyearinarow—to1.2percent,asnotablyinChina(figure1.6.C).Riskappetiteindomesticdemanddecelerates(table1.1).Privateadvanced-economyfinancialmarketshasconsumptiongrowthissettosoftenastheboostnonethelessbeenresilient,whichhassomewhatfromone-offfactors,suchasthestockofexcessmitigatedthetighteningeffectofhigherinterestsavingsaccumulatedduringthepandemic,ratesonbroadfinancialconditions.Indeed,equitygraduallyfades.Investmentgrowthshouldalsovolatilitywassubduedinthesecondhalfof2023,remainsubduedassustainedhighrealinterestwhilecorporatecreditspreadsweregenerallyratesandrestrictivecreditconditionsdampenbelow2000-19medianlevels.businessinvestment.Mostoftheprojectedslowdowninadvanced-economygrowthin2024AcrossEMDEs,arisingnumberofcentralbanksisduetoadecelerationintheUnitedStates;itishavestartedcuttingpolicyrates,withfurtheronlypartlyoffsetbyanexpectedpickupineuroreductionsexpectedinthecomingmonths,areagrowthasthelingeringeffectsofearlierpriceespeciallyinEuropeandLatinAmerica(figureshocksdissipate.1.6.D).MostEMDEshavesofarexhibitedfewsignsoffinancialstress,despitehigherinterestIntheUnitedStates,growthwasresilientlastrates.Thisislikelyduetoamixoffactors,year,pickinguptoanestimated2.5percent,includingbetter-than-expectedgrowth,limiteddespiterisingborrowingratesandtighteningcurrentaccountvulnerabilities,anddecliningcreditconditions.Consumerspendingremainedinflationfollowingproactivemonetarytightening,solid,supportedbyaccumulatedsavings,tightallofwhichhavehelpedcontaincurrencylabormarkets,andaboosttodisposableincomesdepreciation.UnlikeotherlargeEMDEs,Chinafromone-offtaxadjustments(figure1.7.A).hasundergoneaperiodofnotablefinancialstrain.ActivitywasalsosupportedbyanexpansionarySubduedgrowthprospectsandupheavalintheimpulsefromfiscalpolicy.Growthappearstopropertysectorhavecontributedtodebtdefaultshavesoftenedinthefourthquarter,withweaknessbypropertydevelopers,netsalesofdebtand14CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024FIGURE1.7Majoreconomies:Recentdevelopmentsemploymentgrowthhassteadilyslowed,andwageandoutlookgrowthhassubsided,despitetheunemploymentrateremainingnearhistoriclows(figure1.7.B).ConsumerspendingintheUnitedStateswasresilientin2023,reflectingSomekeydriversofwidespreadlaborshortages,tightlabormarketsandaccumulatedhouseholdsavings.AlthoughU.S.includingpent-updemandforlabor-intensiveemploymentgrowthhasslowedgradually,unemploymentremainslow.services,havebeenfading.Atthesametime,laborMonetarytighteninghasweighedoncreditgrowthintheUnitedStatesandsupplyhasbeenrising,withincreasedprime-agetheeuroarea.EconomicactivityinChinawasgenerallyweakin2023,aslaborforceparticipationpartlyoffsettingtherealestateinvestmentcontractedandthegrowthofinfrastructureimpactofearlyretirementsduringthepandemicinvestmentwasslowerthanitspre-pandemicaverage.(Montes,Smith,andDajon2022).A.AnnualgrowthofrealconsumerB.LabormarketindicatorsintheIn2024,U.S.growthisexpectedtoslowto1.6spendingUnitedStatespercent,withhighrealinterestratesrestrainingactivity.FiscalpolicyisexpectedtoturnmorePercentUnitedStatesEuroareaPercentThousandsrestrictive,evenaselevatedinterestratesand18weakeninggrowthweighonthefederalbudget15Changeinnonfarmpayrolls(RHS)balance(Swagel2023).Afurtherweakeningin12consumptiongrowthisprojected,amiddimin-8Unemploymentrate1,000ishedsavings,still-elevatedborrowingrates,and9easinglabormarkettightness.Businessfixed66750investmentisalsosettodeceleratefurtherasfirms3remaincautious,giveneconomicandpolitical04500uncertainties,andincreasinglyrefinancecorporate-3debtathigherinterestrates.Growthisexpectedto2250edgeupto1.7percentin2025,closertoitstrendrate,astheimpactofeasingmonetarypolicyfeeds00throughtheeconomy.Jun-21Intheeuroarea,growthslowedsharplyin2023,Sep-21toanestimated0.4percent,ashighenergyDec-21prices—largelyrelatedtoRussia’sinvasionofMar-22Ukraine—weighedonhouseholdspendingandJun-22firms’activity,particularlyinmanufacturing.Sep-22Estimatedgrowthin2023isinlinewithlastDec-22June’sprojections,withunexpectedresilienceinMar-23thefirsthalfoftheyearoffsetbyweaker-than-Jun-23expectedactivityinthesecondhalf.TheSep-23downturninlate2023reflectedbroadeningApr-21weaknessintheeconomy,whichextendedtotheservicessector.ThiswaspartiallyattributedtotheJul-21ongoingdeclineinexportsamiddeterioratingNov-21exportpricecompetitivenessandtepidexternalMar-22demand.Jul-22Growthin2024isforecasttofirmtoastill-Nov-22anemic0.7percent.EasingpricepressuresshouldMar-23boostrealwagesandliftdisposableincomes,butthelaggedeffectsofpastmonetarytighteningareJul-23expectedtokeepalidondomesticdemand,Nov-23especiallybusinessinvestment,partlybyreducingcreditgrowth(figure1.7.C).TheforecastforC.CreditgrowthD.China:FixedinvestmentgrowthPercent,year-on-yearPercent2015-19YTDaverage152023YTD10UnitedStatesEuroarea810654020-519Q1-10Infrastructure19Q4Realestate20Q321Q221Q422Q323Q2Sources:BIS(database);BureauofEconomicAnalysis;BureauofLaborStatistics;EuropeanCommission;FederalReserveBankofSt.Louis;HaverAnalytics;WorldBank.Note:YTD=yeartodate.A.Barsrepresentyear-on-yeargrowthofquarterlyrealprivateconsumptionexpenditure.Lastobservationis2023Q3.B.LastobservationisNovember2023.C.Panelshowstotallendingtotheprivatenon-financialsector.Lastobservationis2023Q2.D.Bluebarsdenotethesimpleaverageof2015-19year-on-yeargrowthofnominalfixedassetinvestmentsubcomponentsfromJanuarytoNovember.Redbarsdenoteyear-on-yeargrowthofnominalfixedassetinvestmentsubcomponentsfromJanuary2023toNovember2023.settointensifyasthelaggedandongoingeffectsoftightmonetarypolicyincreasinglyweighonhouseholdspending,andastemporaryfactorssupportingconsumptiondissipate.Withthehouseholdsavingratehavingfallenfarbelowthepre-pandemicaveragelastyear,excesssavingsaccumulatedduringthepandemichavelikelybeensubstantiallydrawndown(BarbieroandPatki2023).Inaddition,therealvalueofthesesavingsandthegrowthinrealhouseholdnetworthhavebeenerodedbysharprunupsinconsumerpricesandinterestrates.TightnessintheU.S.labormarkethasbeengraduallyeasing.Jobopeningshavedeclined,GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER115growthin2024hasbeendowngradedsinceJune1.7.D).Privateconsumptionfirmedsomewhatby0.6percentagepoint,largelyowingtoweaker-towardtheendoftheyear,butconsumerthan-expectedmomentumatthestartoftheyearconfidenceremainedweak,whilefeebleexternalandmoreadversecreditsupplyconditionsthandemandweighedonexports.Theauthoritiespreviouslyassumed.implementedseveralstimulusmeasures,includingloweringinterestratesanddepositrequirementsGrowthisprojectedtopickupto1.6percentinforpropertypurchases,whilegovernmentdebt2025,supportedbyarecoveryininvestmentissuancewasexpandedtosupportspending.growth,especiallyastheEuropeanUnion’sNextGenerationEU(NGEU)fundsliftpublicIn2024,growthisforecasttoslowto4.5investmentandhelpoffsetmodestconsolidationpercent—theslowestexpansioninoverthreeofnationalfiscalbalances.Increasedabsorptionofdecadesoutsidethepandemic-affectedyearsofNGEUfundsispredicatedonreformmilestones2020and2022,andmarginallylowerthanbeingmetunderRecoveryandResilienceplansenvisagedinJune.Subduedsentimentisexpected(EuropeanCommission2023).NGEU-relatedtoweighonconsumption,whilepersistentstrainsinvestmentsandreformsareexpectedtoaccelerateinthepropertysectorwillholdbackinvestment.thegreenanddigitaltransitionsandaddresslong-Softconstructionstartsinlate2023signalfurtherstandingstructuralissues,therebysupportingweaknessinpropertyactivityasdevelopersgrapplelong-termgrowth(WorldBank2022a).withstressedbalancesheetsandlacklusterdemand.WhilecentralgovernmentsupportInJapan,growthbouncedbacktoanestimatedshouldhelpboostinfrastructurespending,local1.8percentin2023,drivenbypost-pandemicgovernmentshavelimitedfiscalspaceforpolicypent-updemandandareboundinautoexportsmaneuvering.Tradegrowthisalsosettoremainandinboundtourism.Despiteabove-targetweakin2024,withsubduedglobaldemandinflationforoverayear,theBankofJapanweighingonexportsandslowerdomesticdemandcontinuedtomaintainaccommodativemonetarygrowthholdingbackimports,includingofmetals.policy,butitgraduallyrelaxeditspolicyofyield-curvecontrolandallowedlonger-termratestoGrowthisexpectedtoedgedownfurtherin2025,rise.Intheforecasthorizon,weakgrowthinmajorto4.3percent,amidthecontinuingslowdownoftradingpartnerswillweighonexports,offsettingpotentialgrowth.Mountingdebtconstrainingthesupporttodomesticdemandfromanexpectedinvestment,demographicheadwinds,andreboundinrealwagesamidtightlabormarketsnarrowingopportunitiesforproductivitycatch-upandslowinginflation.Onbalance,asthepost-areallexpectedtodragonpotentialgrowth.pandemicreboundtapersoff,growthisforecasttoslowto0.9percentin2024and0.8percentinEmergingmarketand2025,closetoitstrendrate.developingeconomiesChinaGrowthinEMDEsisprojectedtoremainsteadyatabout3.9percentayearintheforecasthorizon,GrowthinChinapickeduptoanestimated5.2butwithunderlyingvariationacrossregions(boxpercentin2023,0.4percentagepointbelowthe1.1).DeceleratingactivityinChinaisexpectedtoJuneforecast.Theboosttoconsumptionearlyinbeoffsetbyfirmingaggregategrowthelsewhere,theyearfromtheliftingofpandemic-relatedwithimprovingdomesticdemandinmanyrestrictionsturnedouttobeunexpectedlyshort-countriesandapickupininternationaltrade.lived.ThedownturninthepropertysectorOverall,however,therecoverybyEMDEsfromintensifiedaspropertypricesandsalesfell,andasthepandemic-inducedrecessionof2020isdevelopersexperiencedrenewedfinancialexpectedtoremainlackluster,withEMDEgrowthpressures.Realestateinvestmentcontracted,whilenotablyslowerthanintherecoveryfromthethegrowthofinfrastructureinvestmentwasslower2008-09globalfinancialcrisis.Growthisthanpre-pandemicaveragerates,resultinginprojectedtoremainweakinEMDEswithlowlacklusteroverallfixedinvestmentgrowth(figure16CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024BOX1.1Regionalperspectives:OutlookandrisksAlthoughsomeimprovementsingrowthareexpectedinmostemergingmarketanddevelopingeconomy(EMDE)regions,theoveralloutlookremainssubdued.GrowththisyearisprojectedtosofteninEastAsiaandPacific—mainlyonaccountofslowergrowthinChina—EuropeandCentralAsia,andSouthAsia.Onlyaslightimprovementingrowth,fromaweakbasein2023,isexpectedforLatinAmericaandtheCaribbean.MoremarkedpickupsingrowthareprojectedfortheMiddleEastandNorthAfrica,supportedbyincreasedoilproduction,andSub-SaharanAfrica,reflectingrecoveryfromrecentweakness.In2025,growthisprojectedtostrengtheninmostregionsastheglobalrecoveryfirms.Riskstotheoutlookremaintiltedtothedownside.AnescalationoftheconflictintheMiddleEastcoulddisruptglobaloilsuppliesandcauseasurgeinpricesforenergyandfood,pushingupinflationinallregions.Otherdownsiderisksincludefurthergeopoliticalandtradetensions,thepossibilitiesofweakergrowthinChinaandweakerexternaldemand,tighter-than-expectedfinancialconditions,andclimate-change-relatednaturaldisasters.IntroductionOutlookGrowthprospectsforEMDEregionsvaryinthefaceofTheoveralloutlookforEMDEregionsremainsanarrayofglobalanddomesticcurrents.Althoughsubdued.AssumingtheconflictintheMiddleEastdoessomeimprovementsingrowthareexpectedinmostnotescalate,growthin2024isprojectedtodeclineinregions,theoveralloutlookremainssubdued.ProjectedEastAsiaandPacific(EAP),EuropeandCentralAsiagrowthisinsufficienttoreverseoutputlossesinflicted(ECA),andSouthAsia(SAR)andsomewhatstrengthenbytheoverlappingshocksofthepastfouryears,andtovaryingdegreesinotherEMDEregions(figureimpliesdimprospectsforpovertyreductionandB1.1.1.A).InEAP,theexpectedslowingmainlyreflectscatchinguptoadvanced-economypercapitaincomedeclininggrowthinChinainthefaceofpersistentlevels.propertysectorweaknessandstructuralheadwinds.InLatinAmericaandtheCaribbean(LAC),growthisAmodestimprovementinglobaltradethisyearisprojectedtoedgeuponlyslightly,whilegrowthisexpectedtolendsomesupporttoactivityinEMDEexpectedtopickupmoremarkedlyfrombelow-trendregions,yetoverallgrowthisprojectedtoremainfeeble,growthin2023intheMiddleEastandNorthAfricapartlyreflectingtheslowdowninChina.While(MNA)—supportedbyrecoveriesinoil-exportingheadlineinflationisgenerallyanticipatedtocontinueeconomies—andSub-SaharanAfrica(SSA).In2025,moderatingacrossregions,itremainselevatedinsome,growthisprojectedtostrengtheninmostregionslimitingthescopeformonetarypolicyeasing.coincidingwithanexpectedstep-upinglobalgrowth.Moreover,globalfinancialconditionsareenvisagedtoSARisprojectedtoremainthefastest-growingEMDEremaintight,amidelevatedrealinterestratesintheregionovertheforecasthorizon,ledbystronggrowthmajoradvancedeconomies.WhileriskshavebecomeinIndiaunderpinnedbyresilientdomesticdemand.morebalancedsinceJune,theyremaintiltedtothedownside.Inparticular,anescalationoftheconflictinDespitesomestrengthening,growthin2024-25istheMiddleEastcoulddisruptglobalenergymarkets,anticipatedtobeslowerthaninthedecadeprecedingwithadverseknock-oneffectsforsomecommoditythepandemicinsomeEMDEregions.Projectedprices,inflation,andfoodinsecurity,andultimatelygrowthwillalsobeinsufficienttoreversetheoutputgrowth.lossesinflictedbytheoverlappingnegativeshocksofthepandemic,theRussianFederation’sinvasionofInthiscontext,thisboxconsiderstwoquestions:Ukraine,thesharptighteningofmonetarypolicy,andtheconflictintheMiddleEast,withoutputsetto•Whatarethecross-regionaldifferencesintheremainbelowpre-pandemictrendsin2025inalloutlookforgrowth?regions(figureB1.1.1.B).ParticularlyinEAP,butalsoECAandLAC,outputlossesrelativetopre-pandemic•WhatarethekeyriskstotheoutlookforEMDEprojectionsareexpectedtoincreaseintheforecastregions?period.Thisreflectsvariousheadwindsthathaveweakenedgrowthprospects,includingChina’sNote:ThisboxwaspreparedbySamuelHill.slowdown,theimpactofRussia’sinvasionofUkraine,GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER117BOX1.1Regionalperspectives:Outlookandrisks(continued)FIGUREB1.1.1RegionaloutlooksIn2024-25,growthisprojectedtosofteninEAP,reflectingslowergrowthinChina,andtostrengthentovaryingdegreesinmostotherEMDEregions.Through2024and2025,projectedgrowthwillbeinsufficienttoreverseoutputlossesinflictedbytheadverseshocksofthepastfouryearsinallregions.Thepaceofcatch-uptoadvanced-economyGDPpercapitalevelsisexpectedtoslowinmanyEMDEregionscomparedwiththepre-pandemicperiod,withSSA—thepoorestregion—settofallfurtherbehind,andatanincreasedrate.A.OutputgrowthB.DeviationofoutputfromC.GDPpercapitagrowthrelativetoAEspre-pandemictrendsPercent82010-19averagePercentEAPECALACPercent2021-252010-1962023JuneGEP0MNASARSSA642-240-42-6-802023e-10-22024f20192020202120222023e2024f2025fEAPECALACMNASARSSA2025f2023e2024f2025f2023e2024f2025f2023e2024f2025f2023e2024f2025f2023e2024f2025fEAPECALACMNASARSSASource:WorldBank.Note:e=estimate;f=forecast;AEs=advancedeconomies;EAP=EastAsiaandPacific;ECA=EuropeandCentralAsia;EMDEs=emergingmarketanddevelopingeconomies;GEP=GlobalEconomicProspects;LAC=LatinAmericaandtheCaribbean;MNA=MiddleEastandNorthAfrica;SAR=SouthAsia,SSA=Sub-SaharanAfrica.A.AggregategrowthratesarecalculatedusingGDPweightsataverage2010-19pricesandmarketexchangerates.B.PanelshowsthedeviationbetweencurrentforecastsandJanuary2020GlobalEconomicProspects.January2020baselineextendedto2025usingprojectedgrowthfor2022.C.RelativeGDPpercapitagrowthiscalculatedasthedifferencebetweenGDPpercapitagrowthinEMDEregionsandadvancedeconomies,expressedinpercentagepoints.and—particularlyinthecaseofLAC—earlyandtourismareenvisagedtofadethrough2024,buttoasubstantialmonetarypolicytighteninginresponsetolesserextentinEAPowingtoChina’sdelayedreopeningrisinginflation.andongoingrecoveryinoutboundtourism.Tovaryingdegrees,over2024and2025investmentisalsoThepaceofcatch-uptoadvanced-economyGDPperanticipatedtopickupinmostregions,supportedbycapitalevelsisalsoexpectedtobeslowerthaninthelowerinflationandeasingmonetarypolicy.InenergydecadebeforethepandemicinallEMDEregionsexporters,particularlyinMNA,growthwillbeexceptLACandMNA,whereonlymodestcatch-upissupportedbyelevatedenergypricesandaramp-upinoilexpectedafteradecadeoffallingbehind(figureproduction.However,continuedweaknessinmetalB1.1.1.C).Worsestill,GDPpercapitainSSA,whichisprices—inpartreflectingweakergrowthinChina,projectedtohavetheslowestgrowthamongallregions,whichaccountsformostoftheglobalmetalsdemand—issettoincreasinglylagadvanced-economylevels.Thisisexpectedtosoftengrowthinmetal-exportingdeclineisoccurringinthecontextofweakinstitutionalcountries,especiallyinLACandSSA(BaffesandNaglequalityandflare-upsofconflictandviolence,further2022).underscoringthedevelopmentchallengesfacingthepoorestareasoftheworld.Followingasignificantdeclinethrough2023,headlineconsumerpriceinflationisprojectedtocontinueeasingAfteramarkedslowdowninglobaltradelastyear,anacrossEMDEregionsin2024.However,inECA,expectedmodestpickupin2024shouldsupportoutputMNA,SAR,andSSA,headlineinflationisyettoreturngrowthinmostregions.Manyexport-orientedtocentralbanktargetsinmanyeconomies.Moreover,economies,includinginECAandLAC,standtowithmostcommoditypricesprojectedtoremainabovebenefit,butinEAPslowergrowthinChinawillweighpre-pandemiclevels,householdsandbusinesses—onregionaltrade.Tailwindsfromtherecoveryinglobalparticularlyincommodityimporters—continueto18CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024BOX1.1Regionalperspectives:Outlookandrisks(continued)FIGUREB1.1.2RegionalrisksRisksfacingEMDEregionsaretiltedtothedownside,centeringonanescalationoftheconflictintheMiddleEast.ThiswouldleadtofurtherlossesinMNAandcoulddisruptglobalenergysupplyandincreaseprices,withparticularlyadverseconsequencesfornetpetroleum-importingregionsEAPandSAR.Increaseduncertaintyandweaker-than-expectedexternaldemand,includingthatresultingfromasharperslowdowninChina,posearisktoregionsmoreintegratedintoglobalvaluechainsandwithclosertradelinkswiththatcountry,includingEAP,ECA,LAC,MNA,andSSA.Allregionsfacedownsiderisksfromtighter-than-expectedfinancialconditions,particularlygivenrisingindebtednessandwideningfiscaldeficits.Morefrequentclimate-change-relatednaturaldisastersalsoposedownsideriskstoallregions.A.NetpetroleumexportsB.GlobalvaluechainoutputC.China’sshareofgoodsexportsPercentofGDPPercentoftotaloutput1620Percentoftotalgoodsexports12163020212010-198412250-4820EAPECALACMNASARSSA415010EAPECALACMNASARSSA50EAPECALACMNASARSSAD.DebtE.FiscaldeficitsF.Climate-relatednaturaldisastersPercentofGDPHouseholdPercentofGDP20232010-19Numberofdisasters2001-2022300Government0801980-2000250Non-financialcorp.200150-260100-440500-6202013-802023EAPECALACMNASARSSAEAPECALACMNASARSSA2013202320132023201320232013202320132023EAPECALACMNASARSSASources:EM-DAT(database);InstituteofInternationalFinance;InternationalMonetaryFund;UNComtrade(database);WorldBank.Note:EAP=EastAsiaandPacific;ECA=EuropeandCentralAsia;LAC=LatinAmericaandtheCaribbean;MNA=MiddleEastandNorthAfrica;SAR=SouthAsia;SSA=Sub-SaharanAfrica.A.AggregatesareGDP-weightedaveragesofnetexportsofpetroleumproductsandcrudeoilasapercentofGDP,between2018and2022.B.Aggregatesaresimpleaveragesofglobal-valuechainoutputasashareoftotaloutput,basedonTradeinValueAdded(TiVA)database.Lastobservationis2020.C.AggregatesareGDP-weightedaveragesofgoodsexportstoChinaasapercentoftotalgoodsexports.EAPexcludesChina.Periodaveragesofregionalaggregatesduring2010-19.D.Componentsofregions’totaldebtasashareofGDP.AggregatesareGDP-weightedaveragesinpercentofGDP.Observationfor2013is2013Q2andfor2023is2023Q2.Lastobservationis2023Q2.E.AggregatesaresimpleaveragesofthegeneralgovernmentfiscalbalanceasapercentofGDP.Periodaveragesofregionalgeneralgovernmentfiscalbalanceduring2010-19.2023isestimated.F.Averageannualnumberofclimate-relatednaturaldisastersduringtheperiod1980-2000and2001-2022.Disastersrefertodroughts,floods,extremetemperatures,andstorms.Lastobservationisend-2022.endureelevatedprices.Localfoodsupplyshocks—MiddleEast—andtherisksassociatedwithanpartlyduetoElNiñoconditions—arealsocontributingescalation,discussedbelow—alsounderscoresthetoexpectedpersistentlyhighfoodpricesandworseningsignificantuncertaintyfacingcommoditymarkets.foodinsecurity.ThesechallengesaremostacutewherethefoodshareofhouseholdspendingisgreatestandIntandemwitheasinginflationarypressures,thefoodsupplyhasbeenimpactedbyrepeatedshocksfromtighteningofmonetarypolicyappearstohavegenerallyconflictandadverseweather,notablyinMNAandSSA.endedacrossEMDEregions.Insomecases,policyTheinitialriseinoilpricesfollowingtheconflictintheinterestrateshaverecentlybeenreduced,mostnotablyGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER119BOX1.1Regionalperspectives:Outlookandrisks(continued)inregionswhereunderlyinginflationarypressuresHeightenedgeopoliticaltensionsandtradeappearmostbenignandwherecentralbanksbeganfragmentationcouldspuruncertaintyandscuttlethetighteningtheearliestinresponsetocommoditypriceprojectedrecoveriesintradeandinvestmentgrowth.Inshocksthrough2022and2023.Thisisparticularlythefaceofincreasedtradepolicyrestrictions,firmsinevidentinLACandsomeeconomiesinECA.WhileEMDEsarecontendingwithmountingtradefrictionsinterestratesareexpectedtodecreasefurtherinallandhighercosts.Thenear-shoringandfriend-shoringEMDEregionsthisyear,theextentofeasingmaybeofactivitiesinsomeadvancedeconomies,includinginlimitedinmanyinstances,partlyreflectingcontinuedresponsetodomesticcontentrequirements,hasstrainedtightmonetarypolicyinmajoradvancedeconomies.globalsupplychainsandshiftedtheglobaltradeandGivenlagsinmonetarypolicytransmission,headwindsinvestmentlandscape(AlfaroandChor2023).RegionsfromthesubstantialtighteninginallEMDEregionsmostreliantonglobalvaluechains,especiallythosethrough2022andmuchof2023willendureinthewithasignificantmanufacturingsectorreliantonneartermbeforefadingthrough2024-25.Moreover,intermediategoodstrade,includingEAPandECA,aretheslowestgrowthisprojectedinEMDEswithweakermostatrisk(figureB1.1.2.B).sovereigncreditratingsthathaveexperiencedthestrongestdragsonactivityfromtightglobalfinancialAllEMDEregionsfacetheriskofweaker-than-conditions,includinginMNA,SAR,andSSA.Fiscalexpectedexternaldemand,includingfromasharperpolicyisanticipatedtoexertabroadlyneutralinfluenceslowdowninChina.GivenChina’sgrowingshareofonactivityintheforecastperiod,thoughinsomeglobaloutputandtrade,ithasbecomeakeyexportregions,includingECA,SAR,andSSA,consolidationismarketforallEMDEregions,particularlyforEAPexpectedtogathermomentum,exertingadragonexcludingChinaandSSA(figureB1.1.2.C).Export-activity.orientedEMDEswithstrongdirectlinkstoChina,notablyinEAP,areparticularlyvulnerable.ExportersofRiskscommoditiesthatdependonChinesedemand,notablymetals,includingthoseinLACandSSA,arealsoRiskstothebaselinegrowthprojectionsforEMDEvulnerabletotherisksassociatedwithasharperregionsremaintiltedtothedownside,withrisksfromslowdowninChina.heightenedgeopoliticaltensions—especiallythoserelatedtotherecentconflictintheMiddleEast—beingRecentboutsoffinancialstressacrossEMDEshaveparticularlysalient.Asunderscoredbyhistoricalgenerallybeenconfinedtoasmallnumberofcountriesprecedent,anescalationintheMiddleEastconflictwithrelativelyweakcreditratingsinMNA,SAR,andcoulddisruptglobalenergysuppliesandcauseenergySSA.However,therecontinuetobenotablerisksofpricestospike(chapter1;WorldBank2023a).Alleventighterfinancialconditions—includingassociatedregionsareexposedtotheriskofhigherenergypriceswithcurrencydepreciations—confrontingallregions.butparticularlyEAPandSAR,bothnetpetroleumOverallindebtednesshasriseninallregionsovertheimporters(figureB1.1.2.A).Byincreasingproductionpastdecade,particularlyinEAPandLAC,withcosts,higherenergypricesresultingfromtheconflictmountingpublicandprivatedebt(figureB1.1.2.D).wouldhaveadverseknock-oneffectsforpricesofotherThismagnifiesexposuretotheriskofhigherinterestcommodities,includingmetalsandfood,pushingupratesthancurrentlyanticipated.Moreover,withfiscalinflationandworseningfoodsecurity.HigherinflationdeficitsestimatedtohavewidenedinmanyEMDEsincouldforcecentralbankstopauseplannedeasingor2023—tolevelsabovepre-pandemicaveragesinmosteventotightenfurther,weighingongrowth.Moreover,EMDEregions—thereisrenewedupwardpressureonMNA,andotherregionsdirectlyaffectedbyconflict,publicdebt(figureB1.1.2.E).includingECA,areexposedtotheriskoffurtherlossesofhumanlifeanddestructionofcapital,includingClimate-change-relatedextremeweatherevents,whichinfrastructure.Thiscouldoffsetanybenefittoenergy-havebecomemorefrequentinallEMDEregionsinexportingregionsfromhigheroilpricesandrecentdecades,poseadownsiderisktogrowthandsignificantlyweakenproductivecapacity(Dieppe,Kilicpovertyalleviation(figureB1.1.2.F;Jafinoetal2020).Celik,andOkou2020).AnelevatedriskofElNiñoconditionscontinuinginto20CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024BOX1.1Regionalperspectives:Outlookandrisks(continued)2024increasesthelikelihoodofasurgeinglobalthan-expectedU.S.activitypresentsanupsiderisktotemperatures,andofdisruptiveweatherpatternsthattheoutlookforallEMDEregions.Strongergrowthincoulddamageagriculturaloutput,particularlyinEAP,theUnitedStatescouldbeaccompaniedbydecliningLAC,andSSA(FAO2023a).Moreover,morefrequentinflationandeasingfinancialconditionsduetofurtherstormsandfloodscoulddamagecriticalinfrastructure,improvementsinlaborsupplyorproductivity.Export-includingfortransportandenergysupplies,withorientedeconomieswithsoliddirecttradelinkstotheadverseconsequencesforbroadereconomicactivity.UnitedStates,particularlyinEAPandLAC,wouldSucheventscanalsodirectlydisruptminingactivity,benefitmost.Otherregionswouldalsogain,includingposingaparticularthreattoECA,LAC,andSSA.throughpositivespilloverstoEMDEcommodityOthertypesofnaturaldisasterscouldinflictmajorexportersfromstrongerglobaldemand.Insuchacosts,asunderscoredbythedevastatingearthquakesinscenario,improvedglobalsentimentandmorefavorableMNAandSARlastyear.financialconditions—includingincreasedglobalinvestorriskappetite—couldeasefinancialpressureandFinally,growthintheUnitedStateswassurprisinglyborrowingcostsinallEMDEregions,therebyresilientin2023,andthecontinuationofstronger-supportingdemand.sovereigncreditratings,astheycontinuetosufferGrowthinoilexportersslowedtojust2.1percentfromthetightnessofglobalfinancialconditions.in2023,amidOPEC+productioncuts.GrowthGrowthisforecasttopickupinLICs,butbylessinmetalsexporters—agroupparticularlyexposedthanpreviouslyexpected.totheslowdowninChina—wasonly0.7percent.Inall,growthincommodityexportersisestimatedRecentdevelopmentstohaveweakenedbyabout0.7percentagepoint,to2.5percent,in2023.EMDEgrowthisestimatedtohavepickedupto4percentin2023—but,excludingChina,tohaveCommodityimporters,excludingChina,grewatadeceleratedto3.2percent.InmanyEMDEs,morerobustpaceof4.2percentin2023.Thiswassubdueddemandforgoodsinadvancedecono-largelyduetocontinuedresilienceinIndia,whichmiesweighedonexports,whileelevatedinterestisbenefitingfromincreasingpublicinvestmentratesdampeneddomesticdemand.Recentandsolidservicessectorgrowth(WorldBankbusinesssurveysindicateweakexpansionin2023b).ExcludingIndiaandChina,outputinmanufacturingandwaninggrowthinservicestheseeconomiesexpandedby3.1percent.Insome(figure1.8.A).Reflectingthesetrends,EMDEcommodityimporters,severefoodandenergygrowthisestimatedtohaveslowedmarkedlyinpriceshockshaveerodedrealwagegrowthsincethesecondhalfoftheyear(figure1.8.B).end-2021,dampeningconsumptiongrowth.ShiftsinthecompositionofglobaldemandhaveGrowthinLICsin2023wasparticularlyledtodivergenttradeoutcomesacrosscountries.disappointing,slowingto3.5percent—1.7WeakglobalgoodstradehasweighedonEMDEspercentagepointsbelowtheJuneforecast(figurewithlargegoods-exportingsectors.Thus,lastyear,1.8.D).ThisdowngradeislargelyattributedtotheexportvolumesbarelygrewinEMDEsinthetopeconomicconsequencesofrenewedcivilconflictquartileforgoodsexportsrelativetoGDP(figureinSudanandthecoupinNiger.Morebroadly,1.8.C).ExportsheldupbetteramongservicestheongoingconflictintheSahelregionhasexporters,whichbenefitedfromresilient,albeitcontinuedtoweighongrowth.slowing,growthofglobalservicesactivity,includingtourism.EMDEoutlookCommodityexportershavefacedheadwindsfromGrowthinEMDEsisexpectedtoaverage3.9subduedgrowthofglobalindustrialproduction.percentperyearin2024-25,broadlyinlinewithGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER121estimatesofEMDEs’potentialgrowthintheFIGURE1.8Recentdevelopmentsinemergingmarket2020s.ExcludingChina,EMDEgrowthisanddevelopingeconomiesprojectedtofirmfrom3.2percentlastyearto3.5percentin2024and3.8percentin2025(tableRecentindicatorspointtotepidgrowthinEMDEs,withservicesactivity1.1).Thispickupreflectssteadyimprovementsinslowingandmanufacturingactivityconstrainedbyelevatedglobalinterestprojectedtradegrowthandexpectationsforsolidratesandsubduedtrade.Growthisestimatedtohaveslowedinthedomesticdemandgrowthinseverallargesecondhalfof2023.WeakglobaltradeweighedongrowthinEMDEswitheconomies,asinflationcontinuestorecedeandlargegoods-exportingsectors.Thelargestrevisionsto2023growthinterestratesdecline.ThefirmingoutlookforforecastsareforLICs,dueinparttointensifiedcivilconflicts.externaldemandrepresentsapartialnormalizationoftherelationshipbetweenglobalGDPandA.PMIsurveysB.Semi-annualgrowthinEMDEsEMDEgoodsexports,followinganunusuallyservices-intensiveexpansionlastyear.GrowthisIndex(+/-=expansion/contraction)PercentEMDEsEMDEsexcl.Chinaforecasttoincreaseintwo-thirdsofEMDEsthis6year.8ManufacturingServicesDespitetheseimprovements,therecoveryfrom6theglobalrecessionof2020overtheforecasthorizonwillremainmodest.OverallEMDE4growthisprojectedtobeweakerthaninthe2010s,partlyasaresultoftheslowingofChina’s4potentialgrowth(figure1.9.A).ExcludingChina,EMDEoutputissettocontinuefollowingalower22paththanbefore2020(figure1.9.B).Thisprojectedrecoveryisalsosubstantiallyweakerthan0thatfollowingtheglobalfinancialcrisis,reflectingtheeffectsofRussia’sinvasionofUkraineandtheMar-2302023H12023H2riseininterestrates,aswellaslonger-termscarringApr-232022H2fromthepandemicanddeclininggrowthinMay-23working-agepopulations(figure1.9.C).Jun-23Jul-23Incommodityexporters,growthisexpectedtoAug-23strengthento2.9percentin2024andtoedgeupSep-23furtherto3.1percentin2025(figure1.9.D).Oct-23MuchofthisprojectedimprovementisduetoNov-23strongeractivityinenergyexporters,whereenergyproductionisexpectedtoreboundsomewhatC.ExportgrowthingoodsexportersD.Revisionsto2023growth,byEMDEfollowinglargecutsin2023.Althoughtheforecastandservicesexportersgroupassumesmodestenergypricedeclinesthisyearandnext,projectedpricesshouldbesufficienttoPercentServicesexportersPercentagepointssupportinvestmentandfiscalrevenuesinthese15Goodsexporters0.5economies,whichshouldboostbroadereconomicconfidenceandnon-energy-sectoractivity.100.0Growthinmetalexportersisforecasttorecover5-0.5somewhat,averaging2.6percentover2024-25,eventhoughgrowthinbothyearshasbeen0-1.0downgradedfromJune.TheslowdowninChina’srealestatesector,andthestructuralovercapacity-5thatitreflects,islikelytohaveenduring-10-1.5-15-2.0FCSSmallEMDEsEMDEsLICsstates-20excl.20192020202120222023e2024f2025fChinaSources:HaverAnalytics;WorldBank.Note:e=estimate;f=forecast;EMDEs=emergingmarketanddevelopingeconomies;FCS=fragileandconflict-affectedsituations;LICs=low-incomecountries;PMI=purchasingmanagers'index.A.Barsindicatethe3-monthmovingaverageofGDP-weightedPMIsurveyaggregatesforEMDEs,minus50.Valuesabove(below)0indicateexpanding(contracting)activity.B.Panelshowsannualized6-monthover6-monthgrowthratesforasampleof50EMDEs,comprising87percentofestimated2023EMDEGDP.C.Panelshowsannualgrowthinexports.Goods(services)exportersareEMDEsinthetopquartilefortheratioofgoods(services)exportstoGDP,basedonaverage2015-19values.D.PanelshowspercentagepointchangesingrowthforecastsrelativetotheJune2023editionoftheGlobalEconomicProspectsreport.SmallstatesareEMDEswithpopulationslessthan1.5million.SampleexcludesGuyana.dampeningeffectsonmetalsdemand.Theassociatedweaknessintheexportgrowthandtermsoftradeofmetalexportersisalsoexpectedtoconstraindomesticdemandgrowth,especiallyinthesizablenumberofmetalexporters(manyinSub-SaharanAfrica)facingprohibitiveinterna-tionalborrowingcosts.Inagriculturalexporters,growthisprojectedtoremainstableat2.6percentin2024,beforerisingto3.2percentin2025.Themoderateaccelerationnextyearpartlyreflectsagriculturalpricesthatarehighenoughtoencourageexpandedproduc-22CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024FIGURE1.9Outlookinemergingmarketanddevelopingtion,especiallyinsomelargeSouthAmericaneconomieseconomies.GrowthinEMDEsin2024-25isprojectedatabout3.9percentperyear,IncommodityimportersexcludingChina,growthclosetoitsestimatedpotentialrateforthe2020sandwellbelowtheisforecasttoremainat4.2percentin2024,andaveragegrowthrateofthe2010s.EMDEoutputissettocontinueonathenincreaseto4.5percentin2025.Manylargerlowerpaththanexpectedbeforethepandemic,evenexcludingChina’sEMDEsinthisgrouphavesubstantialexport-slowdown.Assuch,therecoveryfromthe2020recessionwillremainorientedmanufacturingsectors,whicharemodest,andweakerthanthatfollowingtheglobalfinancialcrisis.Growthexpectedtorecoversomewhatasgoodstradeisenvisagedtofirmincommodityexporters,whileedgingdowninexpandsafterlastyear’strough.Inaddition,commodityimporters.FiscalpolicyisexpectedtodampengrowthseveraleconomiesinSub-SaharanAfricaandEastsomewhatin2024-25.GrowthisforecasttobeslowestamongEMDEswithAsiaandthePacificareenvisagedtoseefurtherweakcreditratings.recoveriesintourism,whichhasyettoreturntopre-pandemicactivitylevels.Meanwhile,robustA.EMDEactualandpotentialgrowthB.OutputinEMDEsexcludingChinagrowthinIndiaismostlyduetostrongdomesticdemand:fixedinvestmentisforecasttocontinuePercentActualgrowthIndex,100=2018expandingrapidlyamidrisingpublicinfrastruc-6Potential,2022-30turespendingandstrongprivate-sectorcredit130growth,backedbysolidcorporatesectorbalanceOutputsheets(WorldBank2023b).120Pre-pandemictrendWithinflationprojectedtocontinueretreating,andpolicyratesalreadydeclininginmany4EMDEs,monetarypoliciesareexpectedtobemoresupportiveofEMDEgrowthin2024-25110than2023.Lowerdomesticinterestratesandimprovingrealincomesshouldstarttosupport2100consumptionandbusinessinvestmentin2024.Abroadereasinginglobalfinancingconditionsis2010-1990expectedtotakeholdin2025,asadvanced-averageeconomypolicyratesarefurtherreduced.This,inturn,shouldtranslateintoamorebenignexternal2023eenvironmentformanyEMDEs,asdollar-2024fdenominatedborrowingcostsmoderateand2025ffirminggrowthintheUnitedStatesandeuroarea2010-19supportstrade.average2023eFiscalpoliciesinEMDEsarepositionedto2024fdampengrowthsomewhatthisyearandnext,as2025fgovernmentsgraduallyconsolidatebudgets2018followingthepandemic-eradebtbuildup,partlyin2019responsetopressuresfromrisinginterestratesand2020debt-servicecosts(figure1.9.E).Consolidationis2021expectedtobeaccomplishedmainlythrough2022reductionsinprimaryexpenditures.2023e2024fTheimpactoftightglobalfinancialconditionson2025factivityhasbeenmostacuteintheroughlyone-EMDEsEMDEsexcl.ChinafourthofEMDEswithweakcreditratings(Caa-C).SeveralhaveexperienceddebtorcurrencyC.Expansionsafter2009and2020inD.EMDEgrowth,bycommoditycrises,necessitatingcurrentaccountadjustmentsEMDEsexcludingChinaexporterstatusIndex,100=t-1Percent20222023e2024f2025f12552009202012043115211011050100Commodityimporters95Commodityt-1tt+1t+2t+3t+4t+5exportersAgricultureexportersMetalexportersEnergyexportersE.EMDEfiscalimpulseandprimaryF.Mediangrowth,bycreditratingdeficitPercentofGDPPercentagepointsofGDPPercent4.5OtherEMDEsfiscalimpulse(RHS)4.02010-192023e2024f2025f3.5LICsfiscalimpulse(RHS)3.02.56OtherEMDEsprimarystructuraldeficit62.0LICsprimarydeficit3300-3-32019Aa-BCaa-C2020202120222023e2024f2025fSources:KoseandOhnsorge(2023);Moody’sAnalytics;WEO(database);WorldBank.Note:e=estimate;f=forecast;EMDEs=emergingmarketanddevelopingeconomies;LICs=low-incomecountries.A.PotentialgrowthasestimatedbytheproductionfunctionapproachinKoseandOhnsorge(2023).B.BluelineindicatesGDPoutcomesandcurrentforecasts.RedlineindicatesthecounterfactualhadGDPgrowninlinewiththeJanuary2020GlobalEconomicProspectsforecast,extendedatconstantgrowthratesbeyond2022.C.IndicesshowtheevolutionofoutputinEMDEsexcludingChinaaroundtheglobalrecessionsof2009and2020.“t”representstheyearoftheglobalrecession.Valuesfor2024and2025areforecasts.D.EMDEgrowthforecastfor56commodityimporters,andfor38agriculture,25metal,and30energyexporters.E.For“OtherEMDEs,”whichareEMDEsexcludingLICs,fiscalimpulseiscalculatedastheGDP-weightedinverseofthepercentagepointchangeintheprimarystructuralfiscalbalanceinpercentofpotentialGDP.ForLICs,theGDP-weightedfiscalimpulseissimilarlycalculated,butusingthesimpleprimarybalanceinpercentofGDP.F.Panelshowsthemediangrowthrateineachyearforcountriesineachcreditratinggrouping,accordingtoMoody'screditratingsinNovember2023.2010-19showsthemedianofcountry-specificaveragegrowthrateswithineachgroup.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER123throughsharpcurrencydepreciationsandimportgrowthinadvancedeconomies,averaging1.2compression.Theacutephaseofthesecrisespercentayearin2024-25,theoutlookisforperappearstobepassinginsomecountries,helpedbycapitaincomecatch-upbyEMDEsatapacetheintroductionofpolicyprogramssupportedbybroadlysimilartothe2010s.However,excludingmultilateralorganizations.Overall,growthinChina,EMDEpercapitagrowthisforecasttobeEMDEswithweakcreditratingsisprojectedtosignificantlylower,at2.2percentthisyearand2.5stabilizesomewhatoverthenexttwoyears,albeitpercentnextyear.atlowrates(figure1.9.F).Evenso,outputissettoremainwellbelowpre-crisispaths.Inmanycases,Althoughtheprojectedpaceofcatch-upisangrowthislikelytobetooweaktodurablyresolveimprovementcomparedtorecentyears,itwillthechallengeofunsustainablefiscalpositionsortofollowanextendedperiodduringwhichpercapitarepairthedeteriorationinlivingstandardsinincomesinmanyEMDEsmadelittleprogressrecentyears.towardthoseinadvancedeconomies.Indeed,excludingChinaandIndia,EMDEsinaggregateLICsoutlookareprojectedtomakenorelativegainsonadvancedeconomiesbetween2019and2025GrowthinLICsisprojectedtopickupfroman(figure1.10.A).Someofthemostvulnerableestimated3.5percentratein2023to5.5percentEMDEsarefallingfurtherbehind,withpercapitathisyearand5.6percentin2025—about0.5incomeforecasttoremainbelowits2019levelthispercentagepointbelowlastJune’sforecastsinyearinoverathirdofLICsandmorethanhalfofbothyears(box1.2).Growthisexpectedtobeeconomiesfacingfragileandconflict-affectedrelativelystrongamongsomeofthelargestLICs,situations(FCS;figure1.10.B).includingEthiopiaandUganda,butweakerinfragileLICs.eprojectedrecoveryin2024isHighpricesforessentialgoodsremainamajorunderpinnedbyapickupinLICmetalexporterschallengetolivingstandardsand,particularlyinandthestabilizationofsomeeconomiesmarredbyLICsandFCSeconomies,tohumancapitalconflictlastyear.Inparticular,Sudan’soutlookdevelopment.Moderatedeclinesincommodityhasimprovednotably,withhouseholdandpricessincetheir2022peakshavenotbeenfullybusinessspendingexpectedtocontinuerecoveringreflectedinconsumerpricesforfoodandfuel,andfromthesharpconflict-relatedcontractioninwageriseshavegenerallyfailedtocompensatefor2023.earlierrunupsinthesecosts(figures1.10.Cand1.10.D).Thus,althoughinflationhasstartedtoManyLICswillcontinuetofacedauntingmoderate,realincomesremainunderpressure.challenges,withprojectedgrowthinsufficienttoMoreover,thelargeshocksofthepastfewyears,allowsignificantprogressinreducingpoverty.eincludingthepandemicandtheinvasionofresourcesavailabletoLICgovernmentstosupportUkraine,havetendedtohitlow-incometheirpopulationscontinuetobesqueezedbyhouseholdsdisproportionatelyandexacerbaterisingdebt-servicecosts.Inaddition,slowprogresspoverty.Thisreflectssuchfactorsastheunequalindebtrestructuringaggravatesthesituationforlabormarketimpactsofthepandemicandlow-manyhighlyindebtedLICs,withaccesstonewincomehouseholds’highshareofspendingonexternalfinancingremaininghighlyconstrained.Afood(Adarovetal.2022;HoogeveenandLopez-surgeinpoliticalinstabilityposesadditionalAcevedo2021).challenges,includingtofoodsecurity,particularlyintheSahelregion.GlobaloutlookandrisksPercapitaincomegrowthSummaryofglobaloutlookEMDEGDPpercapitaisprojectedtogrowbyGlobalgrowthisprojectedtoedgedownfroman2.9percentin2024and3percentin2025,wellestimated2.6percentin2023to2.4percentinbelowits2010-19averageannualrateof3.72024,markingthethirdconsecutiveyearofpercent.Givensubduedprojectedpercapitadeceleration(table1.1;figure1.11.A).Relativeto24CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024BOX1.2Recentdevelopmentsandoutlookforlow-incomecountriesAfterslowingtoanestimated3.5percentin2023,economicgrowthinlow-incomecountries(LICs)isprojectedtorecovertoabout5.5percentinboth2024and2025—adownwardrevisionfrompreviousprojectionsmainlydrivenbyadeteriorationintheoutlookformetal-exportingLICs.Additionally,thegrowthinincomepercapitain2024-25isprojectedtobelower,athalftherateofgrossdomesticproduct(GDP)growth.Thenumberofpeoplestrugglingwithextremepovertyandfoodinsecurityinthesecountriesremainshigh.Recentflare-upsofpoliticalinstabilityandviolentconflicthavealsoamplifiedthechallengesfacedbysomeLICs.Inmanycases,inflationremainselevated,publicdebtburdenshaverisen,andactivityhasbeendisruptedbyextremeweatherevents.Againstthisbackdrop,riskstotheoutlookremaintiltedtothedownside,includingthosefromintensifyinginsecurityandviolentconflict,weakerglobalgrowth,higher-than-projectedinflation,increaseddebtdistress,andmorefrequentorintenseextremeweatherevents.AnescalationoftheconflictintheMiddleEastcouldleadtoanincreaseinfoodpriceinflationandfoodinsecurityinLICs,especiallythosehighlydependentonfoodandenergyimports.Introductioninflationcouldleadtoadditionalmonetarytightening,inturnaddingpressureonhighlyindebtedcountries.AlthoughgrowthinLICsisexpectedtoimprovein2024fromaweakperformancein2023,thenumberofAgainstthisbackdrop,thisboxaddressesthefollowingpeoplestrugglingwithextremepovertyandfoodquestions.insecurityinthesecountrieswillremainhigh.Sluggishgrowthlastyearmainlyreflectedincreasedpolitical•WhathavebeenthemainrecenteconomicinstabilityandviolentconflictinsomefragileLICs,developmentsinLICs?especiallySudan,andweakeroutturnsinsomemetal-exportingLICsfacinglowerglobalmetalprices.•WhatisthebaselineoutlookforLICs?PeacebuildinginEthiopiaisgraduallyyieldingdivi-dends,andgrowthprospectsforNiger,SouthSudan,•Whataretheriskstotheoutlook?andSudanareimprovingsomewhat.RecentdevelopmentsNonetheless,manyLICscontinuetostrugglewithpersistentvulnerabilitiesandfragility,asthelingeringGrowthinLICsslowedfrom4.8percentin2022toaneffectsofelevatedinflation,despiterecentdeclines,stillestimated3.5percentin2023.Thedeclinewasweighonfoodaffordabilityforvulnerablepopulations.pronouncedinNiger,primarilybecauseoftheJulyManyLICsalsocontinuetofacedifficultpolicytrade-coupandthesubsequentinternationalsanctions.Sudanoffs.Notonlyhaspolicyspacetosupportthepoorbeenalsofacedsignificantdeterioration,witharesumptiondepletedinmanyofthesecountries,buthighfinancingofconflictdamagingthecountry’sindustrialbase.Inneedsendangerdebtsustainability.ElevatedlevelsofabouthalfoftheLICs,estimatesforgrowthfor2023violenceandextremeweathereventshavecontinuedtohavebeendowngradedcomparedwithJuneprojections.displacepeople,disruptfoodsupplies,andexacerbatePervasiveviolenceandpoliticalinstabilityexacerbatedpoverty.thechallengingeconomicandhumanitariansituationsinmanyLICslastyear—especiallyintheSahelMultipledownsideriskscloudLICsprospects,includ-region—includingBurkinaFaso,Mali,Niger,Somalia,ingafurtherriseinlocalorglobalpoliticalinstabilitySouthSudan,andSudan(figureB.1.2.1.A).Whileandviolentconflict—especiallytheconflictinthepeacebuildingeffortsremainedfragileinEthiopiaandMiddleEast,whichcouldexacerbatefoodinsecurityintheDemocraticRepublicofCongo,growthintheseLICs.Also,theriskofasharper-than-expectedglobalcountries,thoughslowingin2023,remainedabovetheeconomicslowdown,especiallyoneemanatingfromLICaverage.China,ormoreadverseweatherevents,couldweighoneconomicactivity.Furthermore,morepersistentglobalOutputinagriculturalcommodityexportersgrewby2.9percentin2023—belowtheirlong-termaveragebutNote:ThisboxwaspreparedbyDominikPeschel.stillmarkedlyfasterthanintheirmetal-exportingcounterparts,whereoutputexpandedonlymarginallyasaresultoflowerglobalmetalpricesaswellasviolentconflictinsomeofthesecountries.InEthiopia,theGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER125BOX1.2Recentdevelopmentsandoutlookforlow-incomecountries(continued)FIGUREB1.2.1LICs:RecentdevelopmentsChallengesinLICsincludealargenumberofviolentevents,unevenprogresswithdisinflation,andahighleveloffoodinsecurity.ViolenceincreasedsharplyintheSahelregionofnorthernAfricain2023,withanumberofcoups.Progresswithdisinflationhasbeenuneven,withinflationrisinginsomecountries.Foodinsecurityleaptin2022andremainedhighin2023.A.ViolenteventsB.ConsumerpriceinflationC.FoodinsecurityPercentNumberofevents20Millionpeople1800OtherLICs16500SFotroedssceridsis12DemocraticRepublicofCongo8Emergency&worseSahel4400120003006002000Jan-20100Apr-2020222023Jul-200Oct-20201920202021Jan-21Apr-21Jul-21Oct-21Jan-22Apr-22Jul-22Oct-22Jan-23Apr-23Jul-23Oct-23Jan-21May-21Sep-21Jan-22May-22Sep-22Jan-23May-23Sep-23Sources:ACLED(database);FSINandGNAFC(2023);HaverAnalytics;InternationalMonetaryFund;WorldBank.Note:LICs=low-incomecountries.A.Three-monthsmovingaverage;violenteventsincludebattles,explosions,violenceagainstcivilians,andriots.LastobservationisNovember2023.B.Medianconsumerpriceinflation,year-on-year.SampleofnineLICs.Shadedareashowsthe25to75percentilerangeofinflationratesamongthecountries.LastobservationisOctober2023.C.Numberofpeoplefacingfoodsecuritystress,foodsecuritycrisis,oremergencyandworse.Sampleof24LICs.largestagriculturalexporterinSub-SaharanAfrica,Outlookpoultryandfruitproductionregisteredsharpincreases.InUganda,increasedagriculturalproductionalsoGrowthinLICsisprojectedtoincreaseto5.5percentboostedoverallgrowth.IntheDemocraticRepublicofthisyearand5.6percentin2025,upfrom3.5percentCongo,theworld’slargestcobaltproducerandamajorin2023(figureB.1.2.2.A).Theforecastsassumethatcopperexporter,lowerglobalmetalpricesandslowertheconflictintheMiddleEastdoesnotescalate,thatgrowthindomesticmetalproductioncontributedtoasecuritychallengesinanumberofLICsimprove,thatmoderationinactivity.GrowthinMozambiquepickednodebtcrisesemerge,andthatinflationpressuresupasproductionofliquefiednaturalgas,coal,andcontinuetodecline.aluminumincreased.DespitetheexpectedpickupinaggregateLICsgrowthWhileannualconsumerpriceinflationinthemedianin2024,theforecasthasbeendowngradedbyLICdeclinedin2023,theprogressinachieving0.5percentagepoint,drivenbydeteriorationinthedisinflationwasuneven,withinflationcontinuingtooutlookformetal-exportingLICs.Moreover,projec-riseinsomecountriesandremainingindoubledigitsintionsforgrowthin2024innearlyhalfoftheLICs—Ethiopia,TheGambia,Rwanda,andSierraLeonefragileandnon-fragilealike—havebeenreviseddown.(figureB.1.2.1.B).Inmanycases,foodpriceinflationReflectingweakercommodityprices,2024growthwaspersistentlyhigh(Burundi,Malawi,SierraLeone,forecastshavebeendowngradedfortwo-thirdsofmetal-Sudan).HighfoodandenergypricespushedtheexportingLICs,withdownwardrevisionsforthenumberofpeopleinLICsfacingfoodsecuritystressorCentralAfricanRepublic,DemocraticRepublicofworsecircumstancesabove400millionin2022,withCongo,Mozambique,andSudanbeingamongthesomefurtherincreasein2023(figureB.1.2.1.C).Inlargest.boththeDemocraticRepublicofCongoandSudan,morethan20millionpeoplefacedhighacutefoodGrowthinfragileLICsisforecasttoincreasefrom3insecurityinAugust2023(FSINandGNAFC2023).percentin2023to5.4percentin2024and5.5percentInsomecountries,weakeningcurrenciesexacerbatedin2025.GrowthprojectionsforSudanhavebeeninflationaryproblems(Burundi,Ethiopia,Sudan).reviseddown,asviolentconflicthasdamagedthecountry’sindustrialbaseandeducationandhealth26CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024BOX1.2Recentdevelopmentsandoutlookforlow-incomecountries(continued)FIGUREB1.2.2LICs:OutlookandrisksGrowthinLICsisexpectedtopickupin2024-25,followingadipin2023reflectingweakerperformanceinseveralfragileLICsandaslumpingrowthinmetal-exportingLICs.GrowthinfragileLICsexcludingthetwolargesteconomies—EthiopiaandtheDemocraticRepublicofCongo—willremainsubdued.Asaresult,percapitaincomeinthisgroup,onaverage,isexpectedtoremainmarkedlybelowpre-pandemiclevelsin2025.Moreover,theshareofLICsindebtdistressorathighriskthereofhasincreasedsignificantly.A.GDPgrowthB.RealincomepercapitainfragileLICsC.ShareofLICsin,orathighriskof,debtdistressPercentIndex,2019=10062000-19average130Percent4602FragileLICsexcl.CODandETHHighrisk0CODandETHIndebtdistress-2115401002022202023e2024fLICs2025f20222023e2024f2025f20222023e2024f2025f20222023e2024f2025f20162017201820192020202120222023e2024f2025f20132014201520162017201820192020202120222023FragileAgriculture-Metal-85LICsexexportingexporting0COD&LICsLICsETHSources:InternationalMonetaryFund;WorldBank.Note:e=estimate;f=forecast;COD=DemocraticRepublicofCongo;ETH=Ethiopia;FragileLICs=fragileandconflict-affectedLICs;LICs=low-incomecountries.A.AverageGDPgrowthratescalculatedusingconstantGDPweightsataverage2010-19pricesandmarketexchangerates.Samplecomprises21LICs,ofwhich13arefragileLICs.B.FragileLICsexcludetheDemocraticRepublicofCongoandEthiopia.C.Panelshowstheshareoflow-incomecountrieseligibletoaccesstheIMF’sconcessionallendingfacilitiesbylevelofdebtdistress.Thesamplesizevariesbetween18and23countries.EritreaandtheSyrianArabRepublicareexcludedbecauseoflackofadequatedata.facilities,whileremainingunchangedforBurkinaFasoPercapitaincomegrowthinLICsisexpectedtoandSouthSudan.Muchoftheprojectedstrengtheningacceleratefromananemic0.7percentin2023to2.7ofgrowthamongfragileLICsisaccountedforbythepercentin2024and2.8percentin2025.However,intwolargesteconomiesinthegroup—EthiopiaandthefragileLICs,excludingEthiopiaandtheDemocraticDemocraticRepublicofCongo.AssumingthattheRepublicofCongo—thetwomostpopulousLICs—perEthiopia-TigraypeaceagreementofNovember2022capitaincomegrowthwilllagsignificantlybehindtheholds,continuingrecoveryinEthiopiaisexpected,LICs’average.Asaresult,theaveragepercapitaincomedrivenbygrowthininvestmentandarecoveryininthissubgroupisexpectedtoremainmarkedlybelowgovernmentconsumption.IntheDemocraticRepublicpre-pandemiclevelsthrough2025(figureB.1.2.2.B).ofCongo,growthinminingandmetalproductionisexpectedtobeadverselyaffectedbylowerprices,buttoProgressinpovertyreductioninmanyLICsisexpectedremainthemaindriverofgrowth,albeitwithsupporttoremainslow,withpopulationsstillstrugglingtocopefromexpandingservicesactivity.withhighcostsofliving.Aftercurrentaccountdeficitswidenedin2022,primarilydrivenbysurgingimportGrowthinnon-fragileLICsisforecasttostrengthentobillscausedbyhighercommodityprices,thesedeficits5.8percentin2024and6.1percentin2025.Indidnotnarrowmuchin2023andarenotexpectedtoUganda,growthisexpectedtopickupasmonetaryshrinksignificantlyintheforecasthorizon.Althoughpolicyeasesamidwaninginflation,andasinvestmentgovernmentspending,whichincreasedin2022tosupportstourism,exportdiversification,andagro-mitigatethecost-of-livingincreases,camedowninindustrialization.FirminggrowthinRwandais2023,fiscaldeficitsareexpectedtoremainelevatedoverexpectedtobenefitfromincreasingtourismrevenuestheforecasthorizon.Debt-servicecostsandlevelsofandapickupinconstructionassociatedwiththenewpublicdebtremainhighformanyLICs,increasingtheairport,aswellasthecountry’sresilientpolicyframe-likelihoodofgovernmentdefaultsintheabsenceofwork(WorldBank2023c).agreementsondebtrelief(figureB.1.2.2.C).GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER127BOX1.2Recentdevelopmentsandoutlookforlow-incomecountries(continued)TABLEB1.2.1Low-incomecountryforecastsaPercentagepointdifferencesfromJune2023projections(RealGDPgrowthatmarketpricesinpercent,unlessindicatedotherwise)Low-IncomeCountry,GDPb202120222023e2024f2025f2023e2024f2025fGDPpercapita(U.S.dollars)4.24.83.55.55.6-1.7-0.5-0.4Afghanistanc1.32.00.72.72.8-1.6-0.4-0.4BurkinaFaso-20.7..........Burundi6.91.54.34.85.10.0....CentralAfricanRepublic3.11.82.94.24.5-0.10.00.0Chad1.00.51.31.63.1-1.70.20.3Congo,Dem.Rep.-1.22.23.02.82.7-0.2-2.2-0.7Eritrea6.28.96.86.56.2-0.9-0.6-0.4Ethiopiad2.92.52.63.23.3-0.1-1.1-1.3Gambia,The6.36.45.86.47.0-0.20.30.5Guinea-Bissau4.34.34.85.35.5-0.2-0.20.0Liberia6.43.52.85.64.5-1.7-0.2-0.3Madagascar5.04.84.55.46.20.21.10.0Malawi5.73.84.04.84.7-0.2-0.10.6Mali2.80.91.62.83.30.20.0-0.4Mozambique3.13.74.04.05.00.00.40.3Niger2.34.26.05.05.01.00.00.0Rwanda1.411.52.312.87.4-4.6-3.3-0.3SierraLeone10.98.26.97.57.80.70.3-1.7SouthSudand4.13.53.13.74.3-0.30.00.3Sudan-5.1-2.3-0.42.32.40.00.0-0.1SyrianArabRepublicc-1.9-1.0-12.0-0.60.2-12.40.00.0Togo1.3-3.5-5.5....0.0-2.1-1.8Ugandad6.05.85.25.25.80.3....Yemen,Rep.c3.44.75.36.06.6-0.4-0.10.3-1.01.5-0.52.0..0.0-0.2-0.10.0..Source:WorldBank.Note:e=estimate;f=forecast.WorldBankforecastsarefrequentlyupdatedbasedonnewinformationandchanging(global)circumstances.Consequently,projectionspresentedheremaydifferfromthosecontainedinotherBankdocuments,evenifbasicassessmentsofcountries’prospectsdonotsignificantlydifferatanygivenmomentintime.a.TheDemocraticPeople’sRepublicofKoreaandSomaliaarenotforecastonaccountofdatalimitations.b.AggregategrowthratesarecalculatedusingGDPweightsataverage2010-19pricesandmarketexchangerates.c.ForecastsforAfghanistan(beyond2021),theSyrianArabRepublic(beyond2023),andtheRepublicofYemen(beyond2024)areexcludedbecauseofahighdegreeofuncertainty.d.GDPgrowthratesareonafiscalyearbasis.Forexample,thecolumnfor2022referstoFY2021/22.Risksdisruptsupplychains,potentiallynecessitatingstrongereffortsbytheinternationalcommunitytobolsterfoodRiskstothebaselineforecastremaintiltedtothesuppliestoLICswithhighratesofmalnutrition(Worlddownside,particularlyforcountriesgrapplingwithBank2023a).fragility,andthosesusceptibletoconflictsandadverseweatherevents.AnescalationoftheconflictintheSlower-than-expectedgrowthinChinacouldresultinMiddleEastcouldexacerbatefoodinsecurityacrosslowercommodityprices,negativelyimpactingmetalLICsasmanyofthemarehighlydependentonfoodexportersinparticular.Ifinflationretreatsmoreslowlyandenergyimports.Aconflict-inducedsustainedoilthancurrentlyanticipated,centralbanksmighthavetopricespikewouldnotonlyraisefoodpricesbyincreas-maintainelevatedinterestratesforlonger,heighteningingproductionandtransportationcostsbutcouldalsotheriskofdebtcrisesinsomeLICs.Grossfinancing28CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024BOX1.2Recentdevelopmentsandoutlookforlow-incomecountries(continued)needsofsomeLICshaveincreasedsubstantiallysinceEconomicgrowthandpovertyreductioninLICscouldtheonsetofthepandemic,implyinghigherrisksofdebtslowmarkedlyiftheadverseeffectsofclimatechangedistress.becomemoresevere.ExtremeweathereventshavealreadyhadcatastrophicconsequencesinseveralLICs,ManyLICssufferfromfragilitystemmingfromespeciallyintheSahelregion,whichiswarmingfasterpersistentpoverty,aswellasfesteringviolenceandthantheglobalaverageandisalsoparticularlysuscepti-conflict,especiallyinEastAfricaandtheSahel(Burkinabletodesertification(WorldBank2022b).Additional-Faso,DemocraticRepublicofCongo,Ethiopia,Mali,ly,thecurrentElNiñoweatherpatterncouldbringSomalia,SouthSudan,Sudan).Whiletherehasbeenfurtherdevastationandincreasetheincidenceofvector-progresswithpeacemakingeffortsintheDemocraticborneandwaterbornediseases(WHOandWMORepublicofCongoandEthiopia,therehasbeen2023).ThenumberofpeoplefacingextremehungerincreasedpoliticalinstabilityinseveralotherLICs,withremainshigh,especiallyacrossEasternAfrica.Thiscoupsd’étatinNiger(2023),BurkinaFaso(2022),andsituationcouldworsenifglobalgreenhousegasChad,Mali,andSudan(2021).FurtherviolenceandemissionscontinuetoriseandLICswithsubstantialconflictwoulddepressgrowthmoreseverelythanintheadaptationgapsfailtoimprovetheirclimateresiliencebaselineandresultinextendedhumanitariancrisesinbecauseofinadequatefinancingandsupportfromthethesecountriesthatalreadyexhibitanarrayofmacroe-internationalcommunity.conomicvulnerabilities,suchashighdebtordebtdistress,heavyrelianceonfoodorfuelimports,andelevatedinflation.lastJune’sprojections,theforecastfor2023hascontinuedperiodofelevatedrealinterestrates.beenrevisedupby0.5percentagepoint,mainlyThiswillbeparticularlychallengingforvulnerablereflectingthestrengthoftheU.S.economy,EMDEswithlowersovereigncreditworthiness.whereasthatfor2024isunchanged,withasizableFormostsuchcountries,dollar-denominatedupgradetoU.S.growthaccompaniedbyabondyieldshavemovedwellabovenominalGDPdownwardrevisiontoeuroareaactivity.Growthisgrowth(inU.S.dollars),squeezingfiscalspaceforecasttopickupslightlyto2.7percentin2025,(figure1.11.C).owingmainlytofirmingadvanced-economyactivity,asinflationcontinuestosoftenandNotwithstandingtheprojectedfirmingofglobalinterestratesdecline.EMDEgrowthisprojectedgrowth,theoutlookremainssubduedbyhistoricaltobevirtuallyunchanged,atabout3.9percentastandards:theforecastforglobalgrowthoveryearthrough2024-25,withgrowthinChinaset2024-25,about2.5percentayearonaverage,istoslowwhilethatinotherEMDEspicksup.0.6percentagepointbelowthe2010-19averageEMDEgrowthisexpectedtobesupportedbyarate.Thispartlyreflectsthelingeringeffectsofmodestfirmingofexportandinvestmentgrowthrecentshocks,includingthepandemic,the(figure1.11.B).However,itisstillexpectedtobeinvasionofUkraine,thesharpincreaseinweakerthanitsaveragepaceoverthepasttwoinflation,andtheassociatedtighteningofglobaldecades,thoughbroadlyinlinewithestimatedfinancialconditions.Anothercontributingfactorpotentialgrowth.istheweakeningoftradegrowth,partlyattributedtomoreinward-lookingpolicies.However,theWhilethemoderationincommoditypricesinsubduedexpectedpaceofglobalgrowthalso2023contributedtoadeclineinglobalheadlinereflectsalonger-termdowntrendinpotentialinflation,servicesinflationhasprovedmoregrowth.ThestructuralslowdowninEMDEs,andpersistent,especiallyinadvancedeconomies,especiallyinChina,isduetoseveralforces:laborreflectingstill-tightlabormarkets.Assuch,theforcegrowthhasslowedbecauseofdemographiceasingofadvanced-economypolicyinterestratesshifts;productivitygrowthhasweakenedaswilllikelyproceedatameasuredpace,implyingagrowthdividendsfromimprovementsinhealthGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER129andeducationhavediminished,andassomeFIGURE1.10PercapitaincomegrowthEMDEshavemovedclosertoproductivityfrontiers;andthepaceofcapitalaccumulationhasEMDEsaresettomakelimitedprogresscatchinguptoadvanced-declined,inpartasaresultofdebtoverhangseconomylevelsofpercapitaincome;excludingChinaandIndia,no(figure1.11.D).relativegainsareprojectedbetween2019and2025.ManyvulnerableEMDEsarefallingfurtherbehind—percapitaincomeisforecasttoremainRiskstotheoutlookbelowits2019levelthisyearinone-thirdofLICsandhalfofeconomiesfacingfragileandconflict-affectedsituations.HighfoodandfuelpricesRiskstotheglobalgrowthoutlookhavebecomecontinuetoweighonrealincomesinmanyEMDEs.somewhatmorebalancedsincelastJune,asbankingsystemstressinadvancedeconomieshasA.ChangeinpercapitaincomeB.ShareofEMDEswithlowerGDPrecededandinflationhasdeclined.Nevertheless,relativetoadvancedeconomiessincepercapitain2024thanin2019risksremaintiltedtothedownside.Thepossibility2019ofanintensificationoftheconflictintheMiddlePercentofcountriesEastrepresentsamajordownsiderisk.This,orIndex,0=201970risinggeopoliticaltensionselsewhere,couldhave30Chinaadverseimpactsthroughcommoditymarkets,60tradeandfinanciallinkages,uncertainty,andIndiaconfidence.Weakgrowth,elevateddebt,andstill-20EMDEsexcl.ChinaandIndia50highinterestratesheightentheriskoffinancialstress,especiallyinthemorevulnerableEMDEs.FCS40Higherormorepersistentinflationmayrequirea10longer-than-assumedperiodoftightmonetarypolicy.SubduedrecentactivityinChinaraisesthe030possibilityofslower-than-expectedgrowth,whichwouldhaveadverseglobalspillovers.Trade20fragmentationandclimate-relateddisasterscouldalsoresultinweakergrowthinthenearandlonger-1010terms.Ontheupside,recentsurprisinglystrongeconomicactivityintheUnitedStates,alongwith-200declininginflation,pointstothepossibilitythat2019growthmaybestrongerthanprojected,perhapsas20212023e2025fEMDEsLICsFCSaresultofimprovedsupplyconditions.C.Consumerpriceinflation,fuelD.Consumerpriceinflation,foodConictandgeopoliticalriskscomponentcomponentGeopoliticalriskshaveincreasedsharplyinthePercentPercentwakeoftherecentconflictintheMiddleEast,5060whichcomesontopofRussia’sinvasionof40Ukraine(figure1.12.A).Anyescalationofthese3045conflictscouldhavesignificantconsequencesin20commoditymarketsandforeconomicactivity.1030WhiletheeffectsoftheconflictintheMiddleEast015oncommoditypriceshavesofarbeenmuted,-10historicalprecedentssuggestthatanescalation0couldleadtosignificantoilsupplydisruptionsandEMDEsAdvancedlargespikesincommodityprices,especiallyifeconomiesEMDEsAdvancedEMDEsAdvancedEMDEsAdvancedmajoroilproducersbecameembroiled(figureeconomies1.12.B).Atthegloballevel,soaringenergyprices19Q4-23Q2economieseconomiescouldpushupinflation,reducebusinessand23Q2-23Q319Q4-23Q223Q2-23Q3Sources:HaverAnalytics;OxfordEconomics;UNWorldPopulationProspects;WorldBank.Note:e=estimate;f=forecast;CPI=consumerpriceindex;EMDEs=emergingmarketanddevelopingeconomies;FCS=fragileandconflict-affectedsituations;LICs=low-incomecountries.GDPpercapitaaggregatesarecalculatedasaggregatedGDPdividedbytheaggregatepopulation.GDPaggregatesarecalculatedusingrealU.S.dollarGDPweightsataverage2010-19pricesandmarketexchangerates.A.PanelshowspercentagepointdifferencescomparedwiththepercentchangeinGDPpercapitainadvancedeconomies.C.PanelshowspercentagechangesinthefuelcomponentoftheCPI(aspresentedintheOxfordEconomicsModel)intheperiodsshown.Sampleincludes35advancedeconomiesand30EMDEs.Orangewhiskersshow25thand75thpercentiles.D.Panelshowspercentagechangesover2019Q4-2023Q2and2023Q2-2023Q3inthefoodcomponentofCPIforupto25advancedeconomiesand94EMDEs.Orangewhiskersshow25thand75thpercentiles.consumerconfidence,andleadtoatighteningoffinancialconditions,dampeninginvestmentandoverallactivity.Indeed,oilpricefluctuationshavebeenthepredominantdriverofglobalinflationvolatilityoverthelast50years,especiallyduringthepasttwodecades(Haetal.2023).Heighteneduncertaintyaboutthegeopoliticalenvironmentandconflictoutcomescouldcompoundtheseeffects(Caldaraetal.2023).Geopoliticaleventscanpromptaflighttosafetyininternationalcapitalmarkets,resultingin30CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024FIGURE1.11Globaloutlookincreasethelikelihoodofinflationarysupplybottlenecks,althoughtheextentofthisriskwillGlobalgrowthisprojectedtoedgedownin2024,decliningforthethirddependonthedegreeanddurationofdisruptions,consecutiveyear,beforepickingupin2025.ModestrecoveriesinexportsaswellasinteractionswithothersupplychainandinvestmentareexpectedtosupportEMDEgrowthinthenexttwoproblemssuchasweather-relatedcapacityyears.RisinginterestrateshavedrivenborrowingcostsabovegrowthreductionsinthePanamaCanal.ratesinmanyEMDEs,particularlythosewithweakercreditworthiness,whichhassqueezedfiscalspace.SubduedEMDEgrowthpartlyreflectsIntheregionsdirectlyaffected—suchasthethedowntrendinthedriversofEMDEpotentialgrowth.MiddleEastandEuropeandCentralAsia—protractedconflictcouldseverelyimpactgrowthA.ContributionstoglobalgrowthB.ContributionstoEMDEgrowthanddevelopmentthroughmanychannels.Thelossofhumanlife,disablinginjuries,andthePercentagepointsPercentPercentagepointsPercentdestructionofcapitalwoulddirectlyimpairtheEuroarea4Government8productivecapacityofaneconomy.More4UnitedStatesOtherAEs8ConsumptionExportsprecautionarybehaviorbyconsumersandWorld(RHS)3Growth(RHS)6businesseswouldlowerdemandsubstantially.ChinaInvestmentIncreaseddebt-financedmilitaryspendingmay4offsetthesenegativedemandeffectsintheshortOtherEMDEs6Importsterm,butitislikelytosapresourcesfrommoreproductivelong-termuses(CaldaraandIacoviello32022).4WeakergrowthinChina2222Asharper-than-expectedslowdowninChinawouldadverselyaffectglobaltradeaswellas1100commodityandfinancialmarkets.Thepropertysectorcouldfailtostabilizeifpersistentuncertain-00-2-2tyholdsbackprospectivebuyers,orifmounting2010-192023e2025ffinancialstressamongdevelopersconstrainthe2024f2010-1920222023e2024f2025ffinancingofnewprojectsorforceahalttoexistingaverageones.Persistentuncertaintyandweaksentimentaveragecouldholdbackhouseholdspendingandprivateinvestment.AgainstthebackdropofhighandC.EMDEbondyieldsminusnominalD.ContributionstoEMDEpotentialrisingpublicandprivatedebt,asharpslowdowngrowthratesgrowthcouldweakencreditqualityandbecomeself-reinforcing,withfinancialstressexacerbatingthePercentagepointsPercentagepointsLaborPercentchallengeofservicingexistingdebts,generating8negativefeedbackloopstoactivity.10EMDEsCapital86TheinternationalspilloversofasharpslowdownInvestmentgradeTFPinChinacouldbesevere.China’simportanceasanexportdestinationhascontinuedtogrowin5Potentialgrowth(RHS)6recentdecades,especiallyforEMDEs(figure1.12.C).Atthesametime,ChinahasbecomeaNon-investmentgrade44muchmoreimportantsourceofdemandforcommodities,notablyenergyandmetals(figure0221.12.D).Morerecently,thecountryhasemergedasamajorconsumerofcommoditiescentraltothe-500greenenergytransition(BaffesandNagle2022).-1020042010201620232000-212000-102011-212000-212000-102011-21EMDEsEMDEsexcl.ChinaSources:FederalReserveBankofSt.Louis;J.P.Morgan;KoseandOhnsorge(2023);Moody’sAnalytics;WorldBank.Note:e=estimate;f=forecast;AEs=advancedeconomies;EMBI=EmergingMarketBondIndex;EMDEs=emergingmarketanddevelopingeconomies.AggregatesarecalculatedusingrealU.S.dollarGDPweightsataverage2010-19pricesandmarketexchangerates.TFP=totalfactorproductivity.B.Balancedsampleincludes97EMDEswithdataavailabilityforcomponents,andthusmaydifferfromaggregatespresentedintable1.1.Componentsdonotadduptoheadlinegrowthduetostatisticaldiscrepancies.C.LinesshowmediansofannualaverageU.S.dollarbondyieldsminustrailing10-yearaveragesofnominalGDPgrowthinU.S.dollars.BondyieldsareconstructedbyaddingEMBIsovereignspreadstotheU.S.10-yearyield.Unbalancedpanelofupto61EMDEs.D.PanelshowsGDP-weightedaveragesofproductionfunction-basedpotentialgrowthestimates.Sampleincludes53EMDEs.exchangeratedepreciationsineconomiesdeemedriskier,whichcanbeanimportantsourceofinflationinEMDEs(ForbesandWarnock2012,2021).Warscanalsoreduceglobalsupplycapacitybydivertinginternationaltradeandcapitalflowsanddisruptingsupplychains,includingkeyglobalshippingroutes.RecentattacksoncommercialvesselsintheRedSeahavepromptedthereroutingofmuchofthefreightthatusuallytransitstheSuezCanal,lengtheningdeliverytimesandincreasingcosts.ThesedelaysGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER131ThedirectspilloverswouldbemostacuteforFIGURE1.12RiskstotheoutlookcountriesdeeplyengagedintradewithChina—particularlythoseenmeshedinglobalvaluechainsTheongoingconflictintheMiddleEasthasincreasedgeopoliticalrisks.withChina,includingmanyexport-orientedPastconflictsintheregionhaveseenoilpricesincreaseconsiderably.AneconomiesintheEastAsiaandPacificregion.Inescalationoftheconflictcouldresultinsubstantialdisruptionstoglobaloiladdition,exportersofcommoditiesinLatinsupply,whichcouldsignificantlyraiseglobalinflationanddampenactivity.America,notablyironoreandcopper,wouldfaceWeakergrowthinChinacouldhaveadverseimplicationsforitstradingparticularlyadverseeffects.Weakeractivityinpartners,especiallycommodityexporters.Chinawouldalsoweighonglobalenergydemandandprices,adverselyimpactingenergyexporters.A.GeopoliticalriskindexandB.Oilpricechangesduringconflict-conflictsrelateddisruptionsintheMiddleEastAslowdowninChinacouldalsoadverselyaffectglobalfinancialconditions.AlthoughdirectIndex,100=1985-2019LatestconflictinthePercentchangelinkagesbetweenChina’seconomyandglobalMiddleEast120financialmarketsarelimited,themacroeconomiceffectsofChina’screditcyclescandriveshiftsin8009/11attackLibyancivilwarInvasionof80investorsentiment.Thus,ifthedownturnintheUkrainerealestatesectorweretointensify,theresulting40increaseinnon-performingloanscouldcause600domesticlenderstoretrenchinordertopreserve0capitalandliquidity.Theknock-oneffectson400U.S.airdemandinChinaandtheirrepercussionscould200strikeonleadmarketparticipantstoreviseglobalgrowthBaghdadexpectationsdown,causingsentimenttoweakenandriskaversiontorise,therebyresultingina02000tighteningofglobalfinancialconditions(Ahmed2002etal.2019).China’spositionasalargebilateral2005creditortomanyEMDEsposesafurtherpossible2007channelforadversespillovers.Pressureonthe2010balancesheetsofdomesticlenderscouldlessen2012theirreadinesstoextendcreditoverseas.This,2015inturn,couldexacerbatethealready-strained2018financialpositionsofsomelow-andlower-2020middle-incomecountries.2023FinancialstressAraboilembargoInterestratesinadvancedeconomieshaverisenIranianmarkedlyoverthepastcoupleofyears,ascentralrevolutionbankshaveactedtoreinininflation.TherehaveIran-Iraqalsobeenoccasionalsurgesinlong-termbondyields,whichhavebeenassociatedwithepisodeswaroffinancialstress,includinginstabilityinU.K.giltKuwaitmarketsin2022andthefailuresofseveralU.S.invasionbanksearlylastyear.TheseboutsoffinancialLibyaninstabilitywerestemmedbytimelyandextensivecivilwarpolicyresponses.Thereremainsarisk,however,thatrenewedincreasesinmarketinterestrates,orC.ShareofgoodsexportstoChinaD.China’sshareofglobalanextendedperiodofelevatedrealpolicyrates,commoditiesconsumptioncouldexposelatentfinancialandeconomicvulnerabilities,precipitatingasouringofriskPercentoftotalgoodsexportsPercentofworldtotal200020226020AdvancedeconomiesEMDEs164012820400OilNaturalCoalMetals20002003200620092012201520182021gasSources:Bloomberg;CaldaraandIacoviello(2022);EnergyInstitute;UNComtrade(database);WorldBank(2023a);WorldBank;WorldBureauofMetalStatistics.Note:EMDEs=emergingmarketanddevelopingeconomies.A.Geopoliticalriskindexreflectsanautomatedtext-searchofelectronicarticlesfrom10newspapers,relatedtoadversegeopoliticaleventsineachnewspaperforeachmonth.Ahigherindexisrelatedtolowerinvestment,stockprices,andemployment.LastobservationisDecember11,2023.Redverticallinesshowadversegeopoliticalevents.B.Changesinaveragemonthlyoilpricesthreemonthsaftertheonsetofgeopoliticalevents.C.Panelshowstheshareofadvanced-economyandEMDEgoodsexportsdestinedtoChina.Lastobservationis2021.D.PanelshowsChina’sshareoftotalworldconsumptionofreportedcommodities.appetiteandasharptighteningofglobalfinancialconditions.Therecouldbeseveraltriggersforsuchanoutcome.Monetaryeasinginadvancedeconomiescouldbepostponedifprogressreturninginflationtotargetsweretosloworiflabormarketstightenedunexpectedly.Alternatively,anegativesupplyshock,suchasasizableincreaseinoilpricesrelatedtogeopoliticaldevelopments,couldseeinflationresurge.Followingalengthyspellofabove-targetinflation,centralbanksmightjudgethatsurgingnon-corepricescouldraiseinflationexpectations,necessitatingtightermonetary32CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024FIGURE1.13Riskstotheoutlook(continued)yieldscouldbeamplifiedbytheunwindingoftheleveragedpositionsofnon-bankfinancialVolatileU.S.termpremiapointtothepersistentriskoffinancialstressandinstitutions,includingthoseintendedtoprofitEMDEcapitaloutflows.Firmsinsomeadvancedeconomieshavebeenfromarbitragestrategiesingovernmentbondreassessingtheirglobalsupplychainexposuresandinvestingmoreinmarkets(AvalosandSushko2023).theircountriesorregions.Climate-relatednaturaldisasterscouldincreaseextremepoverty.IntheUnitedStates,earlyretirementshavebeenalmostSuchdevelopmentscoulddriveborrowingratesfullyoffsetbyrisingprime-agelaborforceparticipation,potentiallyhigher,chokeoffcreditgrowth,andpromptsharpsupportingbothgrowthanddisinflation.fallsinassetprices.Forfinancialinstitutions,asuddenandpronouncedsteepeningoftheyieldA.AveragemonthlyEMDEportfolioB.ReshoringbyU.S.andEUcurve,drivenbyariseinthetermpremiumonflowsbychangeinU.S.termmultinationalslong-datedsecurities,couldleadtocapitalpremium,2010-23impairmentandfurtherexacerbatethecreditPercent20222017-19crunch—apotentialoutcomemademorelikelybyUS$,billions60thelenientregulatorytreatmentofsovereignrisk2(BIS2018).Forbusinessesininterest-sensitivesectors,includingcommercialrealestate,rolling1overloanscouldbecomechallenging.Overtime,arisingproportionofhouseholdscouldstruggleto40serviceloans,includingadjustable-ratemortgages,erodingthequalityofbankassets.0EMDEswouldbeheavilyexposedtospillovers-120fromtighterfinancialconditionscausedbyhigherU.S.interestratesorsurgingriskaversion.The-2U.S.dollarwouldstrengthenagainstEMDEcurrencies,drivingupthecostofservicingdollar-<0bps0-12.512.5-2525+bps0denominateddebtandlikelyexertinganear-termU.S.interstatedragonEMDEactivity,aswellasraisinginflationbpsbpsIntra-EU27(Bozetal.2020;Greenwoodetal.2020).EMDEswithtwinfiscalandcurrentaccountdeficitswouldC.ImpactofclimatechangeonD.U.S.laborforceparticipationratesbeatparticularriskofrapidcapitaloutflows,extremepovertyby2030whichtendtoaccompanysuddenincreasesinU.S.termpremia(figure1.13.A).InflationarypressuresMillionsofpeopleNaturaldisastersandPercentagepointsTotal25-5455+associatedwithweakeningcurrenciescouldlead105hazardsEMDEcentralbankstodelaymonetaryeasing,Laborproductivity1.0dampeninggrowthfurther.Thenumberof900.5EMDEsexperiencingdebtdistresscouldalso75Health0.0increase,raisingtheprobabilityofanewwaveof-0.5costlysovereigndebtdefaults.Thesedynamics60Agricultureproductivity-1.0couldbeexacerbatedbynegativefeedbackloops-1.5generatedbythelargeexposuresofmanyEMDE45andfoodpricechannel-2.0bankingsectorstolocalgovernmentdebt(Feyen-2.5andZuccardi2019).30-3.0Tradefragmentation15Increasingtraderestrictions,whichhavebecome0Minimum-impactDec-19morecommoninrecentyears,presentanotherMaximum-impactclimatechangeMay-20riskofdamagetobothnear-andlong-termglobalclimatechangeNov-20growthprospects.TraderestrictionstendtoscenarioscenarioMay-21Nov-21May-22Nov-22May-23Nov-23Sources:FederalReserveBankofSt.Louis;FinancialTimes;InstituteofInternationalFinance;Jafinoetal.(2020);KimandWright(2005);MulabdicandNayyar(forthcoming);U.S.BureauofLaborStatistics;WorldBank.Note:EMDEs=emergingmarketanddevelopingeconomies;EU=EuropeanUnion.A.Panelshowsaverage4-weeknetnon-residentpurchasesofEMDEdebtandequitysecurities,categorizedbythecorresponding4-weekchangeintheU.S.10-yeartermpremium,asestimatedbyKimandWright(2005).Unbalancedsampleincludesupto20EMDEsfromJanuary1,2010,toDecember15,2023.B.fDiMarketsbytheFinancialTimes.U.S.valuesindicatethepercentageoftotalgreenfieldinvestmentbyU.S.companieswithintheUnitedStates;EU-27valuesindicatethepercentageofgreenfieldforeigndirectinvestment(FDI)byEU-27companiesinotherEU-27economies.Dataareforinvestmentannouncements.C.Numberofadditionalpeopleinextremepovertyin2030owingtoclimatechange.BasedonJafinoetal.(2020),baselinescenariosarecreatedwithoutaccountingforclimatechangeimpactsbutwithfactoringinpossiblechangestodemography,education,laborforceparticipation,economicstructure,productivity,andredistribution.Then,climatechangeisintroducedinthesebaselines.Themaximumandminimumlevelsofclimateimpactsrepresenttheuncertaintyonthephysicalimpactsofclimateandlocaladaptationpolicies.D.Panelshowsdifferenceinpercentagepointsinthe3-monthmovingaverageoflaborforceparticipationratessinceDecember2019forgroups55andabove,25-54,andallages.LastobservationisNovember2023.policies.Incircumstanceslikethese,heighteneduncertaintyoverthepathofpolicyrates,abettedbyexpansivegovernmentborrowingorquantita-tivetightening,couldpromptsharpincreasesintermpremia,drivingbondyieldshigher(Cohen,Hördahl,andXia2018).EstimatesofU.S.termpremiain2023exhibitedsubstantialvolatility,whichcouldcontinueinto2024.SuddenmovesinGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER133reduceeconomicefficiencyandoftenfailtomeetgeneratesignificantlossesinlives,livelihoods,andtheirprimaryobjectivesbecauseofavoidanceoutput(Casey,Fried,andGoode2023).Naturalefforts.eresultmaybejustashiftinthepatterndisasters,includingthoselinkedtoclimatechange,ofinterdependenceamongcountries,withimpacted130millionpeopleandcausedmoreincreasingindirectlinkagesthroughsupplychainsthan40,000deathsannually,onaverage,overthe(AlfaroandChor2023;Freundetal.2023).Forpastthreedecades(Song,Hochman,andinstance,followingtheincreasesintariffsimposedTimilsina2023).Climatechange-relateddisastersbytheUnitedStatesonimportsfromChinainhavecausedseveredamagetoprivateandpublic2018and2020,countriesthatexpandedtheirinfrastructure,disruptedoutput,andreducedmarketsharesintheUnitedStatesalsostrength-productivity(Dieppe,KilicCelik,andOkouenedtheirtradetieswithChina.Suchtariff2020;Hallegatte,Jooste,andMcIsaac2022).increasesmaythereforenothaveachievedtheirprimaryobjectiveofreducingU.S.economicTheadverseeffectsofclimatechangeandnaturaldependenceonChina,buttheyarelikelytohavedisastersongrowthcouldbeamplifiedbylimitedledtohigherpricesofimportedgoodsforU.S.fiscalcapacitytorespondtothem,orthroughconsumersbyincreasingthelengthandcomplexi-theirimpactonpublicsectorbalancesheetstyofsupplychains.Othereffortsatfriend-(Milivojevic2023).Naturaldisasterscouldalsoshoring,near-shoring,oron-shoring,motivatedbyposeriskstothestabilityofbankingsectorsbygeopoliticaltensions,couldhavesimilarresults.compromisingloancollateralandtriggeringincreasesinnon-performingloans(Nie,Regelink,Surveydata,aswellasrecentforeigndirectandWang2023).Atthesametime,thefinancialinvestment(FDI)announcements,suggestthatsectorfacesbalancesheetrisksfromthegreenfirmsinsomeadvancedeconomieshavebeentransition,suchasfromstrandedassetsinhigh-reassessingglobalvaluechainexposuresandcarbonsectors.divertinginvestmenttodomesticorregionalsupplychainstoreducevulnerabilitiestoClimatechange-relatednaturaldisasterswilllikelygeopoliticalrisksandtradepolicyshocks(figureaffectdifferentcountriestodifferentextents,1.13.B;Alickeetal.2022).However,well-dependingontheirgeographyandtheireconomicfunctioninganddiversifiedglobalvaluechainsarestructures.Relativetoadvancedeconomies,asourceofresiliencemorethanvulnerability,andEMDEshavelesscapacitytorespondtothesetheirunravelingcouldleadtosignificantwelfaredisasters,whileintensiveurbanizationinsomelosses(Bonadioetal.2021;diGiovanniandEMDEsmayincreasevulnerabilitytosuchhazardsLevchenko2009;Javorciketal.2022).asfloods(Rentschleretal.2022).Moreover,theimpactsofnaturaldisastersarelikelytobeunevenGlobaltradegrowthcouldalsobedampenedbyacrosspopulationsandtoincreasepovertyotherpolicies,includingincreasesinsubsidiesfor(HallegatteandRozenberg2017;Jafinoetal.domesticindustriesinlargeeconomies.Overthe2020).longerterm,thegreaterfragmentationofinvestmentandtradenetworkscouldweakenClimatechangeandtheassociatedincreaseinpotentialgrowthbylimitingcross-bordernaturaldisasterscanexacerbatepovertythroughtechnologicaldiffusion,reducingefficiency,andseveralchannels.Forexample,changingenviron-raisingprices(Branstetter,Glennon,andJensenmentalconditionsthatworsenthespreadof2018;BueraandOberfield2020;GóesanddiseasemayresultindeterioratinghealthBekkers2022).outcomesforlow-incomehouseholds,includingincreasedprevalenceofchildstunting(figureMorefrequentnaturaldisasterswithworsening1.13.C).Adverseeffectsonagriculturalyieldsimpactscouldalsoraisefoodprices,whichisespeciallyproblematicforpoorerhouseholdsthatspendaThepossibilityofincreasinglyfrequentandseverelargeshareoftheirincomeonfood.Insomenaturaldisastersresultingfromclimatechangecountries,poorandvulnerablepopulationsliveinposesaglobalthreat,withthepotentialtoinformalsettlementsormaylackaccessto34CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024adequatehousing,leavingthemmorevulnerablecouldbepromptedbyabundantjobopportuni-totheimpactsofextremeweatherevents,otherties,acontinuedrecoveryinimmigration,pastnaturaldisasters,andassociateddiseaseswageincreases,ordepletedsavings.(Dodman,Archer,andSatterthwaite2019).Climatechange-relatedandothernaturaldisastersIntheseconditions,continuedemploymentgainscouldalsodisproportionatelyaffectagriculturalwouldhelpsupporthouseholdincomes,whiletheworkersinmanyEMDEsandincreasefoodincreasedsupplyoflabor,alongwithproductivityinsecurityinregionswithlargenumbersofgains,wouldhelpcontainincreasesinfirms’laborsubsistencefarmerswholacktheresourcestocosts.Relativetothebaselineprojection,suchamaintainconsumptioninthefaceofcropfailuressupplygainwouldallowdecliningcoreinflation(Khanaletal.2021).tobecoupledwithsolideconomicgrowthintheUnitedStates,whilefacilitatingthemaintenanceUpsiderisk:StrongergrowthintheUnitedofhealthyhouseholdbalancesheets.ThiswouldStatesgeneratepositivetradespilloversacrossEMDEs.TheimpactonglobalfinancialconditionswouldGrowthintheUnitedStatesprovedmoreresilientlikelyalsobepositive,asprospectsforimprovedthanexpectedin2023,withunemploymentgrowth,lowerinflation,andfastereasingofU.S.remaininglow,despitethesharpestmonetarymonetarypolicywouldbuoyinvestorriskpolicytighteningindecades.Atthesametime,appetite.inflationcontinuedtoretreatfrommid-2022peaks,partlyonaccountofwaningenergyandGrowthoutcomesunderalternativescenariosfoodprices,aswellassomemoderationincoreinflation.Thesedevelopments—resilientgrowth,Ifanyoftherisksdiscussedaboveweretolowunemployment,andeasinginflation—rarelymaterialize,itcouldlikelyleadtodifferentgrowthcoincideandrepresentabreakfromthegenerallyoutcomesfrombaselineprojections.Usinganegativehistoricalrelationshipbetweenlaborglobalmacroeconomicmodel,thegrowthmarketslackandinflation(Hazelletal.2022).implicationsofthreedownsideriskscenariosareThedisinflationislikelyattributabletoaexamined—anincreaseinoilpricesduetoariseincombinationofpositivesupplydevelopments,geopoliticaltensions,financialstressinEMDEsincludingarebuildingofglobalsupplychainsanddrivenbyareassessmentofriskinthecontextofagradualpost-pandemicrecoveryinlaborsupply,elevateddebtandhighborrowingcosts,andandanchoredinflationexpectations.Inaddition,aweakergrowthinChinabecauseofanintensifica-post-pandemicshiftofdemand,fromgoodsbacktionofstrainsintherealestatesector.1Intoservices,islikelytohavecontributedtoaddition,oneupsidescenarioisconsidered,disinflationingoodsprices,withservicesinflationcenteredonacontinuationofrobustgrowthinslowertoreact.theUnitedStatesdrivenbyrisinglaborsupply.2Lookingahead,furtherpositivedevelopmentsonHigheroilprices.Inthebaselineforecast,oilthesupplyside,includingcontinuingincreasesinpricesareassumedtodeclinegraduallyin2024laborforceparticipationandefficiencygainsinand2025.Analternativescenarioenvisagesoilglobalsupplychains,couldliftproductivitygrowth(FernaldandLi2023).Thiscouldleadto1ThescenariosareproducedusingtheOxfordEconomicsGlobalhigherU.S.outputgrowththanprojectedintheEconomicModel,asemi-structuralmacroeconomicprojectionmodelbaseline,combinedwithcontinueddisinflation.thatincludes188individualcountryblocksinitsextendedversion,Thereductioninlaborsupplycausedbytheearlyavailableatquarterlyorannualfrequencies(OxfordEconomicsretirementofolderworkersduringthepandemic2019).Whiletherisksconsideredinthissectionaremodeledandhasbeenalmostfullyoffsetbyincreasedparticipa-presentedindependently,itispossiblethattwoormoreofthesetionbytheprimeworking-agepopulation(figureshockscouldoccurtogether.1.13.D).Acontinuationofthistrendwouldhelpfurtherboostlaborsupplyandemployment;it2Theimpactspresentedinthissectionareconsistentwiththeexistingliterature.SeeHaetal.(2023)fortheeffectsofoilprices.SeeAhmedetal.(2019),Barcelonaetal.(2022),Huidrometal.(2019),andWorldBank(2016)forspilloversfromChina.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER135pricessurging30percentabovethebaselineintheFIGURE1.14Growthoutcomesunderalternativefirstquarterof2024(and20percentonaverageinscenarios2024),drivenbydisruptionsincrudeoilsupplyarisingfromanescalationofconflictintheMiddleAlternativedownsidescenariosincludehigheroilpricesduetoanEastorelsewhere.Theinitial30percentincreaseescalationofgeopoliticaltensions,financialstressinEMDEsleadingtoiscalibratedtomimicpricechangesseenduringsurgingspreads,andweakergrowthinChina,resultinginnegativesimilarpastepisodes(WorldBank2023a).Afterspilloversviacommoditymarketsandotherchannels.Inthesescenarios,thefirstquarterof2024,oilpricesareassumedtoglobalgrowthcouldbeupto0.2percentagepointbelowthebaselineingraduallyreturntothebaseline.Asaresultofthe2024.Anupsidescenarioenvisageshigher-than-expectedU.S.growth,jumpinoilprices,globalconsumerpriceinflationmainlyduetocontinuedstrengthinsupplyconditions,whichcouldboostincreasesby0.8percentagepointrelativetotheglobalgrowthby0.2percentagepointabovethebaselinethisyear.baselinein2024,beforeeasingin2025.Risinggasolinepricesreducerealhouseholdincomes,A.ChangeingrowthduetohigheroilB.ChangeingrowthduetofinancialwhilehigherinputcostsdrivebusinessestocurtailpricesstressinEMDEsinvestment.3Asaresult,globalgrowthin2024is0.2percentagepointbelowthebaseline.ApartialPercentagepointdeviationPercentagepointdeviationrecoveryfromtheoilshocktakesholdin2025,frombaselinefrombaselinewithgrowth0.1percentagepointabovethe0.50.5baseline(figure1.14.A).0.00.0FinancialstressinEMDEs.In2023,financialmarketsremainedgenerallysanguineaboutdebt--0.5-0.5relatedrisksinmostEMDEs,despitebroadlyelevateddebtlevelsandrisingadvanced-economy-1.0-1.0bondyields.However,investorriskperceptions,202420252024202520242025202420252024202520242025andthustheirriskappetite,coulddeterioratesuddenly,asaresultofawiderangeoffactors.WorldAEsEMDEsWorldAEsEMDEsTheseincludethecontinuedbuildupofEMDEdebtinthecontextofhighglobalrealinterestC.ChangeingrowthduetoweakerD.Changeingrowthduetostrongerrates,orasurgeintermpremiaonbonds,drivengrowthinChinaU.S.growthbylargefiscalfundingrequirementsinsomeadvancedeconomies.SuchadeclineinriskPercentagepointdeviationPercentagepointdeviationappetitecouldbecomeself-reinforcing,ascurrencyfrombaselinefrombaselinedepreciationsandcapitaloutflowsputpressureon0.50.5EMDEbalancesheets.0.00.0InanEMDEfinancialstressscenario,spreadsonsovereignandcorporatedebtinEMDEsare-0.5-0.5assumedtoincreaseby100-150basispointsinthefirstquarterof2024relativetobaselineassump--1.0-1.0tions,withmorevulnerableEMDEsexperiencing202420252024202520242025202420252024202520242025largerincreases.Thisshockdissipatesovertheforecasthorizon,withspreadsgraduallyreturningWorldAEsEMDEsWorldAEsEMDEstobaselinelevels.Asaresult,growthinEMDEsin2024is0.6percentagepointbelowthebaseline,asSources:OxfordEconomics;WorldBank.consumersandbusinessesreducespending,andNote:AEs=advancedeconomies;EMDEs=emergingmarketanddevelopingeconomies.globalgrowthis0.2percentagepointbelowtheA.-D.PanelsshowtheimpactongrowthinalternativescenariosrelativetothebaselineinpercentagepointsusingOxfordEconomics’GlobalEconomicModel.3Thisscenarioassumeslimitedreactionsfromcentralbanks,astheshockdoesnotaffectnon-oilprices.baseline(figure1.14.B).AdvancedeconomiesareinitiallynotsignificantlyaffectedbythedeclineinEMDEactivitybecauseoftheoffsettingpositiveimpactoflowercommoditypricesondomesticdemand,butthismitigatingfactorfadesin2025.InflationinEMDEsislittlechanged,withthedisinflationaryeffectofweakerdomesticdemandoffsetbytheinflationaryimpactofdepreciatingcurrencies.Inadvancedeconomies,inflationisreducedsignificantlyin2024,comparedwiththebaseline,partlyonaccountofweakercommoditypricesandappreciatingcurrencies.WeakergrowthinChina.Inthebaselineforecast,outputinChinaisprojectedtogrowby4.5percentin2024and4.3percentin2025.36CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024However,theseprojectionsaresubjecttovariousinflationrisesbyapproximately0.5percentagedownsiderisks.Analternativescenarioenvisagespointin2024abovethebaseline,beforedecliningChina’srealestatesectorslowingmoresharplyinlinewithlowercommodityprices.TheFederalthanexpected,withacorrespondingdecreaseinReserve’sresponsetohigherinflationismutedhouseholdspendingrelativetothebaseline.Thegiventhatcorepricesremainbroadlyunaffected.morepronouncedslowdowncouldbedrivenbyAlthoughthisleadstonoadditionalincreasesintightercreditconditionsandweakerconfidence.U.S.policyrates,theeasingpathover2024isAsaresult,growthinChinaisreducedby1moregradualthaninthebaseline.percentagepointin2024,beforerecoveringin2025.OtherEMDEsareaffectedbyweakerPolicychallengesdemandfromChina,particularlyforcommodi-ties,aswellasbyincreasedfinancialvolatility.PolicymakersaroundtheworldarefacingThus,aggregateEMDEgrowthin2024isreducedenormouschallenges,manyofwhichposeby0.5percentagepointbelowthebaseline,andexactingtrade-offs.Globalpolicyeffortsareglobalgrowthby0.2percentagepointbelowtheneededtoaddressdebtchallengesandclimatebaseline,beforeareboundin2025,reflectingthechange,andtosupportpopulationsaffectedbyrecoveryinChina(figure1.14.C).foodinsecurity.BoostinginternationaltradeisalsoakeyprioritygivenincreasingsignsofStrongergrowthintheUnitedStates.Thefragmentationandtheuseofrestrictivemeasures.baselineprojectsthatgrowthintheUnitedStatesEMDEpolicymakersneedtostrikeadifficultmoderatesin2024,partlybecausesomeofthebalancebetweenensuringfiscalsustainabilityandsupplyfactorssupportingrobustgrowthlastyearprovidingtargetedsupporttovulnerableareexpectedtodiminish.Giventhepossibilityofahouseholds,whileaddressingwideinvestmentsustainedincreaseinlaborforceparticipationandgaps.Thischallengehasbecomehardergivenresilientlaborproductivity,analternativescenarioweakenedfiscalcapacityamidhigherpublicdebt,isconstructedinwhichthelaborforceparticipa-increasingdebt-servicingcosts,andforegonetionratecontinuestoincreaseby0.1percentagerevenuesfromthepersistenceofpandemic-relatedpointperquarter—theaveragepaceseenbetweentaxcuts.Tightmonetarypolicyorrisingbondthefourthquarterof2020andthethirdquarterofyieldsinadvancedeconomiesmayforceEMDEs2023—toabovepre-pandemiclevels.Thetodelaymonetaryeasinginordertopreventadditionaljobseekersareabsorbedintothelaborcapitaloutflowsandcurrencypressures.Tomeetmarketwithlittlechangeintheunemploymentdevelopmentgoalsandbolsterlong-termgrowthraterelativetothebaseline.Thestrongemploy-prospects,policyactionstostrengtheninvestmentmentgrowthsupportshouseholdincomesandgrowthareneeded.spending,raisingU.S.growthby0.5percentagepointin2024,and0.7percentagepointin2025,Keyglobalchallengesrelativetothebaseline.StrongerU.S.activitygeneratespositivespillovers,boostinggrowthinElevateddebt.Highdebt,weakgrowth,andEMDEsby0.2percentagepointin2024.TheelevatedinterestratesposeconsiderablechallengesincreaseingrowthinEMDEsin2025issmaller,formanyEMDEs,especiallythepoorestasmonetarypolicyisadjustedinresponsetocountries,giventheresultingincreaseindebt-higherdemandandinflation.servicingburdens(figure1.15.A).Currently,13LICsand23middle-incomecountrieshavefallenInall,globalgrowthis0.2percentagepointhigherinto,orareathighriskof,debtdistress.Severalin2024and0.3percentagepointhigherin2025countrieshaveentereddebtrestructuringinthethaninthebaseline(figure1.14.D).Globalpastyear,butprogresstowardadequateresolutioninflationis0.4percentagepointhigherin2024hasbeenslowinmanycases.Theinternationalcomparedwiththebaseline,asaresultofhighercommunityneedstopre-emptivelyaddresscommoditypricesandincreasedactivity,beforeitdevelopingriskstoavoidtheeconomiccostsofretreatstowardbaselineprojectionsin2025.U.S.debtcrises.Crucially,thedebtrestructuringandreliefprocess,particularlytheG20CommonGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER137Framework,needstobeadaptedtothechangingFIGURE1.15GlobalpolicychallengessovereigndebtlandscapecharacterizedbymorediversecreditorsandmorecomplexdebtGlobalcooperationisneededtoaddressdebtsustainabilityconcerns,instruments.Greaterconcessionallending—particularlyinregardtocountriesalreadyatrisk,givenrecord-highdebtenabledinpartbyeasieraccess—andmoregrantslevelsandgrowingdebt-servicingcosts.Cooperationisalsocriticaltoarealsoneeded.tackleclimatechange.DecarbonizingtheglobaleconomywillrequiresizableinvestmentsatatimewheninvestmentgrowthissettoremainClimatechange.Bolsteringglobaleffortstoweak.Wealthiercountriesaccountfornearlythree-fourthsofgreenhouseaddressclimatechangeisanothercriticalgasemissionspercapita.Foodpriceinflationisworseningfoodinsecuritydevelopmentchallenge.ProgressbycountriesthatandincreasingthenumberofpeopleaffectedbyhungerinmanyEMDEs,pledgedtocuttheirgreenhousegasemissionsespeciallythoseinconflictsituations.underthe2015ParisAgreementhasfallenshort,withvastgapsremainingbetweentheactionsA.GovernmentnetinterestpaymentsB.GlobalinvestmentgrowthneededandthosethathavebeenplannedandinEMDEsexecuted(UnitedNations2023).Decarbonizingtheglobaleconomywillrequiresizableinvest-PercentofgovernmentrevenuesPercentActual2000-19averagementsandfinance—climatefinancemustincrease146atleastfive-foldannuallyover2023-50tocontain12climatechangeandavoiditsworseeffects—ata104timewheninvestmentgrowthissettoremainweak(figure1.15.B;chapter3;Buchneretal.822023;WorldBank2022c).Globally,fossilfuel6subsidieswere40percenthigherthanglobal42023020222023e2024finvestmentinclimatefinancebetween2011and220212020(Naranetal.2022).Cuttingfossilfuel0subsidiescanfreeupsignificantresourcesandalleviatethetrade-offbetweenfinancingclimate2019changegoalsandinvestinginotherlonger-termdevelopmentneeds.Moreover,repurposingfossilC.NetgreenhousegasemissionsperD.Foodinsecurityinfragileandfuelsubsidiestowardincentivizinggreenercapitain2019,bycountryincomeconflict-affectedsituationsproductioncouldpotentiallyreduceemissionsandgrouppollutionwhileenhancingproductivity(Damaniaetal.2023).PercentMillionsofpeople50Upper-middle-incomeandhigh-incomecountries250Notaffectedbyfragilityandconflictaccountfornearlythree-fourthsofgreenhousegasemissionspercapita(figure1.15.C).AtthesameAffectedbyfragilityandconflicttime,theadverseeffectsofclimatechangeandnaturaldisastersaredisproportionatelyimpacting40200thepoorest,with40percentofpeopleaffectedbydisasterslivinginLICs(Neunuebel2023).The30150mostvulnerableeconomies,includingLICsandsmallislanddevelopingstates,areparticularly20exposedtodroughts,floods,heatwaves,risingsealevels,andstorms,andoftenlacktheresourcesto10100confrontthesechallenges,especiallygivenotherpressingdevelopmentneeds(Jafinoetal.2020;050Kenworthy,Kirby,andVorisek2023).Financingfromhigher-incomeeconomiesandthemobiliza-UpperHighLowerLowtionofprivatecapitalwillaccordinglybeneeded.middleincomemiddleincome0201820192020202120222023incomeincomeSources:ClimateWatch(database);FoodandAgricultureOrganizationoftheUnitedNations;Koseetal.(2022);WEO(database);WorldBank(2022c);WorldBank;WorldFoodProgramme.Note:e=estimate;f=forecast;EMDEs=emergingmarketanddevelopingeconomies.A.Netinterestpaymentsarethedifferencebetweenprimarybalancesandoverallfiscalbalances.AggregatescomputedwithgovernmentrevenuesinU.S.dollarsasweights,andbarsshowsimpleaveragefor140EMDEs.Whiskersindicateinterquartilerange.B.Investmentreferstogrossfixedcapitalformation.Theglobalaggregateiscalculatedusinginvestmentweightsataverage2010-19pricesandmarketexchangerates.C.GreenhousegasemissionspercapitaaredefinedastCO2e/person/year.tCO2e=tonnes(metrictons)ofcarbondioxideequivalent.EmissionsdataarefromtheClimateWatch(database).GDPandpopulationdataarefromtheWorldBank.D.InternationalFoodSecurityPhaseClassifications(IPC)include(1)minimal/none,(2)stressed,(3)crisis,(4)emergency,and(5)catastrophe/famine.Barsrepresentthenumberofpeopleworldwidethatfacecrisisormoresevere(IPC3+)foodinsecurity.Sampleincludes45economies,ofwhich19areeconomiesinfragileandconflict-affectedareas.Decarbonizationwillrequirewell-targetedregulationsthatcanencouragestepstoboostenergyefficiencyandadvancegreenertechnologies(OECD2023a).Astheenergytransitionwillentailsubstantialredeploymentsofworkersandreallocationsofcapitalfromemission-intensivetogreeneractivities,structuralreformsandfiscalmeasureswillbeneededtoreducelabormarket38CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024FIGURE1.16EMDEmonetarypolicychallengesIntroducingcarbonpricinginstrumentsandreducingfuelsubsidiescouldnotonlyhelptoInflationcontinuestorecedeinmanyEMDEs,allowingcentralbankstocutreducethecarbonintensityofgrowthbutalsopolicyinterestrates.RealandnominalinterestratedifferentialsbetweenprovidegovernmentswithroomfortransferEMDEsandtheUnitedStateshavenarrowed,whichcouldheightenEMDEpaymentstovulnerablehouseholds(WorldBankvulnerabilitytocapitaloutflows.EMDEmonetaryauthoritiescankeep2023d).medium-terminflationexpectationsanchoredbysignalingreadinesstotightenpolicyagain,shouldinflationarypressuresre-emerge.Tradefragmentation.Boostinginternationaltradeisanotherkeypriority,especiallyinlightofA.CountrieswithinflationaboveorB.Realpolicyratedifferentialitsanemicgrowthlastyearandsubduednear-termbelowtargetbetweenEMDEsandtheUnitedStatesoutlookamidtheincreasinguseofrestrictionsandothersignsoffragmentation.DisruptionstoglobalPercentofcountriesAbovetargetPercentvaluechains,whetherfromgeopoliticalconflictor6tradepolicyrestrictions,canleadtosignificantWithinorbelowtargetwelfarelossesglobally.Thelargestsuchpotential1004lossesareestimatedtobeinlower-incomeregions,duetoreducedtechnologyspillovers(Eppingeret752al.2021;GóesandBekker2022).Toguardagainstthefragmentationoftradeandinvestment500networks,therules-basedinternationalorderneedstobebolstered,includingthroughimproved25multilateralcooperationandtheexpansionoftradeagreements.Thiscanbecomplementedby0policiesthatlowertradecosts,encouragethediversificationoftradepartnersandinputs,and2019attractcapitalandFDIflows.Suchmeasures2020includestreamliningborderprocedureswiththe2021helpofdigitaltechnologiesandeasingother2022constraintsontradeflows,suchasuncompetitiveDec-23logisticssectors.Countriescanalsoinvestin2019modernizingtradeinformationsystems,strength-2020eningcontractenforcementandaddressingmarket2021distortions,facilitatingtradefinance,and2022promotingcompetitiveness.Dec-23Jan-10Foodinsecurity.FoodpriceinflationremainsMay-11elevated,worseningfoodinsecurityandincreasingOct-12thenumberofpeopleaffectedbyhungerinmanyFeb-14EMDEs,includinginFCSeconomies(figureJul-151.15.D).Between691millionand783millionDec-16peopleareestimatedtohavegonehungrygloballyApr-18in2022—122millionmorethanin2019—Sep-19effectivelyerasingprogressmadesince2015(FAOJan-212023b).TheglobalcommunitycanhelpaddressJun-22foodinsecuritybyavoidingimposingexportNov-23restrictions,offeringtechnicalassistancetoAdvancedeconomiesEMDEsstrengthenagriculturalfoodsystems,andthroughtargetedsocialprotectionandcashtransferstoC.InterestratedifferentialbetweenD.EMDEinflationexpectationspoorandvulnerablehouseholds.GovernmentsEMDEsandtheUnitedStatescanalsoshifttheirfocusfromcostlyagriculturalPercentagepointsPercentTargetinflation55year10U.S.bondyieldsEMDEpolicyrates4382160420Jan-051yearJun-06Nov-07May-09Oct-10Apr-12Sep-13Feb-15Aug-16Jan-18Jul-19Dec-20Jun-22Nov-23Sources:AREAER(database);BIS(database);Bloomberg;Choietal.(2022);ConsensusEconomics;HaverAnalytics;WorldBank.Note:EMDEs=emergingmarketanddevelopingeconomies.A.Shareofcountrieswithheadlineconsumerpriceindex(CPI)inflationaboveorbelowtarget.LatestdataarebasedonConsensusEconomicsforecastsasofDecember2023.Samplesizeincludes11advancedeconomiesand28EMDEs.B.LineindicatestheaveragedifferentialbetweenU.S.1-yearforwardrealinterestrateandaGDP-weightedaverageof1-yearforwardrealinterestrateforupto33EMDEs.EMDEsexcludeArgentina,China,theRussianFederation,andTürkiye.C.RedlineindicatestheaveragedifferentialbetweenU.S.federalfundsrateandaGDP-weightedaverageofpolicyratesfor18EMDEs.BluelineindicatestheaveragedifferentialbetweenU.S.10-yeargovernmentbondyieldandaGDP-weightedaverageof10-yeargovernmentbondyieldforupto14EMDEs.EMDEsampleexcludesArgentina,China,theRussianFederation,andTürkiye.D.InflationexpectationsbasedonConsensusEconomics.Lineshowsmedianinflationtargetfor21EMDEs.1-yearexpectationsareasofDecember2023,and5-yearexpectationsfor2028areasofOctober2023.Dataoninflationexpectationsarefor33EMDEs.frictionsandameliorateunevendistributionalimpactsacrosssectorsandpopulations.Sectorssuchastheminingoffossilfuelsandfossil-fuel-intensiveindustrieswillfacethehighestcostsoftheenergytransition,andworkersinthesesectorslackingtheskillsneededingreeneractivitieswillbeatthegreatestriskofjoblosses(OECD2023a).Cushioningvulnerablegroupscouldincreasepublicsupportforclimatechange-mitigationpolicies(Dechezleprêtreetal.2022).GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER139subsidiestowardmeasuresthatsustainablysupportbuttressthecredibilityoftheirmonetaryagriculturalproducers,suchasadditionalframeworks,therebylesseninglong-terminflationinvestmentsinresearchanddevelopmenttoboostpressures(Ha,Kose,andOhnsorge2019).Inagriculturalproductivity(WorldBanketal.addition,EMDEscanacttoconserveorreplenish2023).foreigncurrencyreserves,includingbydemon-stratingcommitmenttopoliciesthatboostChallengesinemergingmarketandinvestorconfidenceandattractforeigncapital.developingeconomiesHeightenedvolatilityinglobalfinancialmarketsEMDEmonetaryandnancialpolicychallengescouldincreaseliquidityandsolvencyrisksinEMDEfinancialsectors.Inbankingsectors,Globalmonetarypolicytighteningisnearingancurrencyandmaturitymismatchesbetweenassetsend,withinflationcontinuingtodeclineandtheandliabilitiesneedtobemonitored,withpromptshareofEMDEswithabove-targetinflationfallingactiontakentomanageemergingissues.Thesharplyinrecentmonths(figure1.16.A).Aconcentrationofheld-to-maturitysecuritiesonthenumberofEMDEcentralbanks—someofwhichbalancesheetsofsomeEMDEbanksmeritswerethefirst,globally,toraiseratesin2021—scrutiny,giventhatcarryingvaluesarenotmarkedhavealreadycutpolicyratesandmorearetomarket.Highlyleveragednon-bankcorpora-expectedtodosointhecomingmonths.IntionsinEMDEsarealsovulnerabletorisingcontrast,policyratesarelikelytodeclinemoreinterestrates(KohandYu2020).Timelyandslowlyinadvancedeconomies,potentiallyleadingtransparentreportingofnonperformingloansistonarrowingdifferentialsbetweeninterestratesinthereforecrucialforeffectivemonitoringofadvancedeconomiesandEMDEs.Inrealterms,bankingsectorhealth.Overthemediumterm,thepolicyrateintheUnitedStatesisalreadycloseframeworkstoaddresspotentialbankingsectortoparitywiththeaveragerateinEMDEsstressinEMDEscouldbeimproved.Forexample,excludingChina(onaGDP-weightedbasis;figureliquidityrequirementscouldberefinedtobetter1.16.B).addressforeigncurrencyliquidityandtoensureassetsdeemedliquidareofsufficientlyhighAfurthershiftinrealinterestratedifferentialsinquality(IMF2023a).favorofadvancedeconomiescouldincreasetheriskofEMDEcapitaloutflows,currencyEMDEscalpolicychallengesdepreciations,andresultingsurgesininflation(figure1.16.C).Moreover,arenewedriseinU.S.FiscalspaceinEMDEsremainslimited,withyieldscouldinduceconditionssimilartothe2013mediangovernmentdebtworth53percentof“tapertantrum,”spurringsuddenincreasesinriskGDPin2023anddebt-to-GDPratiosabovepre-premiaandrapidportfoliooutflowsfromEMDEspandemicdecadeaveragesinmorethantwo-thirds(Artetaetal.2015;Sahayetal.2014).Indeed,ofEMDEs(figure1.17.A).HighdebtlevelstherewasamarkeddeteriorationinEMDEunderminefiscalsustainability,therebyerodingportfolioflowsinSeptember-Octoberlastyear,investorsentimentandincreasingfinancingcosts.whenU.S.termpremiaandlonger-termyieldsTheythereforereducetheeffectiveness,aswellasincreasedsharply.thefeasibility,offiscalstimulusmeasures(figure1.17.B).ThenumberofEMDEsinsovereigndebtEMDEpolicymakerscanmitigatesuchrisksbydistresshasrisentoitshighestlevelsince2000indicatingtheirreadinesstotightenmonetary(OhnsorgeandPallan2023).Pastdebtdefaultspolicyagaininresponsetosignsofupwardsuggestthatmorethanone-thirdofthesepressureoninflation,includingfromcurrencycountriesfailedtodurablyreducetheirdebtordepreciation.Thiscouldhelpkeepinflationborrowingcostsafteradefault.Withglobalrealexpectationsanchored(figure1.16.D).Moreinterestratesexpectedtoremainhigh,EMDEbroadly,transparentcommunicationbyEMDEgovernmentsneedtoprioritizepoliciesthatboostmonetaryauthorities,combinedwithclearandgrowthandsafeguardfiscalsustainability.decisivecommitmenttopricestability,can40CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024FIGURE1.17EMDEfiscalpolicychallengesThecombinationofweakgrowth,highgovern-mentdebt,andelevatedinterestrateshasGovernmentdebtremainselevatedamidtepidrevenuecollectioninmanycontributedtoasharpincreaseinnetinterestEMDEs.Highpublicdebtandspendinginefficienciesaredampeningthepaymentsasashareofgovernmentrevenuesineffectivenessoffiscalpolicyinboostingdemandandactivity.TheEMDEs.Moreover,thepersistenceofpandemic-persistenceofpandemic-relatedmeasures,suchastaxcuts,hasreducedrelatedmeasures,suchastaxcuts,hasreducedrevenuesformanyEMDEs,includingLICs.InmostEMDEs,theefficiencyrevenues,compoundingthechallengesofrevenueofspendingoninfrastructure,health,andeducationislowerthaninmobilizationformanyEMDEs,includingLICsadvancedeconomies.AmongEMDEcommodityexporters,fiscalpolicy(figure1.17.C).Suchmeasuresriskbecomingtendstobemoreprocyclicalandvolatilethanthatinnon-commoditypermanent,absentareturntofiscalrulesandexporters,amplifyingtheimpactofcommoditypricecyclesonthesunsetclauses.Weakenedrevenuecollectionalsobusinesscycle.limitsthepotentialredistributivepoweroftaxationandthefinancingavailableforsocialA.GovernmentdebtB.Fiscalmultipliersaftertwoyearsprotectionsystems,thushinderingpovertyreduction(Lopez-Acevedoetal.2023).ThePercentofGDPGovernmentdebtPercentChangeinoutputerosionofrevenuecapacityisaparticularconcern580.9inLICs,whereabout10percentofrevenueisShareofcountrieswithratio100spentonservicingexternaldebtandgovernments54arealreadyseverelyconstrainedinmeetingkeyabove2019level(RHS)0.6developmentgoals(Chukuetal.2023).75Policymakersfaceadifficulttrade-offbetweenensuringfiscalsustainabilityandproviding50500.3targetedsupporttovulnerablehouseholds.Improvingtheefficiencyofspendingcanhelp46250.0balancethesecompetingpriorities.InmostEMDEs,theefficiencyofspendingoninfrastruc--0.3ture,health,andeducationislowerthaninadvancedeconomies(figure1.17.D;Herreraetal.,420forthcoming).SpendingefficiencyinEMDEswithlimitedfiscalspacecanbeimprovedby2010-19-0.6Median90thpercentilestrengtheninginstitutionsandgovernance,average10thpercentilebolsteringfiscalandpublicfinancialmanagement,andimprovingtheeffectivenessoffiscalrulesand2022Governmentdebt(percentofGDP)expenditurereviews.Suchmeasurescanalso2023esupporttheeffectivemanagementofdebt,2024fespeciallyifcomplementedwithpoliciesthat2025fstrengthentransparencyandlegalframeworks(IMF2023b).EnhancingrevenuemobilizationisC.Taxrevenues,2021D.Publicspendingefficiencyscorealsocrucial.Withoutit,effortstoshoreupdebtsustainabilitymaybeattheexpenseofcriticalPercentofGDPEfficiencyscorespending,suchasinvestmentininfrastructureand301.0humancapital,ashasoftenbeenthecaseinEMDEs.Protectingsuchpublicinvestment,while0.8eliminatingwastefulspending,iscrucialgiventheprojectedslowdowninoverallinvestmentgrowth200.6alongsidelargedevelopmentneeds(chapter3).100.4Overthelongerterm,thetrade-offbetweenpromotingfiscalsustainabilityandmeeting0.200.0AEsEMDEsLICsHealthEducationInfrastructureE.FiscalpolicyprocyclicalityF.FiscalpolicyvolatilityCorrelationCommodityimportersPercentCommodityimporters0.616Commodityexporters120.480.2400.0CommodityexportersAgricultureexportersMetalexportersEnergyexportersPrimaryexpendituresGovernmentconsumptionRevenuesPrimarybalanceSources:ArroyoMarioli,Fatas,andVasishtha(2023);ArroyoMarioliandVegh(2023);Herreraetal.(forthcoming);Huidrometal.(2019);Koseetal.(2021;2022);Moody’sAnalytics;UNU-WIDER(database);WEO(database);WorldBank.Note:e=estimate;f=forecast;AEs=advancedeconomies;EMDEs=emergingmarketanddevelopingeconomies;LICs=low-incomecountries.A.BarsshowthemedianvalueofgrossgovernmentdebtaspercentofGDPfor141EMDEs.B.Barsshowthemedianconditionalfiscalmultipliersfordifferentlevelsofgovernmentdebtaftertwoyears.Fiscalmultipliersaredefinedascumulativechangeinoutputrelativetocumulativechangeingovernmentconsumptioninresponsetoa1-unitgovernmentconsumptionshock.Theyarebasedonestimatesfromtheinteractedpanelvectorautoregressionmodel,wheremodelcoefficientsareconditionedonlyongovernmentdebt,asdescribedinKoseetal.(2021).Whiskersshowthe16-84percentconfidencebands.C.GDP-weightedtaxrevenuesfor34advancedeconomies,111EMDEs,and14LICs.Whiskersshowtheinterquartilerange.D.Barsshowtheaverageefficiencyscore,derivedfromuptofivedifferentmethodologies,forupto146EMDEsforhealth,education,andinfrastructurespendingover2010-20fromHerreraetal.(forthcoming).Whiskersshowminimum-maximumvalues.Horizontallineistheefficiencyfrontier.E.Barsshowaveragecorrelationbetweenthe(Hodrick-Prescott-filtered)cyclicalcomponentsofrealGDPandrealgovernmentspendingwithingroups.Thesampleperiodis1980-2020.Sampleincludes38agricultural,21metal,and31energyexporters,and59commodityimporters.F.Panelshowstheunweightedaverages,bycountrygroup,ofthestandarddeviationoftheresidualsobtainedfromregressingfourdependentvariables—realprimaryexpendituregrowth,realgovernmentconsumptiongrowth,realrevenuegrowth,andchangeinprimarybalances(aspercentofGDP)—onrealGDPgrowth.Annualdatafor148EMDEsover1990-2021.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER141developmentneedscanbemitigatedbymarket-duringcommoditypriceboomstopreparefororientedreformsthatbothsupportgrowthandsubsequentslumps.Inaddition,medium-termstrengthenfiscalpositionsbyliftingrevenues,expenditureframeworksarevitalforstrengtheningattractingforeigncapital,andloweringborrowingfiscalspace,reducingfiscalpolicyvolatility,andcosts.Suchreformscanincludereductionsinsupportingcountercyclicalfiscalpolicy.barrierstofirmentryandtrade,measurestobolsterfinancialsupervision,andregulatoryEMDEstructuralpolicychallengesframeworksthatpromotecompetitionandcontainmonopolypower(Aligishievetal.2023).EMDEsfacethedifficultchallengeofboostinginvestmenttoclosesignificantdevelopmentgapsFiscalspacewillalsobeneededtoeasethetrade-inanenvironmentofweakgrowthprospectsandoffbetweenrespondingtoclimatechangelimitedfiscalresources.Decarbonizationalonewillchallengesandfinancingotherdevelopmentrequireasignificantscalingupofinvestment,needs.EMDEscanbalancetheseprioritiesbothcombinedwithstructuralreformstopromotethebyraisingrevenuesthroughcarbonpricinggreentransition.Shoringupfoodsecurityisalsoinstruments,whichhavebeenimplementedorcritical,especiallygivengrowingtraderestrictions.scheduledin14EMDEs,andbyreducingfossilInsomecountries,closinggendergapsinlaborfuelsubsidies,whichcost5.6percentofGDPinmarketscouldhelpoffsetdemographicheadwindsEMDEsexcludingChinain2022(CarbonPricingandbolsterlonger-termgrowthprospects.Dashboard;IEAdatabase).CountriescanreprioritizespendingonfuelsubsidiestowardAcceleratinginvestmentmeasuresthathelpacceleratethegreentransition,includingbyboostingpublicinvestmentandContinuingadecadeofweaknesspriortotheresearchanddevelopmentonlow-carbonpandemic,thegrowthoffixedinvestmentinelectricitygeneration,transport,andtechnologies.EMDEsin2023-24isexpectedtoaverage4.1percentperyear,justoverhalftheaveragepaceCommodity-exportingEMDEsfaceuniquefiscalover2000-19.Thebroad-basedinvestmentchallenges,stemmingbothfromtheneedtocopeslowdownhasexacerbatedlargeunmetinvestmentwithlargefluctuationsincommoditypricesandneedsinmanyEMDEs(RozenbergandFay2019;fromtheeffectsoftheprojectedslowdowninWorldBank2022c).Substantialpublicinvest-China’sdemandforcommodities,notablymetals.mentisneededforcountriestoadaptto,andhelpDeclinesincommoditypricescantriggercontain,climatechange;acceleratethedigitalprocyclicalcutsinpublicexpendituresduetotransition;improvesocialoutcomes;andsupportreducedrevenues,whilerisingcommoditypriceslong-termgrowth.Atthesametime,tightcanleadtoprocyclicalincreasesinpublicfinancialconditions,heighteneduncertainty,and,spending.Asaresult,fiscalpolicyincommodityinsomecases,limitedaccesstointernationalexporterstendstobemoreprocyclicalthanincapitalmarkets,continuetoweighonpublicandnon-commodityexporters,oftenamplifyingthebusinessinvestment,curbingcapitaldeepeningimpactofcommoditypricecyclesoneconomicandjobcreation.Givenconstrainedfiscalspacegrowthandhencethebusinesscycle(chapter4;foradditionalpublicinvestmentandthefigure1.17.E).Associatedwiththisissue,fiscalchallengingmacroeconomicenvironmentforpolicytendstobegenerallymorevolatileinprivateinvestment,thereisaclearneedforcommodityexporters,addingtothevolatilityofpoliciesthatencourageasustainedaccelerationoftheireconomiesandthusdamaginglonger-terminvestmentinEMDEs(chapter3).growth(figure1.17.F).InvestmentaccelerationepisodeshavebeenSustainable,welldesigned,strong,andstability-associatedwithhighergrowth,boostednotonlyorientedfiscalframeworks,suchasfiscalrulesandbyrapidcapitalaccumulationbutalsobysovereignwealthfunds,alongwithstrongincreasedgrowthofemploymentandproductivity,institutions,canhelpcountriesbuildbuffersthelatterbeingsupportedbysectoralshiftsofresourcesfacilitatedbygreaterinvestment(figure42CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024FIGURE1.18EMDEstructuralpolicychallengesthatbothensuresmacroeconomicstabilityandpromotesprivate-sectordevelopment(forinstance,InvestmentgrowthaccelerationepisodeshavebeenassociatedwithMalaysiainthemid-2000sandIndiasincethehigheroutputgrowth.Thelikelihoodofaninvestmentaccelerationepisode1990s)ismorelikelytotriggerinvestmentoccurringispositivelyrelatedtoinstitutionalquality.Foodsecurityhasaccelerations.Empiricalcross-countryevidenceworsenedinEMDEs,particularlyinlow-incomecountries,partlyreflectingalsosuggeststhatimprovementsineconomicpoliciesthatrestrictfoodexports.Thegendergapinlaborforcepolicy—suchasthestrengtheningoffiscalparticipationbetweenEMDEsandadvancedeconomieshaswidenedpositions,theadoptionofinflationtargeting,andsincethepandemic,underscoringtheneedforlaborandeducationpolicyreformstopromotetradeandfinancialintegra-reformsinmanyEMDEs.tion—havebeenimportantdriversofinvestmentgrowthaccelerations,particularlywhencombinedA.OutputpercapitaannualgrowthB.Probabilityofonsetofanwithwell-functioninginstitutions(figure1.18.B).beforeandduringinvestmentinvestmentacceleration,byaccelerationsinstitutionalqualityConfrontingfoodinsecurityPercentNon-accelerationmedianPercentFoodsecurityhasdeterioratedinrecentyears,with525about30percentoftheglobalpopulationfacingmoderateorseverefoodinsecurityin2022,up420from25percentin2019.Factorscontributingtothisriseinfoodinsecurityincludegeopolitical315conflict,moreadverseweatherpatternsintensifiedbyclimatechange,andproliferatingfood-related210traderestrictions(figure1.18.C).Russia’sinvasionofUkraineandthereductionofUkrainianexport15capacity,includingthroughthedestructionofagriculturallandandfacilitiesandthepartial0DuringBeforeDuring0blockageofthecountry’sexports,hascurtailedanBeforeEMDEs25thpercentileimportantsourceofgrainsupply(Mottaleb,Kruseman,andSnapp2022).AnescalationoftheAdvancedMedian75thpercentileconflictintheMiddleEast,andtheassociatedeconomiesdisruptionsinenergysupplyandensuingsurgeinInstitutionalqualityenergyprices,couldalsosubstantiallyexacerbatefoodinsecuritybyraisingfoodproductioncostsC.PoliciestoliberalizeorrestrictfoodD.Differenceintheratiooffemaleto(WorldBank2023a).exportsmalelaborforceparticipationrateinadvancedeconomiesversusEMDEsMeasurestoincreaseagriculturalyieldsandNetnumberofpolicychangesimplementedimprovefoodsupplychainsinEMDEscould(+/-=liberalizing/restrictive)Percentagepointsbolstereconomicresiliencewhileaddingtoglobal2015foodsupplies.Suchpoliciescanincludeinvest-mentsininfrastructuretobettertransport014perishablesandwithstandextremeweather;-20improvementsinmarketcompetitiveness,-4013includingbyreducingbarrierstoentry;and-6020182019202020212022reformstoformalizeandsecurelandrights,which-80canincentivizeefficientlanduseandimproveaccesstofinance(FAOetal.2023;Laborde,2008Lakatos,andMartin2019;vanBerkum2021).2009Countriescanalsoimprovefoodsecurityby2010boostingthetechnicalknowledgeof,andadvisory2011servicesto,thoseemployedintheagriculture2012sector,includingtobettermonitorweatherand20132014201520162017201820192020202120222023Sources:Feenstra,Inklaar,andTimmer(2015);GTA(database);PRSGroup(database);WDI(database);WorldBank.Note:EMDEs=emergingmarketanddevelopingeconomies.A.Barsshowmedianpercapitagrowthofoutputinthesixyearsbeforeandduringanacceleration.Markersindicatenon-acceleration-yearmedians.Seeannex3.1forthedefinitionandidentificationofinvestmentaccelerations.B.BarsshowthepredictedprobabilityofaninvestmentaccelerationatdifferentlevelsofthelaggedInternationalCountryRiskGuide(ICRG)LawandOrderindex.Whiskersrefertothe90percentconfidenceinterval.Thepercentilethresholdsoftheindexare3,4,and5;seecolumn(6)oftableA3.2.1.InstitutionalqualityismeasuredbyICRG'sLawandOrderindex.Sampleincludes95economies.C.Panelshowsnetnumberofpolicychanges,thatis,"liberalizing"changesminus"restrictive"changes.Exportpoliciesarethoseconcerningexporttaxes,exportbans,exportlicensingrequirements,exportquotas,andexport-relatednon-tariffmeasures.Dataincludechangesrelatingto33three-figurecentralproductclassificationcodespertainingtoedibleagriculturalcommoditiesandfooditems.D.PanelshowsthedifferenceintheaverageratiooffemaletomalelaborforceparticipationratebetweenadvancedeconomiesandEMDEs.Unbalancedsampleincludesupto36advancedeconomiesand142EMDEs.1.18.A).Theseepisodeshavealsobeenfrequentlyaccompaniedbyarangeofothereconomicimprovements,suchasstrengthenedfiscalpositions,enhancedcreditgrowth,increasedtradeopenness,andgreaterprogresswithpovertyreduction.Countrycasestudiesofinvestmentaccelerationssuggestthatawide-rangingpackageofpoliciesGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER143floodrisks;byenhancingfinancialsupporttolimitedaccesstomanagerialpositions(ILO2023).farmerstocoverimportsofinputsforplantingWhilefemaleemploymentinEMDEshasseason;andbyencouraginginvestmentinclimate-recoveredsincethepandemicrecessionof2020,itsmarttechnologyforagriculturalproductionremainslowercomparedwithmen,andfour-fifths(Gautametal.2022).Repurposingsupportforofthejobscreatedforwomenin2022wereinthefertilizerusecouldnotonlyfreeupresourcestoinformaleconomycomparedwithtwo-thirdsforaddressfoodsecurityissuesbutalsosupportmen(ILO2023).Sinceinformalsectorjobstendgreenerproduction,giventhatfertilizerisatobelowerpaidandlesssecure,andtoprovidecontributortonitrogenpollution(Chatterjeeetal.feweropportunitiesforadvancement,policiesare2022;Damaniaetal.2023;Dingetal.2021).neededtostrengtheninclusioninformalemployment(OECD2023b).ClosinggendergapsinthelabormarketGenderparityinthelabormarketisparticularlyImprovinggenderparityinlabormarketsremainslackingintheMiddleEastandNorthAfricaandamajorchallenge,particularlyacrossEMDEs.SouthAsia,wherefemalelaborforceparticipationBarrierstofemalelaborforceparticipationincludeisaboutone-halftheEMDEaverage.Ifmeasuresmismatchesinskills;lackofaccesstochildorweretakeninthesetworegionstograduallyraiseelderlycare;discriminationinhiringandfemaleparticipationtotheEMDEaveragebytheretention;andrestrictivepolicies,laws,andsocialendofthisdecade,potentialgrowthintheperiodnorms.Globally,averagefemalelaborforcecouldbeboostedbyabout1.2percentagepointsparticipationin2011-22was50percent,peryear(KoseandOhnsorge2023).Thesegainscomparedwith70percentformen,andthecouldbeamplifiedbytheprovisionofmoreandgenderparticipationgapinEMDEswasslightlyhigher-qualityeducationforwomen.Inotherwider,at23percentagepoints.regions,particularlyEastAsiaandPacificandEuropeandCentralAsia,increasingfemalelaborThepandemichasresultedinpersistentadverseparticipationcouldpartlyoffsettheslowingofeffectsinthelabormarket,particularlyforwomenlaborforcegrowthowingtopopulationaging.andvulnerablegroupssuchastheyoung,low-Femalelaborforceparticipationcanbeencour-wageworkers,andworkerswithfeweryearsofagedbysocialprotectionmeasuresthatprovideeducation—acommonoutcomefollowinglargeadequatesocialsafetynets,accesstoeducation,externalshocks(Lopez-AcevedoandRobertsonandsupportforchildcareandjobre-entry2023).Asaresult,therehasbeenawideningofprograms.Suchpoliciescanbesupplementedbygendergapsinlaborforceparticipation,andtoainvestmentsinsafetransport;measurestobroadengreaterextentinEMDEsthaninadvancedaccesstofinance,inputs,andmarkets;infor-economies(figure1.18.D;WEF2023).InmanymationcampaignstoaddressrestrictivesocialEMDEs,womenalsocontinuetofacehighernorms;andlegislativeandregulatorychangesunemploymentrates,lowerwages,andmore(Bussoloetal.2022;WorldBank2022d).44CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024TABLE1.2Emergingmarketanddevelopingeconomies1Commodityexporters2Commodityimporters3AlgeriaKyrgyzRepublicAfghanistanSamoaAngolaLaoPDRAlbaniaSerbiaArgentinaLiberiaAntiguaandBarbudaSriLankaArmeniaLibyaBahamas,TheSt.KittsandNevisAzerbaijanMadagascarBangladeshSt.LuciaBahrainMalawiBarbadosSt.VincentandtheGrenadinesBelizeMaliBelarusSyrianArabRepublicBeninMauritaniaBosniaandHerzegovinaThailandBhutanMongoliaBulgariaTongaBoliviaMozambiqueCambodiaTunisiaBotswanaMyanmarChinaTürkiyeBrazilNamibiaDjiboutiTuvaluBurkinaFasoNicaraguaDominicaVanuatuBurundiNigerDominicanRepublicVietNamCaboVerdeNigeriaEgypt,ArabRep.CameroonOmanElSalvadorCentralAfricanRepublicPapuaNewGuineaEswatiniChadParaguayGeorgiaChilePeruGrenadaColombiaQatarHaitiComorosRussianFederationHungaryCongo,Dem.Rep.RwandaIndiaCongo,Rep.SãoToméandPríncipeJamaicaCostaRicaSaudiArabiaJordanCôted’IvoireSenegalKiribatiEcuadorSeychellesLebanonEquatorialGuineaSierraLeoneLesothoEritreaSolomonIslandsMalaysiaEthiopiaSouthAfricaMaldivesFijiSouthSudanMarshallIslandsGabonSudanMauritiusGambia,TheSurinameMexicoGhanaTajikistanMicronesia,Fed.Sts.GuatemalaTanzaniaMoldovaGuineaTimor-LesteMontenegroGuinea-BissauTogoMoroccoGuyanaUgandaNauruHondurasUkraineNepalIndonesiaUnitedArabEmiratesNorthMacedoniaIran,IslamicRep.UruguayPakistanIraqUzbekistanPalauKazakhstanWestBankandGazaPanamaKenyaYemen,Rep.PhilippinesKosovoZambiaPolandKuwaitZimbabweRomaniaEnergyexporters.1.Emergingmarketanddevelopingeconomies(EMDEs)includeallthosethatarenotclassifiedasadvancedeconomiesandforwhichaforecastispublishedforthisreport.Dependentterritoriesareexcluded.AdvancedeconomiesincludeAustralia;Austria;Belgium;Canada;Cyprus;Czechia;Denmark;Estonia;Finland;France;Germany;Greece;HongKongSAR,China;Iceland;Ireland;Israel;Italy;Japan;theRepublicofKorea;Latvia;Lithuania;Luxembourg;Malta;theNetherlands;NewZealand;Norway;Portugal;Singapore;theSlovakRepublic;Slovenia;Spain;Sweden;Switzerland;theUnitedKingdom;andtheUnitedStates.SinceCroatiabecameamemberoftheeuroareaonJanuary1,2023,ithasbeenremovedfromthelistofEMDEs,andrelatedgrowthaggregates,toavoiddoublecounting.2.Aneconomyisdefinedascommodityexporterwhen,onaveragein2017-19,either(1)totalcommoditiesexportsaccountedfor30percentormoreoftotalexportsor(2)exportsofanysinglecommodityaccountedfor20percentormoreoftotalexports.Economiesforwhichthesethresholdsweremetasaresultofre-exportswereexcluded.Whendatawerenotavailable,judgmentwasused.Thistaxonomyresultsintheclassificationofsomewell-diversifiedeconomiesasimporters,eveniftheyareexportersofcertaincommodities(forexample,Mexico).3.CommodityimportersareEMDEsnotclassifiedascommodityexporters.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER145ReferencesBarbiero,O.,andD.Patki.2023.“HaveUSHouseholdsDepletedAlltheExcessSavingsTheyACLED(TheArmedConflictLocation&EventDataAccumulatedduringthePandemic?”CurrentPolicyProject)database.AccessedonDecember20,2023.Perspectives,FederalReserveBankofBoston,Boston,https://acleddata.com/data-export-toolMA.Adarov,A.,A.Cojocaru,S.Kilic-Celik,andA.Barcelona,W.,D.Cascaldi-Garcia,J.Hoek,andE.V.Narayan.2022.“ImpactofCovid-19onGlobalLeemput.2022.“WhatHappensinChinaDoesNotIncomeInequality.”InGlobalEconomicProspects,StayinChina.”InternationalFinanceDiscussionPaperJanuary.WashingtonDC:WorldBank.1360,BoardofGovernorsoftheFederalReserveSystem,Washington,DC.Ahmed,S.,R.Correa,D.A.Dias,N.Gornemann,J.Hoek,A.Jain,E.Liu,andA.Wong.2019.“GlobalBIS(BankforInternationalSettlements).2018.“TheSpilloversofaChinaHardLanding.”InternationalRegulatoryTreatmentofSovereignExposures.”FinanceDiscussionPaper1260,BoardofGovernorsofDiscussionPaper,BankforInternationalSettlements,theFederalReserveSystem,Washington,DC.Basel,Switzerland.Aiyar,S.,A.Presbitero,andM.Ruta,eds.2023.BIS(BankforInternationalSettlements)database.GeoeconomicFragmentation:TheEconomicRisksfromaAccessedonDecember15,2023.https://data.bis.org/FracturedWorldEconomy.ParisandLondon:CentreforEconomicPolicyResearchPress.Bonadio,B.,Z.Huo,A.A.Levchenko,andN.Pandalai-Nayar.2021.“GlobalSupplyChainsintheAlfaro,L.,andD.Chor.2023.“GlobalSupplyChains:Pandemic.”JournalofInternationalEconomics133TheLooming“GreatReallocation.”JacksonHole(November):103534.Symposium,FederalReserveBankofKansasCity,Missouri.Boz,E.,C.Casas,G.Georgiadis,G.Gopinath,H.LeMezo,A.Mehl,andT.Nguyen.2020.“PatternsinAlicke,K.,E.Barriball,T.Foster,J.Mauhourat,andInvoicingCurrencyinGlobalTrade.”IMFWorkingV.Trautwein.2022.“TakingthePulseofShiftingPaper20/126,InternationalMonetaryFund,SupplyChains.”McKinsey&Company,Washington,Washington,DC.DC.Branstetter,L.,B.Glennon,andJ.B.Jensen.2018.Aligishiev,Z.,G.Cugat,R.A.Duval,D.Furceri,J.T.“KnowledgeTransferAbroad:TheRoleofU.S.Jalles,M.MacDonald,G.Melina,etal.2023.“MarketInventorswithinGlobalR&DNetworks.”NBERReformsandPublicDebtDynamicsinEmergingWorkingPaper24453,NationalBureauofEconomicMarketandDevelopingEconomies.”InternationalResearch,Cambridge,MA.MonetaryFundStaffDiscussionNotes2023(005):45.Buchner,B.,B.Naran,R.Padmanabhi,S.Stout,C.ArroyoMarioli,F.,andC.A.Vegh.2023.“FiscalStrinati,D.Wignarajah,G.Miao,J.C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owth.January.Washington,DC:World10014,WorldBank,Washington,DC.Bank.Rozenberg,J.,andM.Fay,eds.2019.BeyondtheGap:WorldBank.2022a.“LivingUptoPotentialintheHowCountriesCanAffordtheInfrastructureTheyNeedWakeofAdverseShocks’:GrowthovertheNextWhileProtectingthePlanet.Washington,DC:WorldDecade.”EURegularEconomicReport,Part2,WorldBank.Bank,Washington,DC.Sahay,R.,V.Arora,T.Arvanitis,H.Faruqee,P.WorldBank.2022b.“G5SahelRegion.”CountryN’Diaye,andT.Mancini-Griffoli.2014.“EmergingClimateandDevelopmentReport,WorldBank,Markets&Volatility:LessonsfromtheTaperWashington,DC.50CHAPTER1GLOBALECONOMICPROSPECTSJANUARY2024WorldBank.2022c.“ClimateandDevelopment:AnWorldBank,FAO(FoodandAgricultureAgendaforAction.”EmergingInsightsfromWorldOrganization),IMF(InternationalMonetaryFund),BankGroup2021-22CountryClimateDevelopmentWFP(WorldFoodProgramme),andWTO(WorldReports,WorldBank,Washington,DC.TradeOrganization).2023.“GlobalFoodandNutritionSecurityCrisis.”Statement,Washington,WorldBank.2022d.SouthAsiaEconomicFocus:DC.ReshapingNorms:ANewWayForward.Spring.Washington,DC:WorldBank.WorldBank—CarbonPricingDashboard(WorldBank)database.“TheWorldBankDataCatalog.”WorldBank.2023a.CommodityMarketsOutlook:AccessedonOctober27,2023.https://UndertheShadowofGeopoliticalRisks.October.carbonpricingdashboard.worldbank.orgWashington,DC:WorldBank.WorldBank-WDI(WorldDevelopmentIndicators)WorldBank.2023b.SouthAsiaDevelopmentUpdate:database.“GenderStatistics.”AccessedonDecemberTowardFaster,CleanerGrowth.October.Washington,15,2023.https://databank.worldbank.org/source/DC:WorldBank.world-development-indicators.WorldBank.2023c.“InclusivenessofForeignDirectWTO(WorldTradeOrganization).2023.“GlobalInvestmentinRwanda.”RwandaEconomicUpdateTradeOutlookandStatistics.”WorldTrade31,WorldBank,Washington,DC.Organization,Geneva.WorldBank.2023d.StateandTrendsofCarbonPricing2023.Washington,DC:WorldBank.CHAPTER2REGIONALOUTLOOKSGrowthintheEastAsiaandPacific(EAP)regionisprojectedtoslowto4.5percentin2024andto4.4percentin2025,fromanestimated5.1percentin2023,mostlyowingtoananticipateddecelerationineconomicactivityinChina.Amidprotractedpropertysectorweakness,growthinChinaisexpectedtodeclinefrom5.2percentin2023to4.5percentin2024and4.3percentin2025.Intherestoftheregion,growthisprojectedtoedgeupfromanestimated4.4percentin2023to4.7percentin2024and2025,underpinnedbysoliddomesticdemand.RiskstotheoutlookareskewedtothedownsideandincludeamoreseveredownturninChina,withadversespilloverstothebroaderregion,andheightenedgeopoliticaltensions—includingthosefromtheconflictintheMiddleEast—whichcouldspurhigherenergyandfoodpricesandinflation.Weaker-than-expectedglobaldemandandtrade,aswellasclimate-change-relatedextremeweatherevents,posefurtherdownsiderisks.Recentdevelopmentsfallinggoodsexportsthroughmuchof2023werepartlyoffsetbyfirmingservicesexports,buoyedbyGrowthintheEAPregionreboundedtoanthecontinuedrecoveryininternationaltourism.estimated5.1percentin2023,mainlyreflectingaInmosteconomies,goodstradeweaknesswasalsoshort-livedactivitysurgeinChinaearlyintheyearoffsetbyrobusthouseholdconsumption,whichinfollowingthereopeningfrompandemicmanycasescontinuedtobesupportedbybuoyantrestrictions(figure2.1.1.A).InChina,thelabormarketconditionsandcoolinginflation.reopeningeffectsfadedfast,resultingina0.4percentagepointdowngradetoestimatedgrowthIn2023,thecombinedPacificIslandeconomicin2023comparedwiththeJuneforecast.outputisestimatedtohavefinallyexceededpre-Investmentgrowthinthecountrywasweighedpandemiclevels.However,thisrecoveryisnotdownbycontinuedweaknessintherealestateuniformacrossthesubregion,particularlyforsector,withpropertydevelopersfacingrenewedthoseeconomiesdependentontourism,likePalaufinancialpressureamiddecliningsalesandpricesandSamoa,whererecessionsweremostsevereand(figures2.1.1.Band2.1.1.C).Feebleexternalrecoveriesslowest.Incontrast,inEastAsia,outputdemandweighedonexports,andwhileremainsbelowpre-pandemiclevelsonlyinconsumptionfirmedsomewhattowardtheendofMyanmar,reflectingtheeffectsofongoingconflicttheyear,consumerconfidenceremainedwellandpoliticaldisruption.belowpre-pandemiclevels(figure2.1.1.D).HeadlineconsumerpriceinflationfellthroughInEAPexcludingChina,growtheasedtoanmuchof2023inmostoftheregion’seconomies,estimated4.4percentin2023,asdecliningsupportedbymoderatingcommoditypricesinternationalgoodstradeweighedonactivity(figure2.1.2.C).InChina,fallingfoodpricesand(figures2.1.2.Aand2.1.2.B).Thiswas0.4weakdemandputfurtherdownwardpressureonpercentagepointlowerthanpreviouslyprojected,inflation,whichwasbarelypositiveinthesecondpartlyreflectingspilloversfromthesurprisinglyhalfoftheyear.Inmanyeconomies,headlineandweakgrowthinChina.Inseverallargeeconomies,coreinflationtowardtheendoftheyearhoveredataboutorbelowcentralbanktargetsamidNote:ThissectionwaspreparedbySamuelHill.moderatedemandpressures,withregulatedpricesinsomecaseshelpingtooffsethigheroilpricesinthesecondhalfoftheyear.54CHAPTER2.1GLOBALECONOMICPROSPECTSJANUARY2024FIGURE2.1.1China:Recentdevelopmentsdeclineinnetcapitalinflowstothecountryandfurtherdepreciationoftherenminbi(figureGrowthinChinareboundedinearly2023followingtheliftingofpandemic2.1.2.D).Elsewhereintheregion,netcapitalrestrictionsbutslowedthroughthemiddleoftheyear.Slowinggrowthininflowsweregenerallymoreresilient,sustainedby2023partlyreflectedareneweddownturninthepropertysector,includingfirmerdomesticactivity.furtherdeclinesinsalesandprices,whichcontributedtoincreasedfinancialstressfordevelopers.Meanwhile,consumerconfidenceremainedOutlookweak.GrowthinEAPisforecasttodecelerateto4.5A.China:GDPgrowthB.China:Propertysalesgrowthpercentin2024andto4.4percentin2025,largelyreflectingslowergrowthinChina(figurePercentQ/QgrowthPercentPercent2.1.3.A).InEAPexcludingChina,growthis4Y/Ygrowth(RHS)1030projectedtoedgeuptoasolid4.7percentin202438and2025,withamorepronounceduptickin22022Q12022Q4515PacificIslandeconomiesthisyear,reflecting13continuedtourismrecoveries(figure2.1.3.B).000Comparedwithpreviousprojections,growthin-1-3EAPisexpectedtobe0.1percentagepointlower-2-5-15in2024and2025.TheprojectiondowngradesmeanthatEAPoutputisnowexpectedtofalleven2021Q22023Q3-30furtherbelowitspre-pandemictrendovertheforecasthorizon.-45Nov-21May-22Nov-22May-23Nov-23InChina,growthisprojectedtoslowto4.5percentin2024,andfurtherto4.3percentinC.China:PropertypricemovementsD.China:Consumerconfidence2025.ComparedwiththeJuneforecasts,growthhasbeenreviseddownby0.1percentagepointinPercentPriceincreasePriceunchangedIndex,100+=optimistic2024and2025,primarilyasaresultofsomewhat100Pricedecreaseweakerdomesticdemand.Consumptionis130Consumerconfidenceenvisagedtoslackensharplyamidweaksentimentandheightenedeconomicuncertainty.Investment2015-19averagegrowthisexpectedtoremainsubdued,supportedbyinfrastructurespendingbuthobbledby80120continuedpropertysectorweakness,afterconstructionstartslastyearfelltotheirlowestlevel60110since2006(figure2.1.3.C).Overtheprojectionhorizon,structuralheadwindsfromrising40100indebtedness,anagingandshrinkingworkforce,andnarrowingroomforproductivitycatch-up2090growthareexpectedtoweighoneconomicactivity(WorldBankandDRC2022).080Apr-22Oct-22Apr-23Oct-23Nov-21May-22Nov-22May-23Nov-23Oct-21Elsewhereintheregion,soliddomesticdemand,particularlyprivateconsumption,isexpectedtobeSources:HaverAnalytics;NationalBureauofStatisticsofChina.themaindriverofgrowth.Modestinflation,andA.Quarter-on-quarter(Q/Q)andyear-on-year(Y/Y)realGDPgrowth.Lastobservationis2023Q3.inmanycasesrobustlabormarketssupportedbybuoyantservicesactivity,areanticipatedtosustainB.Year-on-yeargrowthofsales,byvolume,ofresidentialbuildingfloorspace.Lastobservationishouseholdspending.Insomeeconomies,November2023.increasedgovernmentspending,includingonC.Sharesofcitieswithincreasing,unchanged,andfallingmonth-on-monthexistingresidentialsocialprotectionandpublicsectorwages,willalsobuildingprices.Sampleincludes70majorcities.LastobservationisNovember2023.supportdemand.InvestmentgrowthisprojectedD.Bluelinedenotesconsumerconfidenceonascaleof0to200,where200indicatesextremeoptimism,0extremepessimismand100neutrality.Thedottedredlinedenoteshistoricalaveragefrom2015to2019.LastobservationisOctober2023.Monetarypolicyactionsacrosstheregiondivergedsomewhatinthesecondhalfof2023.InterestrateswerehikedfurtherinIndonesia,thePhilippines,andThailand,reflectingvaryingfactorsincludingcurrencydepreciationinthefaceofU.S.dollarstrength,inflationarypressuresand,inthecaseofThailand,policynormalizationfollowingaperiodoflowinterestrates.InMalaysiaandVietNam,rateswereheldsteady,whileinChina,weakactivitypromptedcutstointerestratesandrequiredreserveratios;intandem,downpaymentrequirementsforpropertypurchaseswereloweredtostimulaterealestatedemand.EasingmonetarypolicyinChinawidenedinterestratespreadswithadvancedeconomies,which,togetherwithsubdueddomesticactivityandsentiment,contributedtoaGLOBALECONOMICPROSPECTSJANUARY2024EASTASIAANDPACIFIC55tobemoresubdued,fallingshortofpre-pandemicFIGURE2.1.2EAPexcludingChina:Recentaveragesinmosteconomiesthrough2024anddevelopments2025.Thisreflectsvariousheadwindsfacingprivateinvestment,includingthelaggedeffectsofIntheEastAsiaandPacificregion,excludingChina,growthmostlyslowedmonetarypolicytightening,policyuncertainty—in2023,dampenedbyshrinkinggoodsexportsamidweakglobaldemand.associatedinsomecountrieswithgovernmentInmosteconomiesintheregion,headlineinflationfellmarkedly.Capitaltransitions—andrisingindebtedness(WorldBankinflowstoChinareceded,reflectingweaksentimentandactivity,aswellas2023a).Elevatedpublicdebtandreducedfiscalwideninginterestratespreadswithrespecttoadvancedeconomies.spaceareenvisagedtoconstrainpublicinvestmentNevertheless,capitalinflowsprovedmoreresilientelsewhereintheregion.growth.A.GrowthinselectedEAPeconomiesB.GrowthofgoodsexportsTradegrowthisprojectedtopickupmodestlyinthenearterm,supportedbyarecoveryinglobalPercentPercentChinaIndonesiaMalaysiatrade.Exportgrowthisexpectedtoremain860VietNamsluggish,fallingshortofbothoutputgrowthand6PhilippinesThailandpre-pandemictrendrates.Giventhehighshareof4intermediateinputsintheregion’strade,245particularlyrelatingtomanufacturedgoods,weak0goodsexportsareanticipatedtoalsoweighon30imports.ThiswillbecompoundedbysoftIndonesiaMalaysiaPhilippinesThailandVietNamdomesticdemandinChina,wherecontinued15propertysectorweaknessisexpectedtoweighonglobalcommoditiesdemand,withadverse0spilloverstotheregion’scommodityexporters.Incontrast,internationaltourismintheregionis22Q4-15envisagedtolargelyrecoverfromthepandemicin23Q12024,supportedbyacontinuedrevivalin23Q2-30outboundtourismfromChina.Thiswillsupport23Q3Nov-21May-22Nov-22May-23Nov-23servicesexports,particularlyintourism-reliant22Q4economieslikeCambodiaandThailand.23Q123Q2Headlineconsumerpriceinflationisexpectedto23Q3slowslightlyinmostEAPcountriesin2024,aided22Q4bymoderatingglobalcommodityprices,improved23Q1foodsupplies,andwell-anchoredinflation23Q2expectations.However,insomeeconomies,23Q3includingtheLaoPeople’sDemocraticRepublic,22Q4Mongolia,andseveralPacificIslandstates,23Q1inflationisexpectedtoremainelevated,reflecting23Q2variouscountry-specificfactors.Theseinclude23Q3exchangerateweaknessandassociatedhigher22Q4importprices,androbustgrowth.InChina,23Q1followingatemporarydeclineinfoodprices,23Q2inflationisanticipatedtoedgeupslightlybut23Q3remainsubduedamidweakdemand.C.ConsumerpriceinflationD.NetcapitalinflowsWithinterestrateshigherthanayearagoinsomecases,thelaggedeffectsofmonetarypolicyPercentHeadlineUS$,billionsChinaEAPexcl.Chinatighteningsince2022willcontinuetoweighon8Headline1yearearlier30economicactivityinthenearterm(figure6Core2.1.3.D).Despiteinflationrecedingbelowtarget4200-2-30-60-90China-120IndonesiaMalaysia-150Dec-22Jun-23Nov-23PhilippinesJan-22Jun-22ThailandVietNamSources:HaverAnalytics;InstituteofInternationalFinance(database);WorldBank.Note:EAP=EastAsiaandPacific.A.Year-on-yearrealGDPgrowth.Lastobservationis2023Q3.B.ValueofgoodsexportsinU.S.dollars.Three-monthmovingaverageofyear-on-yearchange.LastobservationisNovember2023forChina,Indonesia,andVietNam.LastobservationisOctoberforMalaysia,thePhilippines,andThailand.C.Year-on-yearheadlineconsumerpriceinflationandcoreconsumerpriceinflation.Reddiamondsindicateyear-on-yearheadlineconsumerpriceinflationoneyearearlier.LastobservationisNovember2023forChina,Indonesia,thePhilippines,ThailandandVietNam.LastobservationisOctober2023forMalaysia.D.CumulativenetportfoliodebtandequityinflowssinceJanuary2022.LastobservationisNovember2023.inmanyeconomies,interestratesareexpectedtoremainbroadlyunchangedin2024onaccountoftightmonetarypolicyinmajoradvancedeconomies,lingeringconcernsaboutweakeningexchangeratesandcapitaloutflows,andthepotentialforaresurgenceininflation.Withlittleexpectedchangeinnominalinterestrates,easinginflationwillraiserealinterestratesthrough2024,dampeningdemand.Moreover,inChina,theeffectivenessofrecentmonetarypolicyeasingislikelytoremainbluntedbyhighdebt,depressedsentiment,andweakcreditdemand.Inmanyeconomiesintheregion,amidsolidgovernmentconsumptionbutconstrainedpublic56CHAPTER2.1GLOBALECONOMICPROSPECTSJANUARY2024FIGURE2.1.3EAP:Outlookgeopoliticaltensions.TheconflictintheMiddleEastcouldescalate,increasinguncertaintyandGrowthinChinaisprojectedtoslowto4.5percentin2024andto4.3disruptingenergysupply.Otherdownsideriskspercentin2025.InEastAsiaandPacific,excludingChina,growthisincludeprolongedglobaltradeweakness,tighter-expectedtobebroadlystable,exceptinthePacificIslandeconomies,inthan-expectedfinancialconditions,anddamagingwhichitwillpickupinthenearterm,reflectingacontinuedtourismclimate-change-relatedextremeweatherevents.recovery.TheslowdowninChina’sgrowthpartlyreflectsthepersistentElevateduncertaintyorpersistenttradeweaknessweaknessinthecountry’spropertysector.Monetarypolicyheadwindsarecouldleadtosustainedsluggishnessininvestmentexpectedtoendure,withinterestrateshigherthanayearearlierinsomegrowthandharmpotentialoutputgrowthintheeconomies.region,whichisalreadyexpectedtosoften(KoseandOhnsorge2023).Incontrast,stronger-than-A.China:ContributionstogrowthB.GrowthinEastAsiaandPacificexpectedgrowthintheUnitedStatesposesanIslandeconomiesupsiderisktotheforecast.PercentConsumptionGov.spendingPercent2000-19averageChinacouldexperienceaworse-than-expected8InvestmentNetexports6propertysectordownturn,withlargeandGDPgrowthprotractedfallsinpricesandactivity(chapter1).Suchascenariowouldnotonlyleadtoadecrease64inhouseholdwealthbutalsoamplifyfinancialstressondevelopers,theircreditors,andsuppliers.42Additionally,itcouldunderminebroaderdemandandsqueezelocalgovernmentrevenue.Fromtheir20peakinmid-2021,existingpropertypriceshavefallenbyabout6percentnationally—asmaller02023edecreaseandoverashorterperiodcomparedto2024fpastmajorpropertymarketcorrectionsinother2025flargeeconomies.Protractedweakconsumer2023esentiment,triggeredbyadditionalpropertysector2024fturmoilorbroaderuncertainty,couldspur2025fprecautionarysaving,dampeningconsumptiongrowth.Heighteneduncertaintycouldalsoerode-22023e2024f2025fEastAsiaexcludingPacificIslandbusinesssentiment,weakeninginvestmentand2010-19Chinaeconomieslabormarketconditions,whilehighdebtandslowergrowthcouldleadtoadeteriorationinC.China:Year-to-datepropertystartsD.Officialinterestratescreditqualityandincreasedfinancialpressures.Sq.meters,millionsPercentLatest1yearearlierGiventhestrongtradelinksbetweenChinaand1,6008othereconomiesintheregion,slower-than-1,200expectedgrowthinChinawouldhavenegative6spilloverstodemandandactivityacrossEAP800(figure2.1.4.A).Slowermanufacturinggrowthin4004Chinawoulddepressregionalprocessingtrade,particularlyineconomieswithlargeintegrated02exportsectorssuchasMalaysiaandVietNam(WorldBank2022a).Commodityexportersinthe0region,includingIndonesia,Mongolia,Myanmar,2002andtheSolomonIslands,wouldendurereduced2005demandandprices.Weakerdiscretionary2008householdspendinginChinawouldalsospillover2011totheregion,includingthroughdampened2014demandforinternationaltravel,curtailingthe201720202023ChinaIndonesiaMalaysiaPhilippinesThailandVietNamSources:HaverAnalytics;WorldBank.Note:e=estimate;f=forecast;Gov.=government;Sq.=square.A.AnnualrealGDPgrowthandcontributionsofexpenditurecomponents.Datafor2023areestimated,whileprojectionsfor2024and2025areprovidedbytheWorldBank.B.AnnualrealGDPgrowth.Datafor2023areestimated,whileprojectionsfor2024and2025areprovidedbytheWorldBank.Aggregategrowthratesarecalculatedusingaverage2010-19GDPweightsandmarketexchangerates.C.Year-to-datevolumeofresidentialbuildingfloorspaceconstructioncommencedbetweenJanuaryandNovember.LastobservationisNovember2023.D.Mainpolicyinterestrate.Orangediamondsrefertothepolicyrateinthesamemonthoneyearearlier.LastobservationisNovember2023.investment,fiscalpolicywilloverallexertaneutralinfluenceonactivitythrough2024and2025.InChina,fiscalpolicywillprovidesomedemandsupport,includingfromapickupininfrastructurespendinginthesecondhalfof2023.However,weakenedrevenues,mountingdebt,andfinancialpressureswillcontinuetoconstrainlocalgovernmentspendingefforts(WorldBank2023b).RisksRiskstothebaselinegrowthforecastfortheregionaretiltedtothedownsideandfocusonweaker-than-expectedgrowthinChinaandheightenedGLOBALECONOMICPROSPECTSJANUARY2024EASTASIAANDPACIFIC57tourismrecoveryinsomeoftheregion’sFIGURE2.1.4EAP:Riskseconomies,includingCambodiaandThailand.Risingglobaltensionsandtradeprotectionism,Slower-than-expectedgrowthinChinawouldfurtherweakenactivityinthecouldalsodampentradegrowth,withadverseEastAsiaandPacific(EAP)region,withmorepronouncednegativeeffectsondomesticactivity.demandspilloversinexport-orientedeconomies,particularlythosemorereliantonChina.AdependenceonimportedpetroleuminmanyEAPAnescalationintheconflictintheMiddleEasteconomiesexposesthemtohigheroilpricesfromescalatingconflictinthealsorepresentsasignificantdownsiderisktotheMiddleEast,whichcoulddisruptglobaloilsupply.Risingdebtleavestheoutlook.EAP’seconomies,beinggenerallyexport-regionvulnerabletounexpectedtighterfinancialconditions,whilemoreorientedandinmanycasesdependentonfrequentclimate-change-relatedextremeweathereventspresentfurtherimportedenergy,particularlypetroleum,aredownsideriskstotheoutlook.especiallyvulnerabletoheightenedgeopoliticaltensionsandglobalenergysupplydisruptionsA.GoodsexportssharesofGDPB.Netpetroleumimports(figure2.1.4.B).Escalatingconflictinoil-exportingcountriesintheMiddleEastorPercentofGDPExportstoChinaPercentofGDPelsewherecoulddisruptoilsupply,spurringsharp100Exportstootherpartners10increasesinpricesforenergyandfood.Thiscouldhavebroaderadverseknock-oneffectsforprices,808stokeinflation,andpromptrenewedmonetary6policytightening,whichcoulddampengrowth.6042Globalfinancialconditionscouldalsobecome400tighterthanassumedinthebaseline,whichwould-2weighonactivityandincreaserisksoffinancial20stress.Borrowingcostscouldriseifpersistentlyelevatedinflationpromptsmajorcentralbanksto0pursuetighter-than-expectedmonetarypolicy.ThiswouldfurtherdepressexternaldemandandVNMweakenexportsofEAPeconomies.ItwouldalsoMYSadddownwardpressureonexchangeratesintheMNGregion,makingitmoredifficultforcentralbanksKHMtoeasemonetarypolicytosupporteconomicTHAactivity.Additionally,themountingdebtlevelsLAOobservedinmanyEAPeconomies,withChinaMMRbeinganotableexamplethoughnottheonlyone,IDNheightensvulnerabilitytohigherborrowingcostsPHL(figure2.1.4.C).FJIExtremeweatherevents,thefrequencyofwhichKIRhasincreasedinrecentdecadesasaresultofKHMclimatechange,alsoposeadownsiderisktotheMNGregionaloutlook(figure2.1.4.D).PacificIslandWSMeconomiesareparticularlyexposedtoextremeMMRweatherevents,notablyhighlydamagingandTHAfrequenttropicalstorms.However,extremeLAOweathereventsalsopresentaseriousthreattoPHLlargereconomies,recentlyunderscoredbyVNMdamagingheatwavesandfloodsinChina,andaCHNcycloneandfloodsinMyanmar(WorldBankIDN2022b).MYSC.DebtD.FrequencyofextremeweathereventsPercentofGDPHouseholdFrequency2001-20221980-2000350Government12Non-financialcorp.3009250200615010035002023201320230SmallEastEMDEs2013PacificstatesAsiaIslandChinaEAPexcl.ChinaeconomiesSources:EM-DAT(database);HaverAnalytics;InstituteofInternationalFinance(database);UNComtrade(database);WorldBank.Note:CHN=China;corp.=corporation;EAP=EastAsiaandPacific;EMDEs=emergingmarketanddevelopingeconomies;FJI=Fiji;IDN=Indonesia;KHM=Cambodia;KIR=Kiribati;LAO=LaoPDR;MMR=Myanmar;MNG=Mongolia;MYS=Malaysia;PHL=Philippines;THA=Thailand;VNM=VietNam;WSM=Samoa.A.PeriodaveragesofgoodsexportsasashareofGDPbetween2021and2022.B.AveragenetimportsofpetroleumproductsandcrudeoilasapercentofGDPbetween2018and2022.C.EAPexcludingChinaincludesIndonesia,LaoPDR,Malaysia,Mongolia,PapuaNewGuinea,thePhilippines,Thailand,andVietNam.TheaggregateiscalculatedasaGDP-weightedaverage.2013refersto2013Q2and2023refersto2023Q2.Lastobservationis2023Q2.D.Frequencyiscalculatedbasedontheannualnumberofextremeweathereventsperonemillionsquarekilometersoflandarea.Periodaveragesoffrequencyfor1980-2000and2001-2022.Extremeweathereventsrefertodroughts,extremetemperatures,floods,andstorms.Lastobservationisend-2022.Ontheupside,growthintheUnitedStateswasstrongerthanexpectedlastyear,withresilientlabormarketsunderpinningrobustconsumptioninthefaceofsignificantmonetarypolicytightening.WhileChina’sshareofexportsformostEAPeconomieshasincreasedmarkedlyinrecentdecades,theUnitedStatesremainsakeyexportmarketformany.UnexpectedlystronggrowthintheUnitedStateswouldliftexternaldemandintheEAPregion,supportingfasterexportsandoutputgrowth.58CHAPTER2.1GLOBALECONOMICPROSPECTSJANUARY2024TABLE2.1.1EastAsiaandPacificforecastsummaryPercentagepointdifferencesfromJune2023projections(RealGDPgrowthatmarketpricesinpercent,unlessindicatedotherwise)202120222023e2024f2025f2023e2024f2025fEMDEEAP,GDP17.53.45.14.54.4-0.4-0.1-0.1GDPpercapita(U.S.dollars)7.23.24.84.34.1-0.4-0.1-0.1(Averageincludingcountriesthatreportexpenditurecomponentsinnationalaccounts)2EMDEEAP,GDP27.73.45.14.54.4-0.4-0.1-0.1PPPGDP7.33.65.04.64.4-0.4-0.1-0.1Privateconsumption9.51.99.25.95.4-0.40.50.1Publicconsumption3.44.22.53.12.80.0-0.20.1Fixedinvestment3.13.43.34.14.1-0.4-0.6-0.5Exports,GNFS316.91.40.32.42.7-1.9-1.0-0.7Imports,GNFS312.3-1.31.93.02.9-1.1-0.9-1.0Netexports,contributiontogrowth1.20.6-0.30.00.0-0.20.00.0Memoitems:GDPChina8.43.05.24.54.3-0.4-0.1-0.1EastAsiaandPacificexcludingChina2.95.84.44.74.7-0.4-0.1-0.1Indonesia3.75.35.04.94.90.10.0-0.1Thailand1.52.62.53.23.1-1.4-0.4-0.3Commodityexporters2.65.24.84.84.80.10.10.1Commodityimportersexcl.China3.26.34.14.64.7-0.8-0.2-0.1PacificIslandEconomies4-1.56.03.74.63.2-0.10.40.0Source:WorldBank.Note:e=estimate;f=forecast;EAP=EastAsiaandPacific;EMDE=emergingmarketanddevelopingeconomies;PPP=purchasingpowerparity.WorldBankforecastsarefrequentlyupdatedbasedonnewinformationandchanging(global)circumstances.Consequently,projectionspresentedheremaydifferfromthosecontainedinotherBankdocuments,evenifbasicassessmentsofcountries’prospectsdonotdifferatanygivenmomentintime.1.GDPandexpenditurecomponentsaremeasuredinaverage2010-19pricesandmarketexchangerates.ExcludestheDemocraticPeople’sRepublicofKoreaanddependentterritories.2.SubregionaggregateexcludestheDemocraticPeople’sRepublicofKorea,dependentterritories,Fiji,Kiribati,theMarshallIslands,theFederatedStatesofMicronesia,Myanmar,Palau,PapuaNewGuinea,Samoa,Timor-Leste,Tonga,Tuvalu,andVanuatu,forwhichdatalimitationspreventtheforecastingofGDPcomponents.3.Exportsandimportsofgoodsandnonfactorservices(GNFS).4.IncludesFiji,Kiribati,theMarshallIslands,theFederatedStatesofMicronesia,Nauru,Palau,PapuaNewGuinea,Samoa,theSolomonIslands,Tonga,Tuvalu,andVanuatu.TABLE2.1.2EastAsiaandPacificcountryforecasts1PercentagepointdifferencesfromJune2023projections(RealGDPgrowthatmarketpricesinpercent,unlessindicatedotherwise)202120222023e2024f2025f2023e2024f2025fCambodia3.05.25.45.86.1-0.1-0.3-0.2China8.43.05.24.54.3Fiji-5.120.07.64.03.7-0.4-0.1-0.1Indonesia3.75.35.04.94.9Kiribati7.91.22.52.42.32.6-0.10.2LaoPDR2.52.73.74.14.3Malaysia3.38.73.94.34.20.10.0-0.1MarshallIslands21.0-4.53.03.02.0Micronesia,Fed.Sts.2-3.2-0.62.82.81.30.00.00.0Mongolia1.65.05.86.26.4Myanmar23-12.04.01.02.0..-0.2-0.1-0.1Nauru27.22.80.61.41.2Palau2-13.4-2.00.812.411.9-0.40.10.0PapuaNewGuinea-0.85.23.05.03.1Philippines5.77.65.65.85.81.10.9-0.3Samoa2-7.1-5.38.04.53.6SolomonIslands-0.6-4.11.82.73.1-0.10.00.0Thailand1.52.62.53.23.1Timor-Leste2.93.92.43.54.30.6-0.1-0.4Tonga2-2.7-2.02.62.52.2Tuvalu1.80.73.93.52.4......Vanuatu0.61.91.52.63.5VietNam2.68.04.75.56.0-0.4-0.6-1.3-11.53.37.2-0.70.60.0-0.4-0.1-0.13.01.10.3-0.70.30.1-1.4-0.4-0.3-0.60.31.10.1-0.3-0.4-0.30.4-0.21.0-1.4-0.4-1.3-0.7-0.5Source:WorldBank.Note:e=estimate;f=forecast.WorldBankforecastsarefrequentlyupdatedbasedonnewinformationandchanging(global)circumstances.Consequently,projectionspresentedheremaydifferfromthosecontainedinotherBankdocuments,evenifbasicassessmentsofcountries’prospectsdonotsignificantlydifferatanygivenmomentintime.1.DataarebasedonGDPmeasuredinaverage2010-19pricesandmarketexchangerates.2.ValuesforTimor-Lesterepresentnon-oilGDP.Forthefollowingcountries,valuescorrespondtothefiscalyear:theMarshallIslands,theFederatedStatesofMicronesia,andPalau(October1-September30);Myanmar(April1-March31);Nauru,Samoa,andTonga(July1-June30).3.DataforMyanmarbeyond2024(whichcorrespondstotheyearendingMarch2025)areexcludedbecauseofahighdegreeofuncertainty.GrowthinEuropeandCentralAsia(ECA)isexpectedtomoderateto2.4percentthisyear,andthenfirmto2.7percentin2025,supportedbystrengtheningdomesticdemandandagradualrecoveryintheeuroarea.Inthenearterm,persistentlyhighinflationwillpreventarapideasingofmonetarypolicyinmosteconomiesandweighonprivateconsumption.Projectedfiscalconsolidationfurtherdampenstheoutlook.Downsideriskscontinuetopredominate.AnescalationoftheconflictintheMiddleEastcouldincreaseenergyprices,tightenfinancialconditions,andnegativelyaffectconfidence.Geopoliticalrisksintheregion,includinganescalationoftheRussianFederation’sinvasionofUkraine,areelevatedandcouldmaterialize.Higher-than-anticipatedinflationoraweaker-than-expectedrecoveryintheeuroareawouldalsonegativelyaffectregionalactivity.Recentdevelopmentssubsequentincreasesinthepolicyinterestrate.MigrationfromCentralAsiatoRussiaincreasedGrowthinEuropeandCentralAsia(ECA)isaftertheinvasion,with43percentofallentrantsestimatedtohavepickedupto2.7percentinmigratingforworkpurposesin2023(figure2023from1.2percentin2022.Thisrecovery2.2.1.B).primarilyreflectsfirmingprivateconsumption,supportedbyadditionalfiscalsupport,robustGrowthinTürkiyemoderatedtoanestimated4.2labormarketconditions,andtheresumptionofpercentin2023.FollowingtheMayelections,growthinRussiaandUkraine.The1.3percentagethereweresignificanthikesinthepolicyinterestpointupwardrevisionfromtheJune2023forecastrate,from8.5percentinMayto42.5percentinismainlyduetoupgradesforthesetwocountriesDecember2023.Additionally,regulatorychangesandTürkiye.Excludingthem,growthinECAinslowedcreditexpansion,whichstartedtoweigh2023markedlydecelerated,toanestimated1.8ongrowth.Nonetheless,activityexpandedmorepercent,withparticularlyweakoutcomesinthanpreviouslyanticipated,thankstoresilientCentralEurope.Manufacturingactivityremainedprivateconsumptionandsubstantialpost-subduedinthesecondhalfoftheyear,whileretailearthquakefiscaloutlays.Inflationexceeded60salescontinuedtosoften(figure2.2.1.A).percentinthesecondhalfof2023.InRussia,outputexpandedbyanestimated2.6InUkraine,growthexpandedbyanestimated4.8percentin2023.Thisstronger-than-expectedpercentin2023,followingtheprecedingyear’srecoverywasfueledbysubstantialfiscalsupport,steepcontraction.Nonetheless,outputremainedincludingadditionalmilitaryspending.Oilabout30percentlowerin2023thanitspre-productionandexportscontractedmodestly,andinvasionlevel(figure2.2.1.C).Growthwastheauthoritiesannouncedend-2023anextensionunderpinnedbyimprovedelectricityaccess,aoftheexportcurbsof300,000barrelsperdayasbetterharvest,andadditionalgovernmentwellasadeepeningby200,000barrelsperdayspending,albeitatthecostofincreasingfiscalandstartinginJanuary2024.Exchangeratedeprecia-currentaccountdeficits.Whiletheunravelingoftionledtoaninflationuptick,promptingtheBlackSeaGrainInitiativeinJuly2023continuestoexertdownwardpressureongrainNote:ThissectionwaspreparedbyMarieAlbert.exports,Ukrainehassuccessfullyidentifiedalternativeroutesforgrainexportsthathavesupportedthesector.60CHAPTER2.2GLOBALECONOMICPROSPECTSJANUARY2024FIGURE2.2.1ECA:RecentdevelopmentsMedianheadlineinflationintheregionslowedto5.4percentinNovember,alongsideeasingenergyHigh-frequencyindicatorssuggestonlymodestgrowthinmajorECAandfoodpricepressures.Amidsubduedactivity,economies.FollowingtheRussianFederation’sinvasionofUkraine,morepolicyinterestrateshavelikelypeakedinmanymigrantsfromCentralAsiahaveenteredRussiaforworkpurposes.economies,withseveralcentralbanks,includingUkraine’sGDPhasdeclinedbyabout30percentsincethebeginningofPoland,startingtolowerrates(figure2.2.1.D).theinvasion.Tightmonetarypolicieshaveweighedonregionalactivity,butHowever,RussiaandTürkiyeembarkedonaseveralcountrieshaveinitiatedpolicyinterestratescuts.tighteningcycle.A.High-frequencyindicatorsformajorB.MigrationfromCentralAsiatotheOutlookeconomiesRussianFederation,bypurposeEconomicactivityinECAisprojectedtoPercentRetailsalesIndex,50+=MillionsWorkPersonalStudymoderateto2.4percentthisyearandthenfirmto168BusinessOther2.7percentin2025.ThemaindriversofgrowthManufacturingPMI(RHS)expansionincludeprivateconsumptionsupportedbyreducedinflationarypressures,andexportsNewexportordersPMI(RHS)54boostedbyagradualrecoveryintheeuroarea.The0.3percentagepointdownwardrevisionfor12506ECAin2024primarilyreflectsaforecastdown-gradeinTürkiyeduetofurthermonetarypolicy8464tightening(figure2.2.2.A).Uncertaintysurround-ingtheevolutionofRussia’sinvasionofUkraine442playsanimportantroleinshapingtheregionaloutlook.Excludingthesetwoeconomies,growth2intheregionisexpectedtoaccelerateto3.1percentthisyearandto3.7percentin2025.038MostECAcountriesarelikelytocontinueeasingJan-232020202120222023monetarypolicy,asinflationisprojectedtoFeb-23decline.However,coreinflationexceedstheMar-23headlineinflation,whichremainsabovethetargetsApr-23inmostcountries.FiscalconsolidationisprojectedMay-23togatherpaceinhalfoftheeconomiesin2024.Jun-23Jul-23GrowthinRussiaisprojectedtoslowto1.3Aug-23percentin2024,andthento0.9percentin2025,Sep-23nearitspotentialrate.TighteningmonetarypolicyOct-23isexpectedtodampendomesticdemand.TradeNov-23diversiontoChina,India,andTürkiyeisevidentforbothexportsandimports(figure2.2.2.B).C.OutputinUkraineD.ChangesinpolicyinterestratesHowever,forproductsaffectedbysanctionsinresponsetotheinvasion,theincreaseinimportsIndex,100=21Q4GDPlossGDP8ShareofcountriesfromChinaonlyoffsetsaboutaquarteroftheIncreasesdecreaseinimportsfromtheEuropeanUnion1100246101214161820DecreasesNochange(EU)in2022(Grekou,Mignon,andRagot1002023).Capacityconstraints,includingtightlabor180marketconditionsandscarcityofdomesticlabor60duetotheinvasion,willcontinuetorestrict100140growth.201090Beginningof180COVID-19theinvasion070060019Q119Q320Q120Q321Q121Q322Q122Q323Q123Q321Q121Q221Q321Q422Q122Q222Q322Q423Q123Q223Q323Q4Sources:FederalStateStatisticsService(Rosstat);HaverAnalytics.Note:PMI=purchasingmanagers’index.A.LinesshowtheaveragevalueforPMImanufacturingandnewexportorders.Barsshowtheaveragegrowthinretailsalesfromayearearlier.MajoreconomiessamplecomprisesPoland,theRussianFederation,andTürkiye.B.NumberofmigrantentriesbypurposefromCentralAsiacountriesintotheRussianFederationforeachperiod.=2023dataareavailableuntil2023Q3.C.BluelineshowsrealGDPlevelcomparedto2021Q4.Theyellow-shadedareashowstheGDPlosssincethestartoftheinvasionofUkraine.D.Barsshowthesharesofcountriesforwhichpolicyrateshaveincreased,decreased,orremainedunchangedinthespecificquarter.LastdatapointisNovember2023.Elsewhereintheregion,weakexternaldemandfromtheeuroareaaffectedeconomicactivity,especiallyinCentralEuropeandtheWesternBalkans.RemittanceflowstoECAsupporteddemandinremittance-intensivecountriessuchasArmenia,KyrgyzRepublic,andTajikistan.In2023,remittancesdeclinedby1.4percentintheregion,afteranincreaseof18.5percentin2022,whichwasarecord-highyear(WorldBank2023c).Fiscalconsolidationeffortswerelimitedduetoincreasingpublicsectorwages,indexedsocialbenefits,andrisinginterestpayments(WorldBank2023d).GLOBALECONOMICPROSPECTSJANUARY2024EUROPEANDCENTRALASIA61GrowthinTürkiyeisforecasttomoderateto3.1FIGURE2.2.2ECA:Outlookpercentin2024beforepickingupto3.9percentin2025.TheoutlookconsidersfurthermonetaryRegionalgrowthisprojectedtopickupmodestlyin2024-25.Tradepolicytighteningandgradualfiscalconsolidation.diversionresultingfromRussia’sinvasionofUkraineandsanctionsinItalsoassumesimprovingfinancialstability,risingresponsetotheinvasionhasbeensignificant,withincreasingexportsfromnetexports,largersupportforexporters,andChina,India,andTürkiyetoCentralAsiaandtheRussianFederation.Therebalancingineconomicactivity.WhileinflationpaceofconvergencetowardsEUpercapitaincomesisslowingdown.isexpectedtoremainelevatedinthefirsthalfofRapidprogressonreformsthatnarrowlabormarketgendergapswould2024,itisanticipatedtograduallyeaseoffstartingincreasethepaceofhumancapitalaccumulation,andthereforegrowth.inthesecondhalfoftheyear,alleviatingthenegativeimpactonprivateconsumption.A.GrowthforecastsB.ChangeinexportstoCentralAsiaandtheRussianFederationfrom2019InUkraine,theoutlookremainshighlyuncertain.to2023Growthisprojectedtobe3.2percentin2024and6.5percentin2025.ActivehostilitiesareexpectedPercentJanuary2024June2023Percenttocontinuethroughout2024,withbaseeffects5400andone-offfactorsincludingagriculturalharvest42024fTURwhichshouldfade.Apartialresolutionof32025f300uncertaintyin2025wouldfacilitatearesumption22024fofexportsandagradualincreaseinreconstruction12025f200investment.02024f2025fInCentralEurope,theexpansionissetto2024f100INDCHECHNaccelerateto2.8percentin2024and3.5percent2025fin2025.TheoutlookreflectsfirmingexternalRussianFederation0JPNdemandfromtheeuroarea,improvingdomesticECAECAexcl.RUSTURKORUSAEUdemandonthebackofarecoveryinrealwages,RUS,andtheabsorptionofEUfundsthroughtheTUR&-100GBRRecoveryandResilienceFacility.UKR-50050100150IntheWesternBalkans,outputisanticipatedtoPercentreboundby3percentin2024and3.5percentinCentralAsia2025.Economicactivityinthesubregionisexpectedtobeunderpinnedbyfirmingconsump-C.ConvergenceofGDPpercapitaD.Laborforceandgendergaptionasinflationarypressuresease,agradualwiththeEUrecoveryintheeuroarea,increasingpublicspendingonEUinfrastructureprojects,andaPerPcentofEUlevelPercentagepointsIndexcontinuingbutslowerdemandintourism0.40earnings.Labormarketswillcontinuetobetight4520222000202540Laborforcegendergapandfiscalspacewillremainlimiteddueto0.35rigiditiesinnon-discretionaryspending,suchasGendergap(RHS)pensionsandwages(WorldBank2023e).3030InSouthCaucasus,growthisprojectedtoholdsteadyat3.3percentayearover2024-25.While200.30furtherunwindinginmoneytransferinflowsfromRussiaisexpected,re-exportsandtourismwill15continuetosupporteconomicactivity.However,long-termgrowthwillremainhamperedby100.25commoditydependence,weaknessesinconnectivi-000.20EECASCCECAWBKCEEESCCRUSCEWBKECACATURSources:UNComtrade;WorldBank;WorldEconomicForum.Note:CA=CentralAsia;CE=CentralEurope;CHE=Switzerland;CHN=China;ECA=EuropeandCentralAsia;EE=EasternEurope;EU=EuropeanUnion;GBR=UnitedKingdom;IND=India;JPN=Japan;KOR=Korea,Rep.;RUS=RussianFederation;SCC=SouthCaucasus;TUR=Türkiye;UKR=Ukraine;USA=UnitedStates;WBK=WesternBalkans.A.BluebarsshowrealGDPgrowthforecasts.DiamondsrepresentthepreviousforecastsfromtheJune2023editionofGlobalEconomicProspectsreport.LightbluebarsshowsthevalueforECAregion.B.EachaxisshowsthepercentchangeofthemonthlyaverageexportstotheRussianFederationandCentralAsiaforthefirstninemonthsof2023,or2022if2023dataarenotavailable,comparedtothemonthlyaverageofthefirstninemonthsof2019.EUistheaverageofthecountriesoftheEuropeanUnion.ReddotsareforcountriesshowingincreaseinexportstoCentralAsiaandtheRussiaFederationsince2019.C.Bars,reddashes,andorangediamondsshowtheaverage(median)shareofincomepercapitacomparedtotheEUincomepercapitavalueforeachsubregionfor2022,2000,2025,respectively.LightbluebarshowsthevalueforECAregion.D.Bluebarsdenotethedifferencebetweenmaleandfemalelaborforceparticipationratesasapercentageofthepopulationage15+,basedonthemodeledestimatesoftheInternationalLabourOrganizationfor2023.Redbarsindicatethecomplement(1–thevalue)oftheWorldEconomicForum’sGenderGapIndexfor2023.Theindexexaminesthegapbetweenmenandwomenacrossfourfundamentalcategories:EconomicParticipationandOpportunity,EducationalAttainment,HealthandSurvival,andPoliticalEmpowerment;thus,ahigherbarmeansahighergendergap.tyandlogistics,andpossiblecontinuinggeopoliti-caltensionsbetweenArmeniaandAzerbaijan.GrowthinCentralAsiaisforecastedtobebroadlystableatabout4.8percentayearover2024-25,62CHAPTER2.2GLOBALECONOMICPROSPECTSJANUARY2024thehighestamongsubregions.Still-highcommod-tightenfinancialconditions,hamperinginvest-ityprices,resilientconsumerspendingamidmentandconsumption.coolinginflation,andsustainedexportgrowthbenefitingfromrisingoilproductioncapacityinGeopoliticaltensionscontinuetoposedownsideKazakhstan,areexpectedtosupporttheactivity.risks.Theyear-to-OctobernumberofpoliticalTradediversiontriggeredbytheinvasion,leadingviolenceeventsanddemonstrationsintheregiontoincreasedexportstotheregionfromcountriesalmosttrebledbetween2021and2023,concen-thathavereducedtheirexportstoRussia,istratedespeciallyinRussiaandUkraine(figureexpectedtopersist(figure2.2.2.B).Theflowof2.2.3.A).IntensifyingtensionsandconflictscouldremittancesfromRussiawillwinddownbutworsenalready-heavyhumanandeconomiclosses.remainwellabovepre-invasionlevels.Othergeopoliticalstrains—suchastensionsbetweenArmeniaandAzerbaijanandbetweenRegionalgrowthisprojectedtoremainbelowitsKosovoandSerbia—couldre-emerge.Thehighpre-pandemictrend,reflectingthelingeringeffectsnumberofpresidential,parliamentary,andlocalofthepandemicandRussia’sinvasionofUkraine.electionsin2024alsoincreasesuncertaintyaboutThepaceofincomepercapitaconvergenceinfutureeconomicpolicies.ECAisexpectedtoremainsluggish,withaverageincomepercapitareaching24percentoftheEUMorepersistentinflationthancurrentlyenvisagedlevelin2025(figure2.2.2.C).AverageincomepercouldkeepmonetarypoliciestighterforlongercapitaisexpectedtoremainthehighestinCentralandweighonactivity.MostofthecountriesareEurope,reaching41percentoftheEUlevelinnotlikelytoreachtheirinflationtargetsbythe2025.endof2024(figure2.2.3.B).Awage-pricespiralintheWesternBalkans,CentralEurope,andAcceleratedprogressongenderequalitycouldTürkiye,orhigher-than-projectedcommoditydeliverfasterandmoreinclusivegrowth.Althoughprices—potentiallydrivenbyanescalationofthetheECAregion,onaverage,exhibitsalowerconflictintheMiddleEast—couldfuelsuchgendergapthanotherEMDEregions,countriesinflation.ExternalvulnerabilitiesaresignificantininCentralAsiaandTürkiyestillfacegendertheregion,withalmostthree-fourthsofECAinequalityandlaborgendergaps.Fast-trackingcountrieshavingexternaldebtlevelsexceedingthegender-relatedreformscouldenhancehumanEMDEsmedianlevelin2022(figure2.2.3.C).Ifcapitalaccumulation(figure2.2.2.D;WorldBankglobalfinancialconditionstighten,thiscould2023f).Thesereformsinvolveimprovingaccesstotriggercapitaloutflowsandincreaseborrowingqualitychildcareandsafetransportforwomen,costs.FinancialstabilityrisksmayariseinCentralmitigatingthedoubleburdenofdomesticandAsiaduetounderdevelopedbankingsystemsandprofessionalwork,andreducingpressuretoadhereincreasingcreditrisk.Delayedimpactsoftotraditionalgenderroles.sanctionsinresponsetotheRussia’sinvasionofUkrainecouldresultinhighercostsforinterna-RiskstionalpaymentsettlementsintheKyrgyzRepublicandTajikistan.Riskstothebaselineforecastremaintiltedtothedownside.TheongoingconflictintheMiddleWeaker-than-expectedgrowthintheeuroarea,East,especiallyifprolongedorspread,couldtheregion’smaintradingpartner,wouldadverselynegativelyimpacttheregion(WorldBank2023g).impactECAviatradechannels.CentralEurope,Aresurgenceinenergyprices,particularlytheSouthCaucasus,andtheWesternBalkansEuropeannaturalgas,wouldmakereducingwouldbeparticularlyaffected,giventhathalfofinflationmorechallenging,whilepotentialtheirgoodsexports,onaverage,aredestinedforbenefitswouldbelimitedtoenergy-exportingtheeuroarea.IncreasingtraderestrictionscouldeconomieslikeRussiaandcountriesinCentralalsopushfurthertradefragmentation.Additional-Asia.Additionally,elevateduncertaintycouldly,amoresignificantslowdowninChinaoraGLOBALECONOMICPROSPECTSJANUARY2024EUROPEANDCENTRALASIA63sharper-than-expectedreductioninremittancesFIGURE2.2.3ECA:RisksfromRussiawouldrepresentexternalheadwindstoCentralAsiaandtheSouthCaucasus.Risksremaintiltedtothedownside,withheightenedgeopoliticaltensions.HeadlineinflationisexpectedtoremainabovetargetsacrossmostoftheFurtherdelaysinthedisbursementofEUfundsregion,potentiallyleadingtoanextendedperiodofhigherpolicyrates.poseanotherdownsideriskforCentralEurope,asFinancialstresscouldposenotableheadwinds,especiallyforeconomiesdodelaysinreformstiedtoEUaccessioninthewithexternalandfiscalvulnerabilities.Incontrast,afasterimplementationWesternBalkans.Concernsaboutgovernanceofstructuralreformsrepresentsanupsiderisk.AccelerateddisbursementhavehindereddisbursementsfromtheEUtooftheEURecoveryandResilienceFacilityfundswouldboostinvestment.Poland,whilepoliticalinstabilityhasaffectedBulgaria(WorldBank,forthcoming).Incontrast,A.NumberofviolenceeventsandB.GapsbetweeninflationanddisbursementstootherCentralEuropeandemonstrationsexpectedinflation,versusinflationcountrieshaveproceeded,followingprogressintargetstheimplementationoftheRecoveryandResili-enceFacilityinthecategoriesofsmart,sustaina-ThousandsThousandsPercentPercentble,andinclusivegrowthandhealth,economic,6010End-2023deviationfrom50social,andinstitutionalresilience(figure2.2.3.D).50202320222021640inflationtarget40Anambitiousimplementationofstructural305reformsposesanupsiderisktothegrowth2082024expectationsdeviation30outlook.Thesimultaneousimplementationofa1046fromtargetlargesetofreforms(marketcompetitionandregulation,taxation,skills,labormarket,research03420anddevelopment)amongEU’smemberstatescouldyieldsubstantialGDPgainsforBulgaria2210andRomania(Pfeiffer,Varga,andin’tVeld2023).Additionally,theEU’snewgrowthplanfor100theWesternBalkansallocatessixbillioneurosinnon-repayablesupportandloanstoadvance0economicintegrationwiththeEuropeanUnion’ssinglemarketandtheCommonRegionalMarket,ECA-2-10aswellastoacceleratefundamentalreforms.(LHS)Strengtheninginstitutions,especiallyinCentralSCCRUSEEWBKCAECACETURAsia,wouldcreateconditionsforpromotingEEinvestmentgrowth(chapter3).Reducingthe(LHS)(RHS)state’spresencecouldincreaseproductivityandfinancialperformance.ThegreentransitionwouldCEbefacilitatedthroughreformsimprovingtheSCCinvestmentclimate,encouragingfinancialsectorWBKdevelopment,andreducingthecarbonfootprintoffinancialflows.TheenergysectorrequiresaCAprofoundtransformationtoachievethenet-zeroemissionstargetby2050,potentiallystrengthen-C.ExternalvulnerabilitiesD.EURecoveryandResilienceinggrowthandsustainability(WorldBank2023h,Facilityallocationsand2023i).disbursementsShareofcountriesabovetheEMDEmedianDIGGRN100IGRRESNGEPercentAll.(RHS)80PercentSCOofGDP100Dis.(RHS)1660407512205080254GovernmentShort-termTotalexternaldebtinforeignexternaldebtdebt00currencyROUHRVBGRPOLSources:ArmedConflictLocation&EventDataProject(ACLED);ConsensusEconomics;EuropeanCommission;HaverAnalytics;WorldBank.Note:BGR=Bulgaria;CA=CentralAsia;CE=CentralEurope;ECA=EuropeandCentralAsia;EE=EasternEurope;EMDEs=emergingmarketsanddevelopingeconomies;EU=EuropeanUnion;HRV=Croatia;POL=Poland;ROU=Romania;RUS=RussianFederation;SCC=SouthCaucasus;TUR=Türkiye;WBK=WesternBalkans.A.Cumulativenumberofpoliticalviolenceeventsanddemonstrationsreportedacross22ECAEMDEs.Includesbattles,explosions/remoteviolence,protests,riots,andviolenceagainstcivilians.LightbluebarshowsthevalueforECAregion.LastobservationisDecember15,2023.B.Foreachsubregion,bluebarsshowtheaveragedifferencebetweentheinflationinNovember2023andthetarget,andtheyellowdiamondsshowtheaveragedifferencebetweentheexpectedinflationin2024andthetarget.LightbluebarshowsthevalueforECAregion.C.BarsshowtheshareofcountriesinpercentforwhichtheindicatorisabovetheEMDEmedian.Generalgovernmentdebtinforeigncurrencyandshort-termexternaldebtareaspercentoftotaldebt,totalexternaldebtisaspercentofGDP.D.All.=Allocation;DIG=digitaltransformation;Dis.=disbursement;GRN=greentransition;IGR=smart,sustainable,andinclusivegrowth;NGE=policiesforthenextgeneration;RES=healthandeconomic,social,andinstitutionalresilience;SCO=socialandterritorialcohesion.ThebarsshowthebreakdownofthecurrentEURecoveryandResilienceFacilitydisbursementsacrossthesixpillarsoftheregulation—greentransition;digitaltransformation;smart,sustainable,andinclusivegrowth;socialandterritorialcohesion;health,andeconomic,socialandinstitutionalresilience;andpoliciesforthenextgeneration—foreachcountry.Purplehorizontalbarsshowthefacilityallocation,whiletheyellowdiamondsshowthecurrentdisbursement,bothasapercentofthecountry’sGDP.64CHAPTER2.2GLOBALECONOMICPROSPECTSJANUARY2024TABLE2.2.1EuropeandCentralAsiaforecastsummaryPercentagepointdifferencesfromJune2023projections(RealGDPgrowthatmarketpricesinpercent,unlessindicatedotherwise)EMDEECA,GDP1202120222023e2024f2025f2023e2024f2025fGDPpercapita(U.S.dollars)7.11.22.72.42.71.3-0.30.07.11.42.82.32.61.4-0.30.1EMDEECAexcl.RussianFederation,Türkiye,andUkraine,GDP6.44.31.83.13.60.0-0.10.2EMDEECAexcl.RussianFederationand8.34.82.73.13.70.3-0.50.0Ukraine,GDP0.00.1EMDEECAexcl.Türkiye,GDP5.90.02.32.22.41.5-0.3-0.1(Averageincludingcountriesthatreportexpenditurecomponentsinnationalaccounts)2-0.40.0-0.6-0.3EMDEECA,GDP27.31.02.62.32.51.40.4-0.6-1.11.0PPPGDP7.20.32.72.32.61.5-1.3-0.9-2.4-0.6Privateconsumption10.24.54.62.12.63.20.50.0Publicconsumption3.12.74.42.01.60.80.10.1Fixedinvestment7.71.75.43.94.42.00.20.4Exports,GNFS310.2-0.8-0.83.24.1-1.3-0.60.0-0.10.2Imports,GNFS312.30.92.83.55.2-1.3-0.1-0.1-0.4-0.3Netexports,contributiontogrowth-0.3-0.6-1.30.0-0.30.0-0.1-0.30.30.6Memoitems:GDP0.10.1-1.2-0.2Commodityexporters45.5-2.53.01.91.72.40.00.2Commodityexportersexcl.Russian5.54.54.44.34.40.6FederationandUkraineCommodityimporters58.84.82.52.93.60.3CentralEurope6WesternBalkans76.74.90.72.83.5-0.4EasternEurope8SouthCaucasus97.93.42.53.03.5-0.1CentralAsia10RussianFederation3.6-20.23.92.44.22.4TürkiyePoland6.77.13.53.33.30.55.34.14.94.74.80.95.6-2.12.61.30.92.811.45.54.23.13.91.06.95.10.52.63.4-0.2Source:WorldBank.Note:e=estimate;f=forecast;PPP=purchasingpowerparity;EMDE=emergingmarketanddevelopingeconomy.WorldBankforecastsarefrequentlyupdatedbasedonnewinformationandchanging(global)circumstances.Consequently,projectionspresentedheremaydifferfromthosecontainedinotherBankdocuments,evenifbasicassessmentsofcountries’prospectsdonotdifferatanygivenmomentintime.TheWorldBankiscurrentlynotpublishingeconomicoutput,income,orgrowthdataforTurkmenistanowingtoalackofreliabledataofadequatequality.Turkmenistanisexcludedfromcross-countrymacroeconomicaggregates.SinceCroatiabecameamemberoftheeuroareaonJanuary1,2023,ithasbeenaddedtotheeuroareaaggregateandremovedfromtheECAaggregateinalltablestoavoiddoublecounting.1.GDPandexpenditurecomponentsaremeasuredinaverage2010-19pricesandmarketexchangerates,thusaggregatespresentedheremaydifferfromotherWorldBankdocuments.2.AggregatespresentedhereexcludeAzerbaijan,BosniaandHerzegovina,Kazakhstan,Kosovo,theKyrgyzRepublic,Montenegro,Serbia,Tajikistan,Turkmenistan,andUzbekistan,forwhichdatalimitationspreventtheforecastingofGDPcomponents.3.Exportsandimportsofgoodsandnonfactorservices(GNFS).4.IncludesArmenia,Azerbaijan,Kazakhstan,theKyrgyzRepublic,Kosovo,theRussianFederation,Tajikistan,Ukraine,andUzbekistan.5.IncludesAlbania,Belarus,BosniaandHerzegovina,Bulgaria,Georgia,Hungary,Moldova,Montenegro,NorthMacedonia,Poland,Romania,Serbia,andTürkiye.6.IncludesBulgaria,Hungary,Poland,andRomania.7.IncludesAlbania,BosniaandHerzegovina,Kosovo,Montenegro,NorthMacedonia,andSerbia.8.IncludesBelarus,Moldova,andUkraine.9.IncludesArmenia,Azerbaijan,andGeorgia.10.IncludesKazakhstan,theKyrgyzRepublic,Tajikistan,andUzbekistan.GLOBALECONOMICPROSPECTSJANUARY2024EUROPEANDCENTRALASIA65TABLE2.2.2EuropeandCentralAsiacountryforecasts1PercentagepointdifferencesfromJune2023projections(RealGDPgrowthatmarketpricesinpercent,unlessindicatedotherwise)Albania202120222023e2024f2025f2023e2024f2025fArmenia8.94.83.63.23.20.8-0.1-0.1Azerbaijan5.812.67.14.74.52.7-0.1-0.5Belarus5.64.61.52.42.5-0.7-0.1-0.12.4-4.73.00.80.82.4-0.6-0.5BosniaandHerzegovina2Bulgaria7.43.92.22.83.4-0.3-0.2-0.1Croatia7.73.91.72.43.30.2-0.40.3Georgia13.86.32.52.73.00.6-0.4-0.3Kazakhstan10.510.46.54.84.52.1-0.2-0.5Kosovo4.33.24.54.34.51.00.30.9KyrgyzRepublic10.75.23.23.94.0-0.5-0.5-0.2Moldova5.56.33.54.04.00.00.00.0Montenegro13.9-5.01.84.24.10.00.00.0NorthMacedonia13.06.44.83.23.11.40.10.2Poland4.52.21.82.52.9-0.6-0.20.0Romania6.95.10.52.63.4-0.20.00.2RussianFederation5.74.61.83.33.8-0.8-0.6-0.3Serbia5.6-2.12.61.30.92.80.10.1Tajikistan7.72.52.03.03.8-0.30.00.0Türkiye9.48.07.55.54.51.00.50.0Ukraine311.45.54.23.13.91.0-1.2-0.2Uzbekistan3.4-29.14.83.26.52.8..7.45.75.55.55.50.4..-0.30.1Source:WorldBank.Note:e=estimate;f=forecast.WorldBankforecastsarefrequentlyupdatedbasedonnewinformationandchanging(global)circumstances.Consequently,projectionspresentedheremaydifferfromthosecontainedinotherBankdocuments,evenifbasicassessmentsofcountries’prospectsdonotsignificantlydifferatanygivenmomentintime.TheWorldBankiscurrentlynotpublishingeconomicoutput,income,orgrowthdataforTurkmenistanowingtoalackofreliabledataofadequatequality.Turkmenistanisexcludedfromcross-countrymacroeconomicaggregates.1.DataarebasedonGDPmeasuredinaverage2010-19pricesandmarketexchangerates,unlessindicatedotherwise.2.GDPgrowthrateatconstantpricesisbasedonproductionapproach.3.Forecastsbeyond2023wereexcludedintheJune2023editionofGlobalEconomicProspectsreport.GrowthinLatinAmericaandtheCaribbeanisforecasttoedgeupfrom2.2percentlastyearto2.3percentin2024andthento2.5percentin2025.Thedragoneconomicactivityfromearliermonetarypolicytighteningisexpectedtodiminishthroughout2024.Additionally,theexpectedfurthereasinginpolicyratesamidmoderatinginflationissettobolstergrowthin2025.Thoughcommoditypricesfelllastyear,theyremainatlevelsthatstillsupporteconomicactivity.Improvedprospectsamongmajortradingpartnerswillalsocontributetogrowth.Mostlargeregionaleconomiesareexpectedtoexpandatabouttheirpotentialrate.Riskstotheforecastaretiltedtothedownside.TheconflictintheMiddleEastcouldresultinhigherenergyprices,whichcouldalterexpectedmonetarypolicypaths.Inaddition,tighterglobalfinancialconditionscouldweighonprivatedemandandacceleratefiscalconsolidationintheregion.ExtremeElNiñoweathereventsrelatedtoclimatechangeposeanotherdownsiderisk.Recentdevelopmentsrecentlyfallenclosetotargetsofmostcentralbanks,inpartreflectingmoderatingenergyprices.GrowthinLatinAmericaandtheCaribbeanCoreinflationhasalsocontinuedtomoderatebut(LAC)slowedtoanestimated2.2percentinremainsslightlyaboveheadlineinflation(figure2023—abouthalfthegrowthrateof2022.In2.3.1.D).Additionally,indicatorsofinflationmanyeconomies,elevatedinflation,tightfinancialexpectationshavedeclinedinrecentmonths,conditions,weaktrade,andadverseweathereventsexceptinArgentinaandPeru.Thedecelerationindampenedinvestmentandoutputgrowth.coreinflationinmostoftheregionlikelyreflectstheearlymonetarytighteningmeasuresinitiatedRegionalgrowthin2023was0.7percentagepointin2021.Asaresult,realinterestrateshaverisenhigherthanpreviousprojections,largelyduetooverthepastyearasinflationhasfallen.upwardrevisionsinthegrowthforecastsforLAC’stwolargesteconomies—BrazilandMexico.InOutlookBrazil,theupwardrevisiontogrowthin2023wasmostlyduetobetter-than-expectedoutturnsinGrowthinLACisprojectedtoincreaseslightlyinagriculturalproduction,privateconsumption,and2024,to2.3percent,beforefirmingfurtherto2.5exportsinthefirstthreequartersoftheyear.Inpercentin2025.ThelaggedeffectsofpastMexico,bothprivateconsumptionandinvestmentmonetarytighteningwillcontinuetoweighongrowthwerestrongerthanpreviouslyenvisaged.near-termgrowth,butwithdiminishingpotency.Incontrast,growthwasweakerthanexpectedinWithinflationintheregionanticipatedtootherlargeLACeconomies,includingArgentina,continueslowing,convergingtonationaltargetsColombia,andPeru,withrecentbusinesssurveysbylate2024,centralbanksareexpectedtopointingtoweakeningconfidenceandmanufac-continuereducingrates(figure2.3.2.B).Asturingactivity(figures2.3.1.A-C).monetarypolicyeases,investmentgrowthisexpectedtopickupin2024and2025.However,Inflationintheregionhasgenerallycontinuedtofiscalpolicyisnotprojectedtosupportgrowthease,withArgentinabeinganimportantexcep-duringthisperiod(figure2.3.2.A).tion.HeadlineconsumerpriceinflationhasTheupwardrevisiontoLAC’sgrowthforecastinNote:ThissectionwaspreparedbyFranciscoArroyoMarioli.2024reflectsstrongerexternaldemanddueto68CHAPTER2.3GLOBALECONOMICPROSPECTSJANUARY2024FIGURE2.3.1LAC:Recentdevelopments2024.However,agradualdecreaseinbothheadlineandcoreinflationshouldallowfurtherGrowthslowedinmajorLACcountriesinthesecondhalfof2023becauseinterestratecuts,supportingmedium-termofweakerexternaldemandandtightmonetarypolicy.Confidenceinvestmentprospectsandconsumption.Accord-indicatorshavebeenimprovingforBrazilandMexicobutremainsubduedingly,outputisforecasttoincreaseby2.2percentforChileandColombia.Purchasingmanagers’indexeswerelowerinthein2025,evenasfiscalsupportisconstrainedbysecondhalfof2023comparedwiththefirsthalf.Headlineandcoretheauthorities’aimtoachieveaprimarysurplus.inflationhavecontinuedtodecline.GrowthinMexicoisexpectedtoeaseto2.6A.GrowthinLACB.Businessconfidenceindicatorspercentin2024and2.1percentin2025,downfrom3.6percentin2023.WhileinflationhasPercent2023H12023H2z-scoreBrazilChileColombiaMexicofallen,itremainsabovethecentralbank’starget3CHLCOLMEXPER3range.Policyratecutsarelikelytoprogress2gradually,withrealinterestratesremaining12elevated,albeitonadownwardpath.Theantici-0patedslowdowninactivityin2024partlyreflects-11aweakeningexternalenvironment,mitigatedto-2somedegreebyincreasedpublicinvestmentand-30fiscaltransfersforsocialprograms.InvestmentisexpectedtocontinuetoperformwellamidARG-1increasingnearshoringbyfirms.BRA-2Feb-23May-23Aug-23Nov-23Argentina’seconomyisprojectedtorebound,Nov-22expanding2.7percentin2024and3.2percentin2025.ThepickupreflectsarecoveryfromtheC.Purchasingmanagers’indexesD.Consumerpriceinflationdroughtin2023,whichcausedadeclineinthecountry’smajorcommodityexports—maizeandIndex,50+=expansionPercentHeadlineCoreFoodsoybeans—worthalmost3percentofGDP.The20countryisnonethelessfacingsignificanteconomic54BrazilColombiaMexicoandpolicyuncertaintyamidhighinflationandsteepcurrencydepreciation,whichcontinuesto5216erodeconsumerconfidence.Annualinflationhasrecentlysurpassed150percent,withnosignsof12easing.Thereisalsolittleleewayforfiscalspend-ingtosupportactivity,asthegovernmentseeksto50addresspressingfiscalsustainabilityissues.8Colombia’sgrowthisexpectedtoincreasefrom1.2percentin2023to1.8percentin2024and3484percentin2025,closetotheeconomy’spotentialgrowthrate.Thecentralbankisexpectedtocut46Mar-23Jul-23Nov-230interestrateslaterthanitsregionalpeersintheNov-22Nov-20Aug-21May-22Feb-23Nov-23faceofpersistentinflation.Asaresult,privateconsumptionandinvestmentgrowtharenotSources:HaverAnalytics;WorldBank.expectedtogatherpaceuntil2025.Note:ARG=Argentina;BRA=Brazil;CHL=Chile;COL=Colombia;LAC=LatinAmericaandtheChile’seconomyisforecasttoexpandby1.8Caribbean;MEX=Mexico;PER=Peru.percentin2024,aftercontractinganestimated0.4percentin2023.GrowthisexpectedtofurtherA.2023H1isseasonallyadjustedGDPgrowthinthefirsthalfof2023comparedwiththesecondhalfincreaseto2.3percentin2025.Fallingcoreandof2022.2023H2isseasonallyadjustedGDPgrowthinthesecondhalfof2023comparedwiththeheadlineinflationshouldallowinterestratestobefirsthalfof2023.2023H2isestimatedusingthebaselineprojectionsinJanuary2024.B.Figureshowsthez-scoreforbusinessconfidenceforChileandconsumerconfidenceforBrazil,Colombia,andMexico.LastobservationisNovember2023.C.Apurchasingmanagers’index(PMI)of50orhigher(lower)indicatesexpansion(contraction).CompositePMIforBrazilandmanufacturingPMIforColombiaandMexico.LastobservationisNovember2023.D.Consumerpriceinflationchangefrom12monthsearlier.AggregateismedianforBrazil,Chile,Colombia,Mexico,andPeru.LastobservationisNovember2023.improvedU.S.growthexpectations,aswellashigher-then-expectedgovernmentspending.ThedowngradetoChina’sgrowthisanticipatedtohavelimitedeffectsoncommodityprices,andthereforeisnotprojectedtosubstantiallyaffectLAC.Morebroadly,commoditypricechangesovertheforecastperiodareexpectedtobemodest,andnotamajordriverofregionalgrowth.Brazil’seconomyisforecasttogrow1.5percentin2024,abouthalftheestimatedpacein2023.TheexpecteddecreaseinGDPgrowthreflectsbothcarry-overfromtheslowdowninthesecondhalfoflastyearandmoderatingagriculturalharvestsinGLOBALECONOMICPROSPECTSJANUARY2024LATINAMERICAANDTHECARIBBEAN69loweredovertheforecastperiod,graduallyFIGURE2.3.2LAC:Outlookunwindingthecentralbank’srestrictivemonetarypolicystance.ThedragonChile’sgrowthfromGivenlimitedfiscalspace,fiscalpolicyinLACisgenerallynotexpectedtoweakexternalconditionsisalsoexpectedtoeaseassupportgrowthoverthenexttwoyears.Atthesametime,withcoredemandforcommoditiesrelatedtogreenenergyinflationeasingacrosstheregion,policyratesareexpectedtobecutovercontinuestoexpand.theforecasthorizon.Tourismcontinuestorecovertowardpre-pandemiclevels.PotentialoutputgrowthintheregionisestimatedtobelowerfortheGrowthinPeruisprojectedtoreboundto2.5remainderofthisdecade.percentin2024and2.3percentin2025,aftercontracting0.4percentin2023.ExpandingA.FiscalimpulseB.Market-impliedrealpolicyratesoutputfrommajorcopperminesisexpectedtocontributetostrongeractivity.Inaddition,withPercentofpotentialGDPLACPercentChangeEnd-2023End-2024inflationonadownwardpath,furtherreductions2LACexcl.Brazil9inpolicyinterestratesarelikelytosupportgrowthovertheforecastperiod.However,political1uncertaintycontinuestoaffectconsumerandbusinessconfidenceandhinderinvestment07projects.Althoughthepriceofcopperisexpectedtodeclinemodestlyin2024,increasedmining-15productionwillstillcontributetooverallexportgrowth.-2TheCaribbeaneconomiesareexpectedtogrow37.6percentin2024and5.4percentin2025,afterexpanding4.6percentin2023.Excluding-3Guyana,whichremainsinaresource-basedboomsincethediscoveryofoilin2015,theregion’s-41ChileColombiaMexicogrowthisexpectedtoaccelerateto4.1percentin202120222023e2024f2025fBrazil2024and3.9percentin2025.However,pro-spectsareunevenacrossthesub-region.TheC.InternationaltouristarrivalsD.PotentialgrowthDominicanRepublicisforecasttogrowby5.1percentin2024and5percentin2025,amidIndex,2019=100Percent2022-302000-21structuralreformstoattractFDI.Incontrast,5underanoptimisticscenario,Haiti’sgrowthisSouthAmericaCaribbean4expectedtorecoverslowly,reachingonly1.33percentin2024and2.2percentin2025,follow-120CentralAmeirca2ingfiveyearsofeconomiccontraction.Thepost-1pandemicrecoveryoftourisminthesubregionis1000incompleteandisexpectedtocontinuedrivinggrowth(figure2.3.2.C;Maloneyetal.2023).80LACRemittancesintotheCaribbeanarealsoexpectedtocontinueincreasing,albeitataslowerpace60(WorldBank2023c).40GrowthinCentralAmericaisexpectedtoremainbroadlysteady,at3.7percentin2024and3.820SouthMexicoCaribbeanpercentin2025,afteranestimated4.1percentAmericaandpacein2023.AsintheCaribbean,moderate0remittancegrowth(exceptforCostaRicaand2015CentralPanama)isexpectedtosupportactivityin2024.2016America201720182019202020212022Sources:Bloomberg;ConsensusEconomics;HaverAnalytics;InternationalMonetaryFund;KoseandOhnsorge(2023);WorldBank;WorldTourismOrganization.Note:e=estimate;f=forecast.LAC=LatinAmericaandtheCaribbean.A.Fiscalimpulseisthenegativeannualchangeinthestructuralprimarybalancefor18LACeconomies,usingdatafromtheOctober2023WorldEconomicOutlook(database).Apositivevalueindicatesfiscalexpansion,whileanegativevalueindicatesconsolidation.Structuralprimarybalanceisthegeneralgovernmentstructuralbalanceexcludingnetinterestcosts.B.Reddiamondsdenotethepolicyrateminustheone-year-aheadinflationexpectationfromConsensusEconomics,transformedtoaconstanttimehorizonusingaweightedaverageofexpectationsfrom2023and2024.Orangediamondsdenotethe30-dayrollingaverageofone-year-aheadmarketimpliedpolicyrate,minustheBloombergcompositeconsumerpriceinflationforecast,transformedtoaconstanttimehorizonusingaweightedaverageofexpectationsfrom2024and2025.Bluebarsshowthedifferencebetweentherealinterestratesinend-2023andend-2024.LastobservationisDecember18,2023.C.Lastobservationisend-2022.D.PeriodaveragesofannualGDP-weightedaverages.GDPweightsarecalculatedusingaveragerealU.S.dollarGDP(ataverage2010-19pricesandmarketexchangerates)fortheperiod2000-21.Datafor2022-30areforecasts.Estimatesbasedonproductionfunctionapproach.SouthAmericaincludesArgentina,Bolivia,Brazil,Chile,Colombia,Ecuador,Peru,Paraguay,andUruguay.MexicoandCentralAmericaincludesCostaRica,Guatemala,Honduras,Mexico,andNicaragua.CaribbeanincludesDominicanRepublicandJamaica.InflationinCentralAmericahaseasedbutremainshigh,particularlyforfood.Withinthesubregion,growthprojectionsdiffer.Panama’seconomyisforecasttoexpandby4.6percentthisyear,reflectingstrongservicesexportsanddespiterecentshocksfromprotests,lowercopperexports,andtheimpactofElNiño,whileCostaRicaisexpectedtogrow3.9percentasdomesticdemandeases.ElSalvador,however,willgrowatamore70CHAPTER2.3GLOBALECONOMICPROSPECTSJANUARY2024FIGURE2.3.3LAC:RisksRisksFiscaldeficitsareelevatedinmanyLACcountries,exposingthemtoRiskstothebaselineforecastaretiltedtothefinancialmarketstress.Thisstresscouldbetriggeredbyadditionaldownside(chapter1).AnescalationoftheconflictincreasesinU.S.interestratesoradeteriorationinriskappetite.IfChina’sintheMiddleEastcoulddisruptenergymarkets,growthsoftensmorethanexpected,pricesofkeyLACcommodityexportssendingoilpricessoaring.Persistentcoreinflationcouldweakenmarkedly.LAChasbeenexperiencingfrequentextremeinadvancedeconomiescouldleadtohigher-than-weatherevents,withincreasingcosts,whichislikelytoworsenduetoexpectedglobalinterestratesandtighterfinancialclimatechange.conditions,constrainingmonetaryandfiscalpoliciesinLAC.Spilloversfromaworse-than-A.CommoditytradebalancesB.GovernmentgrossdebtandprojectedslowdowninChinacouldweighheavilyprimarybalanceongrowthinSouthAmerica’scommodityexporters.Meanwhile,theongoingElNiñoPercentofGDPPercentofGDPPercentofGDPweatherpatternheightenstheriskofclimate-15Agriculture100relateddisruptionsanddisasters.10MiningproductsFuelsDebt,2010-19TheconflictintheMiddleEasthasheightened5Debt,2022-232geopoliticalrisksglobally,withpotentiallyserious0implicationsforcommoditymarketsandgrowth-5Primarybalance(RHS)inLAC.Inparticular,anyfurtherescalationofthe-10conflictthatleadstosubstantialenergymarket-15501disruptionscouldsendoilpricessoaring,dampen-ingconfidenceandreversingrecentdisinflation00trendsintheregion(WorldBank2023g).Theinflationaryeffectsofrisingoilpriceswouldlikely-50-1beexacerbatedbyaccompanyingincreasesinpricesforotherenergycommoditiesandfertilizers.ARG-100-2RisinginflationcouldinducecentralbanksinBRALACtoholdpolicyratesatlevelshigherthanCHLARGBRACHLCOLECUMEXPERpreviouslyassumed.FallingrealincomesandCOLhigherborrowingcostscouldleadtoweakerECUconsumptionandinvestment.JAMMEXEvenintheabsenceofarenewedsupplyshock,PERpersistentcoreinflationinadvancedeconomiescouldresultinmorerestrictivemonetarypoliciesC.LACgoodexportsD.Extremeweathereventsthancurrentlypricedintofinancialmarkets.andeconomiccostsConsequently,growthinadvancedeconomiescouldslowmorethanprojected,potentiallyPercentofGDPExportstootherpartnersNumberofdisastersUS$,millionsimpactingthepricesofcommoditiesexportedby40ExportstoU.S.LAC(figure2.3.3.A;Arteta,Kamin,andRuchExportstoChina621990-20102011-2022602022).TheU.S.dollarislikelytostrengthen,with30concomitantdepreciationsofLACcurrencies,and59hencerenewedupwardpressureoninflationinthe2040region.ThiscouldpromptmonetaryauthoritiesinLACtopauseinterestratecuts.Onthefiscalside,1056giventhecontextofelevatedgovernmentdebt,thefiscalbalancesofmostLACeconomiesare20insufficientforensuringdebtsustainability(figure532.3.3.B).Financialstressandhighinterestrateswouldexacerbatefiscalchallengesbyincreasing0500MEXCHLECUPERBRAARGCOLFrequencyDamageperdisaster(RHS)Sources:EM-DAT(database);InternationalMonetaryFund;UNComtrade(database);WorldBank.Note:ARG=Argentina;BRA=Brazil;CHL=Chile;COL=Colombia;ECU=Ecuador;JAM=Jamaica;LAC=LatinAmericaandtheCaribbean;MEX=Mexico;PER=Peru.A.AveragesofannualcommoditytradebalancesasapercentofGDPbetween2015and2019.B.Periodaveragesofgovernmentgrossdebtduring2010-19and2022-23.Orangediamondsdenoteperiodaveragesofgovernmentprimarybalancebetween2022and2023.C.PeriodaveragesofgoodsexportasashareofGDPbetween2020and2022.D.Periodaveragesofnumberofextremeweathereventsperyearanddamageperevent.Extremeweathereventsrefertodroughts,extremetemperatures,floods,andstorms.Lastobservationisend-2022.modest2.3percentamidslowerconsumptiongrowth.PotentialeconomicgrowthinLACin2011-21isestimatedtohavedeclinedsignificantlyfromtheprecedingdecade(figure2.3.2.D).Overtheremainderofthe2020s,growthofbothtotalfactorproductivityandthelaborforceareexpectedtoslowfurther(KoseandOhnsorge2023).Inpart,thisreflectsthelong-termnegativeeffectsofthepandemic,particularlyonhumancapital.Weakpotentialgrowthprospectsremainamajorchallengefortheregionoverthemediumterm.GLOBALECONOMICPROSPECTSJANUARY2024LATINAMERICAANDTHECARIBBEAN71thecostofdebtservice.Thiscouldforcegovern-Extremeweatherevents,partlyrelatedtoclimatementsinLACtotightenfiscalpolicymorequicklychange,poseanever-presentrisk,especiallytothancurrentlyenvisioned,dampeningdemand.climate-sensitivesectorslikeagriculture,energy,andfishing.ClimatechangecanstrengthenGrowthinChinaisforecasttoslowin2024-25.disruptiveElNiñoeffects,includingheavyShouldChina’sgrowthproveweakerthanrainsanddroughts(figure2.3.3.D;Caietal.projected,therecouldbesubstantialexternal2015;Wangetal.2019).Shouldweather-relateddemandspilloverstoLAC.Inparticular,weakernaturaldisastersintensifyinLACinthecominggrowthofconstructionandmanufacturinginyears,theproductionoffoodandotherprimaryChinawouldtranslateintosofterdemandforgoodscouldbedisrupted(Jafinoetal.2020).LAC’skeyindustrialcommodityexports,particu-This,inturn,couldaffectnotonlygrowth,butlarlymetals.Thisrepresentsasignificantvulnera-alsotheconductofmonetarypolicyauthoritiesinbilityforseveraleconomiesintheregion,buttheregion.TheadverseeffectsofdisastersonparticularlytoChileandPeru.Weakertermsofgrowthwouldlikelybemostseriousinthetradewouldlikelyresultslowerincomeandregion’spoorercountries,whichtendtohavelessconsumptiongrowthintheseeconomies(figureresilientinfrastructure.2.3.3.C).TABLE2.3.1LatinAmericaandtheCaribbeanforecastsummaryPercentagepointdifferencesfromJune2023projections(RealGDPgrowthatmarketpricesinpercent,unlessindicatedotherwise)202120222023e2024f2025f2023e2024f2025f0.3-0.1EMDELAC,GDP17.23.92.22.32.50.70.2-0.1GDPpercapita(U.S.dollars)6.43.21.61.51.80.80.10.00.20.0(Averageincludingcountriesthatreportexpenditurecomponentsinnationalaccounts)2-0.7-0.20.60.4EMDELAC,GDP27.23.82.22.12.50.80.00.90.1-0.5PPPGDP7.43.92.12.22.50.6-1.4-0.60.40.0Privateconsumption7.85.62.11.82.50.80.0-0.1Publicconsumption4.11.61.41.21.00.5-0.1-0.12.0-1.3Fixedinvestment16.84.80.92.43.60.90.2-0.10.1-0.2Exports,GNFS38.37.71.14.54.0-2.00.70.10.41.2Imports,GNFS317.97.4-0.93.13.8-2.2Netexports,contributiontogrowth-2.10.00.50.30.00.1Memoitems:GDPSouthAmerica47.33.61.61.82.40.8CentralAmerica510.55.54.13.73.80.5Caribbean69.88.64.67.65.4-0.5CaribbeanexcludingGuyana9.35.42.34.13.9-1.0Brazil5.02.93.11.52.21.9Mexico5.83.93.62.62.11.1Argentina10.75.0-2.52.73.2-0.5Source:WorldBank.Note:e=estimate;f=forecast;PPP=purchasingpowerparity;EMDE=emergingmarketanddevelopingeconomy.WorldBankforecastsarefrequentlyupdatedbasedonnewinformationandchanging(global)circumstances.Consequently,projectionspresentedheremaydifferfromthosecontainedinotherBankdocuments,evenifbasicassessmentsofcountries’prospectsdonotdifferatanygivenmomentintime.TheWorldBankiscurrentlynotpublishingeconomicoutput,income,orgrowthdataforRepúblicaBolivarianadeVenezuelaowingtoalackofreliabledataofadequatequality.RepúblicaBolivarianadeVenezuelaisexcludedfromcross-countrymacroeconomicaggregates.1.GDPandexpenditurecomponentsaremeasuredinaverage2010-19pricesandmarketexchangerates.2.Aggregateincludesallcountriesinnotes4,5,and6,plusMexico,butexcludesAntiguaandBarbuda,Barbados,Dominica,Grenada,Guyana,Haiti,St.KittsandNevis,St.Lucia,St.VincentandtheGrenadines,andSuriname.3.Exportsandimportsofgoodsandnonfactorservices(GNFS).4.IncludesArgentina,Bolivia,Brazil,Chile,Colombia,Ecuador,Paraguay,Peru,andUruguay.5.IncludesCostaRica,ElSalvador,Guatemala,Honduras,Nicaragua,andPanama.6.IncludesAntiguaandBarbuda,TheBahamas,Barbados,Belize,Dominica,theDominicanRepublic,Grenada,Guyana,Haiti,Jamaica,St.KittsandNevis,St.Lucia,St.VincentandtheGrenadines,andSuriname.72CHAPTER2.3GLOBALECONOMICPROSPECTSJANUARY2024TABLE2.3.2LatinAmericaandtheCaribbeancountryforecasts1PercentagepointdifferencesfromJune2023projections(RealGDPgrowthatmarketpricesinpercent,unlessindicatedotherwise)202120222023e2024f2025f2023e2024f2025f2.73.2Argentina10.75.0-2.51.81.6-0.50.41.2Bahamas,The4.03.017.014.44.33.53.30.0-0.2-0.31.51.5Barbados-0.813.84.61.52.2-0.30.1-0.11.82.3Belize15.212.74.51.83.02.11.51.33.93.6Bolivia6.13.51.94.64.0-0.6-0.5-0.5Brazil5.15.0Chile5.02.93.10.72.01.90.1-0.22.32.311.72.4-0.43.83.50.00.00.13.53.5Colombia11.07.31.238.215.2-0.5-0.2-0.21.32.2CostaRica7.84.35.23.23.42.30.90.42.01.4Dominica6.95.94.92.62.10.20.0-0.23.23.5DominicanRepublic12.34.92.54.65.3-1.60.30.03.83.8Ecuador4.22.91.32.52.3-1.3-2.1-0.82.92.3ElSalvador11.22.62.84.83.70.50.20.22.63.0Grenada4.76.43.93.22.60.30.50.4Guatemala8.04.13.40.20.00.0Guyana20.163.429.03.817.0-13.0Haiti2-1.8-1.7-2.5-0.1-0.4-0.2Honduras12.54.03.2-0.3-0.5-0.4Jamaica4.65.22.30.30.30.2Mexico5.83.93.61.10.70.1Nicaragua10.33.83.10.1-0.20.0Panama15.810.84.9-0.8-1.2-0.6Paraguay4.00.14.6-0.2-0.5-0.5Peru13.42.7-0.4-2.6-0.1-0.5St.Lucia12.215.93.2-0.4-0.5-0.2St.VincentandtheGrenadines0.84.96.00.40.00.2Suriname-2.42.42.0-0.4-0.6-0.1Uruguay5.34.91.2-0.60.40.2Source:WorldBank.Note:e=estimate;f=forecast.WorldBankforecastsarefrequentlyupdatedbasedonnewinformationandchanging(global)circumstances.Consequently,projectionspresentedheremaydifferfromthosecontainedinotherBankdocuments,evenifbasicassessmentsofcountries’prospectsdonotsignificantlydifferatanygivenmomentintime.1.DataarebasedonGDPmeasuredinaverage2010-19pricesandmarketexchangerates.2.GDPisbasedonfiscalyear,whichrunsfromOctobertoSeptemberofnextyear.TheongoingconflictintheMiddleEasthasheighteneduncertaintyandgeopoliticalrisksintheMiddleEastandNorthAfrica(MNA)region.Assumingtheconflictdoesnotescalate,growthintheregionisforecasttoreach3.5percentin2024and2025—whichisstrongerthanpreviouslyenvisioned—asoil-exportingeconomiesbenefitfromtheunwindingofoilproductioncuts.Incontrast,theoutlookforoil-importingeconomieshasdeterioratedonaccountofweakeningdomesticconditions,includingpersistentlyhighinflation.Riskstotheoutlookaretiltedtothedownside.Owingtothepossibilityofescalationintheconflict,potentialbenefitstooilexportersfromhigheroilprices,resultingfromdisruptionsincommoditymarkets,wouldlikelybemorethanoffsetbyweakenedregionalactivity.Otherdownsiderisksincludeclimate-change-relatedweathershocksandadversespilloversfromfurthermonetarypolicytighteninginadvancedeconomiesandtighterfinancialconditions.RecentdevelopmentsSaudiArabia,whichannouncedtheextensionofitsvoluntaryoilproductioncutuntilearly2024eongoingconflicthasincreasedgeopolitical(figure2.4.1.C).Membercountriesoftheandpolicyuncertainty,disruptedfinancialOrganizationofthePetroleumExportingmarkets,anddamagedinvestorconfidenceCountriesPlus(OPEC+)alsoagreedinApriloninMNA(figure2.4.1.A).Ithasalsodampenedtheproductioncutuntiltheendof2023.Intourism-relatedactivity,particularlyinneighbor-contrast,oilsupplyfromothereconomiesintheingcountries.Internationaltouristarrivalsintheseregionincreased,includingtheIslamicRepublicofcountriessloweddowninlate2023,followingIran,whichwasexemptedfromtheOPEC+robustactivitypriortotheonsetoftheconflict.agreement.MNAalreadyfacedmultipleheadwinds,includingoilproductioncuts,elevatedinflation,andweakGrowthinGCCcountriesisestimatedtohaveprivatesectoractivityinoil-importingeconomies.deceleratedsharplyin2023becauseofthedeclineAccordingly,growthinMNAisestimatedtohaveinoilproduction,whichmorethanoffsetrobustslowedsharplyin2023,to1.9percent,afternon-oilactivitydrivenbystronglabormarkets,reaching5.8percentinthepreviousyear.moderatinginflation,andsupportivefiscalpolicies.InSaudiArabia,outputisestimatedtoInMNA’soilexporters,whilenon-oilsectorhavefallenby0.5percentin2023,astheactivitywasrobust,theoilsectorweakenedcontractioninoilactivityandexportswasmarkedlyasaresultofoilproductioncuts,whichdampenedsomewhatbystrongprivateconsump-dampenedgrowth.Growthinoilimportersalsotionandpublicinvestment.Similarly,Bahrain,slowedsomewhatlastyear,reflectinganemicKuwait,Oman,Qatar,andtheUnitedArabprivatesectoractivity(figure2.4.1.B).Emiratesalsoexperiencedadownturnin2023.OilproductioninMNAdeclinedin2023,mainlyInotheroilexporters,growthpickedupinthedrivenbyproductioncutsinmembercountriesofIslamicRepublicofIran,asincreasesinoiltheGulfCooperationCouncil(GCC),especiallyproductionandexportsmorethanoffsetweakexternalnon-oildemand.InLibya,whichwasalsoNote:ThissectionwaspreparedbyNaotakaSugawara.exemptedfromtheOPEC+productioncutagreement,growthrebounded,asindustrial74CHAPTER2.4GLOBALECONOMICPROSPECTSJANUARY2024FIGURE2.4.1MNA:Recentdevelopmentsgrowthisestimatedtohaveslowedto3.8percentinfiscalyear(FY)2022/23.ImportrestrictionsTheonsetoftherecentconflictintheMiddleEastdisruptedfinancialconstrainedaccesstoinputsfordomesticproduc-marketsintheregion,raisinggeopoliticalandpolicyuncertainty.Activityintionandexports,whiledecliningpurchasingtheprivatesectorremainedrobustamongoilexporters,ledbynon-oilpowerofhouseholdsandsluggishcorporateactivity,whileactivityinoilimporterswassubdued.Oilproductionhasactivityweighedoninvestmentandprivatedeclinedinlinewithannouncedproductioncuts,particularlyinGCCconsumption.Incontrast,growthisestimatedtocountries.Insomeoilimporters,elevatedinflationwasaccompaniedbyhavepickedupinMorocco,despitetheearth-significantdepreciationoftheircurrencies.quakeinSeptemberthatcausedmajorhumanitar-ianlossesandinfrastructuredamage.eA.ChangeinstockpricessinceB.Compositepurchasingmanagers’agriculturalsectorrecoveredfollowingasevereOctober6,2023indexes,2023droughtin2022.PercentIndex,50+=expansionInflationwaswell-containedinGCCcountriesby8late2023,whileitremainedelevatedinotheroil60OilexportersOilimportersexporters,notablytheIslamicRepublicofIran,aswellasinsomeoilimporters,despitethedecline055inoilpricesin2023.Inoilimporters,foodpriceinflationremainedstubbornlyhigh,andelevated-850headlineinflationwasoftendrivenbylargecurrencydepreciations(figure2.4.1.D).Conse--1645quently,monetarypolicywastightenedinoilPSEJORLBNMARGCCTUNJanMarMayJulSepNovimporters;incontrast,policyratesstabilizedinGCCcountriesinlate2023.C.Oilproduction,2023D.Changeinexchangeratesandinflation,2023OutlookMillionsofbarrelsperdayPercentchangefromayearearlierTheconflictintheMiddleEasthasheightened30uncertaintyaroundgrowthforecastsintheregion.30GCCOthercountriesExchangerates,LCU/US$Assumingtheconflictdoesnotescalate,growthinMNAisexpectedtopickupto3.5percentin20JOREGY2024and2025—0.2and0.5percentagepointhigher,respectively,thanpreviouslyprojected2010LBYPSE(figure2.4.2.A;table2.4.1).Theseupwardrevisionsassumeimprovedeconomicperformance0DJIDZAIRNamongoilexporters,drivenbyastrongerreboundinoilactivityandexportgrowth,followingdeeper10-10TUNproductioncutsin2023thanpreviouslyexpected.Incontrast,theoutlookforoilimportersappearsIRQMARPercentchangeweakerthanpreviouslyexpected,owingtotheadverseimpactoftheongoingconflict,including-20fromayearearlierthatontourism,andslowergrowthinprivate304050consumptionandinvestment,asaresultofhigher001020inflationandinputcosts.JanMarMayJulSepNovHeadlineinflationGrowthinGCCcountriesisforecasttoriseto3.6percentin2024and3.8percentin2025.InSaudiSources:Bloomberg;HaverAnalytics;InternationalEnergyAgency;WorldBank.Arabia,growthisprojectedtoreboundto4.1percentin2024and4.2percentin2025(tableNote:DJI=Djibouti;DZA=Algeria;EGY=ArabRepublicofEgypt;GCC=GulfCooperation2.4.2).Thecountry’soiloutputandexportsareCouncil;IRN=IslamicRepublicofIran;IRQ=Iraq;JOR=Jordan;LBN=Lebanon;LBY=Libya;LCU=localcurrencyunit;MAR=Morocco;MNA=MiddleEastandNorthAfrica;PSE=WestBankandGaza;TUN=Tunisia.A.ChangeinstockpriceindexesfromOctober6,2023(orclosestdaybeforethat)tothelatestavailabledaywithdata(December11-14,2023).TheGCCaggregateiscalculatedasaweightedaverageusingnominalGDPinU.S.dollarsasweights,withtheverticalorangelineshowingthemaximum-minimumrangeamongGCCcountries.B.AggregatesarecalculatedasweightedaveragesusingnominalGDPinU.S.dollarsasweights.Samplecomprisesfivecountries—threeoilexportersandtwooilimporters.C.OilproductioninMNA,originatingfromGCCandothercountries,whichalsoincludessomeoilimporters.D.Percentchangeinnominalexchangeratevis-à-visU.S.dollarsfromayearearlier—positive(negative)valuesshowingdepreciation(appreciation)againstU.S.dollars—ontheverticalaxisandpercentchangeinheadlineconsumerpriceindexfromayearearlieronthehorizontalaxis.DataarefromNovember2023formostcountries,exceptforOctober2023inthecasesofAlgeria,Libya,andMorocco,September2023inthecaseoftheIslamicRepublicofIran,andJune2023inthecaseofIraq.DataareavailableforLebanonbutexcludedfromthefigurebecauseofscaling:895.0percentforchangeinexchangeratesand215.4percentforheadlineinflationinOctober2023.activitywasstrengthenedbyoilproduction,whichwasunaffectedbySeptember’sflooding.Incontrast,activityinAlgeriaandIraqwasadverselyaffectedbyoilproductioncutsanddecliningexports.Inoil-importingeconomies,growthsoftenedamidelevatedmacroeconomicimbalancesandvulnerabilities.IntheArabRepublicofEgypt,GLOBALECONOMICPROSPECTSJANUARY2024MIDDLEEASTANDNORTHAFRICA75expectedtoexpand,despiteanextensionofFIGURE2.4.2MNA:Outlookvoluntaryoilproductioncutsforearlythisyear.Aspartofthegovernment’sSaudiVision2030,GrowthinMNAisprojectedtoriseto3.5percentin2024and2025,reflect-investmentrelatedtonon-oilactivitywillalsobeaingstrongreboundsingrowthinoilexporters.Inoilimporters,weakreve-majordriverofgrowthgoingforward.Anincreasenuecollectionandincreasedinterestpaymentswillwidenfiscaldeficits,inoilproductionwillhelpboostgrowthinotherwhilesubduedgrowthwillexacerbateoutputlossesrelativetopre-GCCcountries.pandemicprojectionsandslowprogressinpovertyreduction.Amongotheroilexporters,growthisexpectedtoA.GDPgrowthB.FiscalbalancespickupinAlgeriaandIraqbuttoslowintheIslamicRepublicofIranandLibya.InAlgeriaandPercentPercentofGDPExpendituresPercentofGDPIraq,theexpansionofoilproductionasaresultof440relaxedproductioncutsinearly2024isprojected2010-19averageRevenues8tocontributetofastergrowth.Incontrast,inthe20IslamicRepublicofIranandLibya,growthisFiscalbalance(RHS)forecasttomoderateasoilproductionstabilizes.34Inoilimporters,growthisexpectedtoedgeupto3.2percentthisyearand3.7percentin2025.In200Morocco,thestrengtheningofgrowthwillbebolsteredbyacontinuedrecoveryinagriculture,1anexpectedreboundintourismdespitetherecentearthquake,whichisexpectedtohavelimited20-4macroeconomicconsequences,andfiscalsupportthroughthegovernment’sreconstructionplan.040-8202320242025202320242025202320242025InTunisia,growthisexpectedtoriseto3percentinboth2024and2025,conditionalontheeasingest.forecastest.forecastest.forecast2023e2024f2023e2024f2023e2024fofdroughtconditionsandadecreaseininflation.InDjibouti,investmentinseverallargeinfrastruc-MNAOilexportersOilimportersMNAOilexportersOilimporterstureprojectsisexpectedtoboostgrowth,withincreaseduseofthecountry’sportservicesbyC.GDPforecastsforoilimportersD.NumberofpoorpeopleinoilEthiopiabeinganotherpositivefactor.importersIndex,2019=100Incontrast,inEgypt,growthisexpectedtoslow140Millionsto3.5percentinFY2023/24(July2023toJune322024),beforerisingto3.9percentinFY2024/25.130January2020TheconflictintheMiddleEastwilllikely28exacerbatetheinflationproblem,eroding120households’purchasingpowerandconstraining24activityintheprivatesector,andintensify110pressuresonexternalaccountsthroughimplica-20tionsontourism,remittances,andoiltrade10020222023e2024f2025fbalance.InJordan,householdincomegrowthmaybeconstrainedbyweakprivatesectorjobcreation,90201920212023e2025fwhilethetourismsectorwillbeadverselyaffected2017bytheconflictintheMiddleEast.GrowthintheRepublicofYemenisexpectedtobetepidonSources:InternationalMonetaryFund;WorldBank.accountofweakgovernance,politicalinstability,andconflict.Note:e=estimate;est.=estimate;f=forecast;MNA=MiddleEastandNorthAfrica.A.C.AggregatesarecalculatedasweightedaveragesusingGDPweightsataverage2010-19pricesandmarketexchangerates.B.AggregatesarecalculatedasweightedaveragesusingnominalGDPinU.S.dollarsasweights.C.ThelineforJanuary2020isbasedonprojectionsintheJanuary2020editionoftheGlobalEconomicProspectsreport.D.Thenumberofpoorpeopleisdefinedbyusingthelowermiddle-incomepovertythresholdof3.65internationaldollarsperdayin2017purchasingpowerparity.Sampleincludesfiveoilimporters.TheoutlookforWestBankandGazaishighlyuncertainbutgrowthisprojectedtoshrink6percentin2024aftercontracting3.7percentin2023.MassivedestructionoffixedassetsandindustrialfacilitiesinGaza,whichrepresentsroughly16percentofoutputinWestBankandGaza,willcauseasignificantcontractionofeconomicactivity.Theongoingconflictwillalsoexacerbatealready-direeconomicconditionsinWestBank.Heightenedrestrictionsonthefreemovementofgoodsandpeoplebetweenandwithincities,includingaccesstotheIsraelimarket,willcontinuetohavenegativeeffectsontradeandoutput.Assumingthesituationaroundtheconflictcoolsdown,thereconstructionefforts76CHAPTER2.4GLOBALECONOMICPROSPECTSJANUARY2024FIGURE2.4.3MNA:Riskscountries,whiledeficitsareprojectedtowideninsomenon-GCCoilexporters,asexpendituresareTheescalationoftherecentconflictintheMiddleEastcouldcausefurtherlikelytooutpacerevenues.Inoilimporters,fiscaldamagesingrowthpotential,ashistoricallyconflictsintheregionhavedeficitsareexpectedtowidenin2024,partlybeenassociatedwithahugedeclineinproductivity.Thenumberofrefu-reflectingweakrevenue,risingdebt-servicecosts,geesintheregionhascontinuedtoincrease,particularlyinfragilecoun-andrisingsubsidiesrelatedtofoodandenergy.Intries.Deathsfromnaturaldisasters,includingearthquakesandfloods,WestBankandGaza,fiscaldeficitsareexpectedtoincreasedsubstantiallylastyear.Oilimportersintheregionarevulnerableincreasesignificantlyin2024,owingtoadeclinetosuddenshiftsinglobalfinancialconditionsandriskappetitebecauseofinbothdomesticallymanagedtaxinstrumentsandtheirexternalfinancingneeds.the“clearancerevenues”transferredfromIsrael.Additionally,in2025,thedeficitsarelikelytoA.ProductivitygrowtharoundwarsB.NumberofrefugeesgrowfurtherasaresultofexpansionaryfiscalpolicyaimedataidingtherecoveryfromthePercentMillionsNon-FCSPSEOtherFCSconflict.215Projectedgrowthinoilimporterswillbeinsuffi-0cienttoreturnoutputtoitspre-pandemictrend.Outputlossesrelativetothepre-pandemic10projectionswillincreaseovertheforecastperiod(figure2.4.2.C).Inadditiontotheongoing-2conflict,subduedgrowthinoilimporters—andinsomecasespersistentlyhighinflation—willalso5limitprogressinreducingpovertyandinequality.Afterexperiencingasurgeinpovertyin2023,oil-4importerswilllikelyseeelevatedpovertyratesinthenearterm(figure2.4.2.D).-60201220142016201820202022Riskst-2t-1tt+1t+2AseveredownsiderisktothebaselinegrowthC.DeathtollfromnaturaldisastersD.Externalfinancingneedsforecastistheintensificationoftheongoingconflict.TheescalationoftheconflictcouldresultPer1millionpopulationPercentofGDPinanincreaseinenergypricesandbenefitenergy9016exporters,butthiswouldbemorethanoffsetbyweakenedactivityduetoasurgeingeopoliticalSYR2023etensionsintheregion.Naturaldisasters,includingclimate-change-relatedweatherevents,andadverse122024fspilloversfromtighterglobalfinancialconditionsposefurtherdownsiderisks.60MARAsubstantialescalationoftheconflictwouldhave8significantimplicationsforgrowthprospectsinMNAandincreaseforecastuncertainty(Gattiet30LBYal.2022).Economiesdirectlyaffectedcouldseesignificantdeclinesininvestmentandproductivity4growthowingtodamagetoinfrastructureandhumanlosses(figure2.4.3.A;Dieppe,KilicCelic,00andOkou2020).Adverseimpactsofanescalation2017201820192020202120222023oftheconflictcouldspilloverintoneighboringMNAOilexportersOilimporterseconomies.ItcouldincreaseuncertaintyandSources:Davies,Pettersson,andÖberg(2023);EM-DAT(database);Feenstra,Inklaar,andTimmer(2015);InternationalMonetaryFund;UnitedNationsHighCommissionerforRefugees(UNHCR);WorldBank.Note:e=estimate;f=forecast;FCS=fragileandconflict-affectedsituations;LBY=Libya;MAR=Morocco;MNA=MiddleEastandNorthAfrica;PSE=WestBankandGaza;SYR=SyrianArabRepublic.A.Mediantotalfactorproductivitygrowthacrossnineepisodesofwars—definedasthosewithmorethanonedeathperonemillionpopulation—inMNA.Ifmultiplecasesareidentifiedwithinfiveyears,theoneassociatedwiththelargestnumberischosen.Thedottedlinesshowtheinterquartilerange.B.ThenumberofrefugeesintheregionunderUNHCR’smandate.ForWestBankandGaza,italsoincludesrefugeesunderthemandateoftheUnitedNationsReliefandWorksAgencyforPalestineRefugeesintheNearEast.C.TotalnumberofdeathscausedbynaturaldisastersinMNA,dividedbypopulationinmillions.D.Externalfinancingneedsaredefinedasthesumofamortizationoflong-termexternaldebt,stockofshort-termexternaldebtinthepreviousyear,andcurrentaccountdeficits.AggregatesarecalculatedasweightedaveragesusingnominalGDPinU.S.dollarsasweights.areexpectedtocontributetoareboundofgrowthto5.4percentin2025.Fiscaldeficitsareexpectedtowidenin2024inMNA,withanotabledeteriorationinthefiscalpositionsofoilimporters(figure2.4.2.B).Inoilexporters,fiscalsurplusesin2023willshrinktoalmostzero,onaverage,butwithdivergingtrendsinGCCandnon-GCCoilexporters.RecoveriesinoilproductionareexpectedtosupporttheimprovementoffiscalbalancesinseveralGCCGLOBALECONOMICPROSPECTSJANUARY2024MIDDLEEASTANDNORTHAFRICA77dampeninvestorconfidence,reducetourism,largeandpersistentincountrieswithoutfiscalcausecapitaloutflowsandinstabilityinfinancialbufferstoenableadequateresponses(Pigatomarkets,weighoninvestmentgrowth,and2019).Accesstobasicservices,especiallyamongsubsequentlyweakenprospectsforoutputandthevulnerable,couldbeconstrained,furtherproductivitygrowthintheregion.Disruptionsinincreasingpovertyandinequality.energymarketsdrivenbytheescalationoftheconflictcouldleadtoincreasedpricesoffoodandOilexportersaretypicallyheavilydependentonametalsbyraisingproductionandtransportationsinglecommodityfortheiroutput,exports,andcosts(WorldBank2023g).Suchdisruptionscouldgovernmentrevenues.Weakerglobaldemandalsobecausedbyincreasedsecuritythreatsinrelativetothebaselineforecast—forexample,majorshippinglanesintheregion.Additionally,owingtosoftergrowthinChina—wouldputthepriceofgoldmayriseastheconflictincreasesdownwardpressureonglobaloilpricesandonuncertaintyandreducesinvestors’riskappetite.growthinMNA’soilexporters.Shouldoilpricesfallordemandweaken,oilproductionmightbeTheconflictcouldbefurtherescalatedorcurtailedorprolongedinseveraloilexporters,protractedbecauseofasurgeinrefugeesornegativelyimpactinggrowthprospectsinMNA.internaldisplacementofpeople.ItwouldresultinIncommodity-exportingeconomies,fiscalpolicyanerosionofhumancapitalvialossesofaccesstotendstobemorevolatilethaninothereconomies,essentialhealthandeducationservices(Schadyetandvolatilityisnegativelyassociatedwithal.2023).InMNA,particularlyitseconomiesineconomicgrowth(chapter4;ArroyoMarioli,fragileorconflict-affectedsituations,thenumberFatás,andVasishtha2023).Furthermore,theofrefugeeshasalreadybeenincreasing(figurevolatilityoftermsoftradehasbeenconsistently2.4.3.B).AsthenumberofaffectedpeoplehigherinoilexportersinMNAthaninotherincreases,socialtensionscouldrise.IncreasedeconomiesandelevatedparticularlyinGCCviolencedrivenbyelevatedsocialtensionscouldcountries(Gattietal.2023).spurgreaterfoodinsecurity,exacerbatedbyariseinfoodprices.HeightenedfoodinsecuritycouldInadvancedeconomies,interestratesmightneedworsenpovertyandinequalityoutcomesinthetoberaisedfurther,givenstill-elevatedinflation.region.Larger-than-anticipatedincreasesininterestrates,oranextendedperiodofelevatedrates,couldMNAisvulnerabletonaturaldisasters,which,exposelatenteconomicandfinancialvulnerabili-apartfromtheirhumanitariantoll,cancausetiesandtightenglobalfinancialconditions.Suchseveredamagetoinfrastructureandreduceoutput,tightening,relativetothebaselineforecast,couldincomes,andproductivity.Totaldeathsfromincreasefinancialinstabilityandleadtocapitalnaturaldisastersrosesignificantlylastyear(figureoutflowsandcurrencydepreciations,particularly2.4.3.C).Asclimatechangecontinuestoincreaseinoilimporters.Externalfinancingneedsarethefrequencyandseverityofadverseweatherexpectedtoincreaseinbothoilexportersandevents,thelackofweather-resilientbuildingsandimportersin2024,buttobemoreelevatedintheinfrastructure,alongwithinadequatemaintenancelatter(figure2.4.3.D).Giventhelargeexternalofexistingstructuresandmitigationfacilities,deficitsinmanyoilimportersandtheirlimitedcouldamplifydamage(OECD2018).Theimpactaccesstoexternalfinancingsources,tighterofextremeweathereventstendstobeparticularlyfinancialconditionswouldfurtherweakengrowth.78CHAPTER2.4GLOBALECONOMICPROSPECTSJANUARY2024TABLE2.4.1MiddleEastandNorthAfricaforecastsummaryPercentagepointdifferencesfromJune2023projections(RealGDPgrowthatmarketpricesinpercent,unlessindicatedotherwise)202120222023e2024f2025f2023e2024f2025f0.20.5EMDEMNA,GDP13.85.81.93.53.5-0.30.20.5GDPpercapita(U.S.dollars)2.64.40.52.22.2-0.40.50.70.50.6(Averageincludingcountriesthatreportexpenditurecomponentsinnationalaccounts)2-0.1-0.10.10.2EMDEMNA,GDP24.15.92.13.63.6-0.40.3-0.32.12.6PPPGDP4.35.62.33.63.6-0.30.90.90.91.2Privateconsumption5.84.53.23.02.9-0.10.40.8Publicconsumption2.63.54.12.92.81.20.41.00.81.7Fixedinvestment5.710.34.83.83.60.11.71.3-0.7-0.4Exports,GNFS37.114.24.16.66.50.1-0.5-0.8Imports,GNFS39.29.97.35.65.31.3Netexports,contributiontogrowth0.13.0-0.61.21.3-0.2Memoitems:GDP3.46.21.63.63.5-0.4Oilexporters43.37.41.13.63.8-1.3GCCcountries5SaudiArabia3.98.7-0.54.14.2-2.7Iran,IslamicRep.64.73.84.23.73.22.0Oilimporters75.53.93.03.23.7-0.4Egypt,ArabRep.63.36.63.83.53.9-0.2Source:WorldBank.Note:e=estimate;f=forecast;EMDE=emergingmarketanddevelopingeconomy;MNA=MiddleEastandNorthAfrica;PPP=purchasingpowerparity.WorldBankforecastsarefrequentlyupdatedbasedonnewinformationandchanging(global)circumstances.Consequently,projectionspresentedheremaydifferfromthosecontainedinotherBankdocuments,evenifbasicassessmentsofcountries’prospectsdonotdifferatanygivenmomentintime.1.GDPandexpenditurecomponentsaremeasuredinaverage2010-19pricesandmarketexchangerates.ExcludesLebanon,theSyrianArabRepublic,andtheRepublicofYemenasaresultofthehighdegreeofuncertainty.2.Aggregateincludesalleconomiesinnotes4and7exceptDjibouti,Iraq,Jordan,Qatar,andWestBankandGaza,forwhichdatalimitationspreventtheforecastingofGDPcomponents.3.GNFSreferstogoodsandnon-factorservices.4.OilexportersincludeAlgeria,Bahrain,theIslamicRepublicofIran,Iraq,Kuwait,Libya,Oman,Qatar,SaudiArabia,andtheUnitedArabEmirates.5.TheGulfCooperationCouncil(GCC)includesBahrain,Kuwait,Oman,Qatar,SaudiArabia,andtheUnitedArabEmirates.6.Fiscal-year-basednumbers.Thefiscalyear(FY)runsfromJuly1toJune30intheArabRepublicofEgypt,withthecolumnfor2021reflectingFY2020/21.FortheIslamicRepublicofIran,itrunsfromMarch21throughMarch20,withthecolumnfor2021reflectingFY2021/22.7.OilimportersincludeDjibouti,Egypt,Jordan,Morocco,Tunisia,andWestBankandGaza.GLOBALECONOMICPROSPECTSJANUARY2024MIDDLEEASTANDNORTHAFRICA79TABLE2.4.2MiddleEastandNorthAfricaeconomyforecasts1PercentagepointdifferencesfromJune2023projections(RealGDPgrowthatmarketpricesinpercent,unlessindicatedotherwise)Algeria202120222023e2024f2025f2023e2024f2025fBahrain3.43.22.52.62.60.80.20.5Djibouti2.74.92.83.33.20.10.10.1Egypt,ArabRep.24.53.14.75.15.70.3-0.3-0.2Iran,IslamicRep.23.36.63.83.53.9-0.2-0.5-0.8Iraq4.73.84.23.73.22.01.71.3Jordan-2.17.0-2.94.22.9-1.8-1.8-0.8Kuwait3.72.42.62.52.60.20.10.2Lebanon31.37.90.82.62.7-0.50.00.3Libya3-7.0-0.60.2....0.7....Morocco31.4-1.214.14.14.3......Oman8.01.32.83.13.30.3-0.2-0.2Qatar3.14.31.42.72.9-0.1-0.10.3SaudiArabia1.54.92.82.53.1-0.5-0.40.0SyrianArabRepublic33.98.7-0.54.14.2-2.70.81.7Tunisia1.3-3.5-5.5....0.0....UnitedArabEmirates4.42.41.23.03.0-1.10.00.0WestBankandGaza3.56.63.43.73.80.60.30.4Yemen,Rep.37.03.9-3.7-6.05.4-6.7-9.02.4-1.01.5-0.52.0..0.00.0..Source:WorldBank.Note:e=estimate;f=forecast.WorldBankforecastsarefrequentlyupdatedbasedonnewinformationandchanging(global)circumstances.Consequently,projectionspresentedheremaydifferfromthosecontainedinotherBankdocuments,evenifbasicassessmentsofeconomies’prospectsdonotsignificantlydifferatanygivenmomentintime.1.DataarebasedonGDPmeasuredinaverage2010-19pricesandmarketexchangerates.2.Fiscal-year-basednumbers.Thefiscalyear(FY)runsfromJuly1toJune30intheArabRepublicofEgypt,with2021reflectingFY2020/21.FortheIslamicRepublicofIran,itrunsfromMarch21throughMarch20,with2021reflectingFY2021/22.3.ForecastsforLebanon(beyond2023),theSyrianArabRepublic(beyond2023),andtheRepublicofYemen(beyond2024)areexcludedbecauseofahighdegreeofuncertainty.ForecastsforLibyabeyond2022wereexcludedintheJune2023editionoftheGlobalEconomicProspectsreportbecauseofahighdegreeofuncertainty.GrowthinSouthAsia(SAR)isexpectedtoedgemarginallylowerfromanestimated5.7percentlastyearto5.6percentin2024—stillthefastestpaceamongallemergingmarketanddevelopingeconomy(EMDE)regions—andthenfirmto5.9percentin2025.GrowthinIndiaisprojectedtoremainstrong,largelydrivenbyrobustinvestmentandservices.Inothereconomies,theadverseeffectsofpersistentlyhighinflationandmonetaryandfiscalpolicytightening,aswellaspolicyuncertainty,willweighongrowth.Riskstotheoutlookaretiltedtothedownside,withthemostpressingconcernsbeinghigherenergyandfoodpricescausedbytheongoingconflictintheMiddleEastandadversespilloversfromelevatedpolicyratesinadvancedeconomies.Risksoffinancialandfiscalstress,extremeweatherevents,slowingactivityinChina,andelection-relateduncertaintyinsomecountriesposefurtherdownsiderisksfortheregion.Recentdevelopmentshamperedbyimportrestrictionsandrisingmaterialandenergycosts,aswellasmountingGrowthinSARisestimatedtohaveslowedexternalandfinancialpressures.Headlineslightly,from5.9percentin2022toastill-strongconsumerpriceinflationincreasedin2023,mainly5.7percentin2023—stillthefastestofallEMDEdrivenbyrisingfoodpricesandcurrencydeprecia-regions.Thisprimarilyreflectedarobustexpan-tion,resultingintightermonetarypolicy(figuresioninIndia,whichaccountedformorethan2.5.1.B).Balanceofpaymentsdeteriorated,alongthree-fourthsofregionaloutputin2023(figurewithadeclineinforeignexchangereserves.2.5.1.A).ExcludingthatinIndia,however,Financialsectorvulnerabilitiesrose,asnon-activitywasmoresubdued.performingandotherstressedloansincreased(WorldBank2023j).InIndia,theslowdowningrowthto7.2percentinfiscalyear(FY)2022/23,whichendedinMarchInPakistan,outputcontractedanestimated0.22023,wasprimarilyduetoaweakeningpost-percentinFY2022/23asaresultoftheeffectsofpandemicrebound,particularlyinprivatedamagefromthe2022floodsandincreasedinvestmentandconsumption.However,astrongpoliticaluncertainty.Consumerpriceinflationperformancein2023wasunderpinnedbyrobustremainedelevated,partlyreflectingcurrencypublicinvestmentgrowthandvibrantservicesdepreciationinearly2023(figure2.5.1.C).activity,thankstoresilientdomesticdemandforHowever,bylate2023,therupeeshowedsignsofconsumerservicesandexportsofbusinessservices.stabilization,drivenbyavarietyoffactors.TheseIncontrast,merchandiseexportsslowed,reflectingincludedincreasedliquidityintheforeignweakexternaldemand.Headlineconsumerpriceexchangemarketduetotighterenforcementofinflationremainedwithinmonetaryauthorities’regulations,ashrinkingmoneysupply,abalance-targetbandof2-6percentthroughoutmostofof-paymentssurplusonaccountoflowimport2023,withpolicyratesbeingkeptunchangeddemand,andamoratoriumonChinesedebtsinceFebruary2023.repayments.InBangladesh,growthisestimatedtohaveslowedInSriLanka,theeconomycontractedanestimatedto6percentinFY2022/23,asactivitywas3.8percentin2023.Credittotheprivatesectorremainedsubduedthroughoutlastyear,adverselyNote:ThissectionwaspreparedbyNaotakaSugawara.affectingactivity.Withweakerdemand,consumer82CHAPTER2.5GLOBALECONOMICPROSPECTSJANUARY2024FIGURE2.5.1SAR:RecentdevelopmentsBank2023k).Inflationremainedhigh,partlydrivenbyanincreaseinfoodpriceinflation.Growthhasremainedstrongintheregion.Monetarypolicywastightenedinhalfoftheregion’seconomiesin2023,owingtohighinflation,currencyForAfghanistan,economicdataaresparse.depreciation,orboth.AsolidrecoveryininternationaltourismhasDespitedecliningfoodpricesin2023,povertybenefitedtheregion.ratesremainedhigh,exacerbatedbystrongearthquakesinOctober2023.ThecountryalsoA.Industrialproductiongrowth,2023B.Policyinterestrates,2023facedanincreaseinunemploymentandunderem-ployment,astheriseinthelaborsupplyoutpacedPercentchangefromayearearlierPercentDecemberJanuaryPercentthesubdueddemand(WorldBank2023l).12826Therecoveryinglobaltourismcontinuedto8720benefittheregion,includingBhutanandMaldives(figure2.5.1.D).Thenumberoftouristarrivalsin4614Maldivesincreasedby13percentinthefirsttenmonthsof2023,relativetothesameperiodof582022.InBhutan,tourism-relatedfeeswerereducedtoattractmoretouristsinSeptember0BGDINDMDVNPLPAKLKA2023.JanMarMayJulSep(RHS)(RHS)OutlookC.ChangeinexchangeratesandD.InternationaltouristarrivalsEconomicgrowthinSARisexpectedtoedgeinflation,2023slightlylowertoastill-robust5.6percentpacein2024,andthenstrengthento5.9percentinthePercentchangefromayearearlierMillionsfollowingyear(figure2.5.2.A;table2.5.1).16Domesticdemand,includingpublicconsumptionExchangerates,LCU/US$30andinvestment,willremainmajordriversof12economicgrowth.Apickupinexternaldemand,PAK201920222023albeitstillsubdued,isalsoexpectedtocontributetogrowth.ExcludingthatinIndia,outputinthe20BTNregionisprojectedtoexpandby3.8percentin2024and4.1percentin2025.BGDIndiaisanticipatedtomaintainthefastestgrowth10MDVrateamongtheworld’slargesteconomies,butitspost-pandemicrecoveryisexpectedtoslow,withNPL8estimatedgrowthof6.3percentinFY2023/240(April2023toMarch2024;table1.1).Growthisthenexpectedtorecovergradually,edginguptoAFGIND6.4percentinFY2024/25and6.5percentinFY2025/26(table2.5.2).Investmentisenvisaged-10LKAPercentchange4todeceleratemarginallybutremainrobust,0fromayearearliersupportedbyhigherpublicinvestmentand-20improvedcorporatebalancesheets,includingin-101020300thebankingsector(WorldBank2023m).PrivateJanMarMayJulSepNovconsumptiongrowthislikelytotaperoff,astheHeadlineinflationpost-pandemicpent-updemanddiminishesandpersistenthighfoodpriceinflationislikelytoSources:HaverAnalytics;WorldBank.constrainspending,particularlyamonglow-Note:AFG=Afghanistan;BGD=Bangladesh;BTN=Bhutan;IND=India;LCU=localcurrencyunit;LKA=SriLanka;MDV=Maldives;NPL=Nepal;PAK=Pakistan;SAR=SouthAsia.A.Aggregatesarecalculatedasweightedaverages,withvalueaddedbyindustryat2015pricesandmarketexchangeratesasweights.Sampleincludesuptofourcountries(Bangladesh,India,Pakistan,andSriLanka).B.NominalpolicyratesatthebeginningofJanuary2023andasofDecember15,2023.C.Percentchangeinnominalexchangeratevis-à-visU.S.dollarsfromayearearlier—positive(negative)valuesshowingdepreciation(appreciation)againstU.S.dollars—ontheverticalaxisandpercentchangeinheadlineconsumerpriceindexfromayearearlieronthehorizontalaxis.DataarefromNovember2023formostcountries,exceptforOctober2023inthecasesofAfghanistan,Bhutan,Maldives,andNepal.D.CumulativenumberoftouristarrivalsinSARsinceJanuaryofeachyear.Lastobservationfor2023isOctober.Sampleincludesuptofivecountries(Bhutan[for2019only],India,Maldives,Nepal,andSriLanka).priceinflationdeclined,andthecentralbankstartedtoreducepolicyratesfrommid-2023.Progresswasalsomadeinsovereigndebtrestruc-turing,astheauthoritiesreachedagreementswithmajorofficialcreditors,includingChinaandtheParisClub,aswellastheimplementationofadomesticdebtoptimizationplan.InNepal,growthisestimatedtohaveslowedmarkedlyinFY2022/23,partlyreflectingearliermonetarypolicytighteningtocurbcreditgrowth.Importrestrictionsalsoweighedongrowth,thoughtheywereliftedinJanuary2023(WorldGLOBALECONOMICPROSPECTSJANUARY2024SOUTHASIA83incomehouseholds.Meanwhile,governmentFIGURE2.5.2SAR:Outlookconsumptionisexpectedtogrowslowly,inlinewiththecentralgovernment’seffortstolowertheGrowthintheregionisprojectedtodipslightlyto5.6percentin2024,shareofcurrentspending.beforefirmingto5.9percentin2025.In2024,fiscaldeficitsareprojectedtonarrowmarginally.Long-termgrowthforecastsremainstrong,andInBangladesh,growthisforecasttoslowto5.6potentialgrowthintheregionisprojectedtoremainbroadlystable.RobustpercentinFY2023/24(July2023toJune2024).growthisexpectedtocontributetoafurtherdeclineinthenumberofInflationislikelytoremainelevated,weighingonpeoplelivinginpoverty.privateconsumption.Asforeignexchangereservesarelikelytostaylow,importrestrictionsareA.GDPgrowthB.Fiscalbalancesexpectedtocontinueandimpedeprivateinvest-ment.Incontrast,publicinvestmentisenvisagedPercentPercentofGDPPercentofGDPtoremainresilient.Growthisexpectedtorisein840FY2024/25asinflationarypressurerecedes.2010-19averageExpenditures10620InPakistan,theeconomicoutlookforFY2023/24Revenues(July2023toJune2024)remainssubdued,withgrowthprojectedatonly1.7percent.MonetaryFiscalbalance(RHS)policyisexpectedtoremaintighttocontain5inflation,whilefiscalpolicyisalsosettobecontractionary,reflectingpressuresfromhigh400debt-servicepayments.Weakconfidencestem-mingfrompoliticalturmoilwillcontributetothe220-5slowgrowthinprivatedemand.Asinflationarypressureeases,growthisexpectedtopickupto2.4040-10percentinFY2024/25.2023e2024f2025f2023e2024f2025f2023e2024f2023e2024fMaldives’economyisprojectedtoexpandby5.2percentin2024and5.5percentin2025.ASARSARexcl.IndiaSARSARexcl.Indiacontinuedrecoveryintourismfrommajoreconomies,includingChina,isexpectedtoC.Long-termGDPgrowthforecastsD.Numberofpoorpeoplecontributetorobustgrowth.Investmentrelatedtothetourismsector,particularlytheexpansionofPercentMillionsVelanaInternationalAirport,willalsosupport6790growth.5780InBhutan,growthisexpectedtoslowto4percentinFY2023/24(July2023toJune2024),partly4770reflectingreductionsinpublicinvestmentandcapitalexpenditure.Despitethis,theeconomywill3760stillbenefitfromastrongperformanceintourism-20202021202220232020202120222023relatedservices.InFY2024/25,growthis750projectedtopickupto4.6percent,reflectingaSARSARexcl.India20222023e2024f2025frecoveryinindustrialandservicesactivitiesandthecommissioningofanewhydroplant.Sources:ConsensusEconomics;InternationalMonetaryFund;WorldBank.InNepal,growthisprojectedtopickupto3.9Note:e=estimate;f=forecast;SAR=SouthAsia.percentinFY2023/24(mid-July2023tomid-July2024)and5percentinFY2024/25.ExpansionofA.C.AggregatesarecalculatedasweightedaveragesusingGDPweightsataverage2010-19pricesindustrialandservicesactivitieswillbesupportedandmarketexchangerates.B.AggregatesarecalculatedasweightedaveragesusingnominalGDPinU.S.dollarsasweights.C.Long-termGDPgrowthforecastsaredefinedas10-year-aheadGDPgrowthforecastsinthelong-termconsensusforecastsinOctoberofeachyearbyConsensusEconomics.Thehorizontalaxisreferstotheyearofforecastsurveys.Sampleincludesfourcountries(Bangladesh,India,Pakistan,andSriLanka).D.Thenumberofpoorpeopleisdefinedbyusingthelowermiddle-incomepovertythresholdof3.65internationaldollarsperdayin2017purchasingpowerparity.Sampleincludesfivecountries(Bangladesh,Bhutan,India,Pakistan,andSriLanka).bymonetarypolicyeasingandthelaggedeffectsoftheremovalofimportrestrictions.InSriLanka,theeconomicoutlookremainsuncertain,amiddebtrestructuringnegotiationswithprivatecreditorsandtheimplementationofstructuralreformstoimprovegrowthpotential.Fiscalpoliciesintheregionareexpectedtobeamodestdragongrowth,withdeficitssettonarrowmarginallyin2024(figure2.5.2.B).InIndia,governmentrevenuesareexpectedtogainfromsolidcorporateprofits,andcurrentexpendituresarelikelytodecreasewiththeconclusionofpandemic-relatedmeasures.Interestpaymentsare84CHAPTER2.5GLOBALECONOMICPROSPECTSJANUARY2024projectedtobelargeincountrieswithelevatedtransportationexpenses(WorldBank2023g).debtlevels,includingIndia,Pakistan,andSriSARisvulnerabletohigherpricesoffoodandLanka.energy,asasurgeinglobalpriceswouldleadtoadeteriorationinexternalpositionsanddestabilizeOverthelongrun,growthprospectsintheregiontheeconomybydampeninginvestmentandareexpectedtoremainstrong,despitesomeoveralleconomicactivity.Foodaccountsforamoderation(figure2.5.2.C).Potentialgrowthinsignificantshareofhouseholdconsumptiontheregionisexpectedtobebroadlystable,partlybasketsintheregion(WorldBank2023n).supportedbydemographicdividends(KoseandOhnsorge2023).However,theregionwillseeaAspoorerhouseholdsspendmoreonfood,risingshiftinthedistributionofworkerstowardolderfoodpriceswoulddisproportionatelyaffectthecohorts,underscoringaneedtoraiselaborsupply.poorandthevulnerable,resultinginanincreaseinAsgenderinequalityiswidespreadinregionalpovertyandinequality.Theriskisparticularlylabormarkets,thereisampleopportunitytohighincountrieswithlimitedfiscalbufferstoadvancefemalelaborforceparticipation,whichmitigateadverseeffects,includingNepalandcould,inturn,enhancethepotentialforeconomicPakistan,andincountriesundermajorsecuritygrowth.threats,includingAfghanistan.Inaddition,anincreaseinfoodinsecuritycouldbeexacerbatedbyPercapitaincomegrowthisprojectedtofalltotheescalationoftheongoingconflictinthe4.5percentin2024,froma2010-19averageofMiddleEast(figure2.5.3.A).5.4percentayear.ExcludingIndia,regionalpercapitaincomegrowthisexpectedtobeamodestThereremainsuncertaintyaboutthetrajectoryof2.3percentayear.Despitetheslowdown,theglobalinterestrates.Larger-than-anticipateddeclineinpovertyintheregionisexpectedtoincreasesinpolicyrates,particularlyinadvancedcontinue(figure2.5.2.D).economies,drivenbylimitedprogressinreducinginflation,couldcausefurthertighteningofglobalRisksfinancialconditions.AdversespilloversfromtighterfinancialconditionscouldundermineRiskstothebaselineforecastremaintiltedtothefinancialstabilityandeconomicactivityinSAR,downside,withthemostpressingconcernsespeciallythroughincreasedborrowingcosts,revolvingaroundhigherenergyandfoodpricescurrencydepreciations,anddeclinesinforeigncausedbyanescalationoftheconflictinthereserves.TheeffectscouldbecompoundedMiddleEastandadversespilloversstemmingfrombyelevateddebtlevels,asthefinancialsectorislarger-than-expectedincreasesinpolicyratesinhighlyexposedtosovereigndebtinSARviatheadvancedeconomies.Otherdownsiderisksinthesovereign-banknexus(WorldBank2023o).Inregionincludelargefinancingneeds,extremeaddition,region-wideinflationexpectationsareweatherevents,furtherweaknessinChina,andincreasedamongfinancialmarketparticipantsheighteneduncertaintyaroundelectionsinsome(figure2.5.3.B).Ifinflationexpectationsremaincountries.However,theimplementationofpersistentlyhighandareunanchored,additionalgrowth-friendlypoliciesfollowingtheseelectionsdomesticmonetarypolicytighteningwouldbecouldimprovegrowthprospects.required,weighingonactivity.AnescalationoftheconflictintheMiddleEast,asExternalandfiscalfinancingneedsareelevatedinwellaselevatedgeopoliticalrisksbecauseofseveralSAReconomies,includingMaldives,Russia’sinvasionofUkraine,couldhavesignifi-Pakistan,andSriLanka,increasingvulnerabilitiescantimplicationsforcommoditymarkets.Asurgetofinancialmarketdisruptions(figure2.5.3.C).Ininoilpricescausedbytheintensificationofthetheseeconomies,marketsentimentcansuddenlyconflictwouldlikelyraisethecostoffoodandshiftinresponsetofinancialsectorstressorothercommoditiesduetohigherproductionandweakeningfiscalpositions.VulnerabilitytosuchshiftsisparticularlyhighincountrieswithlimitedGLOBALECONOMICPROSPECTSJANUARY2024SOUTHASIA85internationalreservesorfiscalbuffers,orweakFIGURE2.5.3SAR:Risksgovernanceinthefinancialsector.AnescalationoftheconflictintheMiddleEastcouldincreasefoodprices,Extremeweathereventsalsoposeamajorrisk.Inworseningpovertyandexacerbatingfoodinsecurityintheregion.FurtherSAR,anincreaseinextremeweathereventswouldmonetarypolicytighteningwouldbeneeded,ifinflationexpectationsarecontributetoanincreaseinpovertythroughunanchored,whichcouldweighoneconomicactivity.Someregionalmultiplechannels,includingthedeteriorationofeconomiesfacelargefinancingneedsandaremorevulnerabletoshiftsinhealthconditionsandariseinfoodprices(Jafinoinvestorsentimentduetolimitedexternalorfiscalbuffers.Naturaldisastersetal.2020).In2023,thedeathtollfromnaturalcouldcontinuetocauselargehumanandeconomiclosses.disastersremainedhighinSAR,mainlybecauseofthedevastatingearthquakeinAfghanistanandA.PrevalenceofhungerB.Inflationexpectationsfor2024floodsinIndia(figure2.5.3.D).ThegrowingfrequencyandseverityofextremeweathereventsPercentofpopulationPercentalsoposeriskstofoodproductionintheregion.186.2BecauseSARisrelativelylessopentotrade,165.9spilloversfromweaker-than-projectedgrowthinChinawouldbesmallerthaninotherEMDE145.6regions.However,incountrieswhereChinaisamajortradingpartnerorkeysourceofforeign125.3investment,asharper-than-expectedslowdowninChinacouldunderminegrowth.Additionally,in105.0Bangladesh,slower-than-anticipatedgrowthinits20182019202020212022JanMarMayJulSepNovexportdestinations,particularlyintheEuropeanUnion,couldposearisktogrowthprospects.C.Externalandfiscalfinancingneeds,D.Deathtollfromnaturaldisasters2024InanumberofSAReconomies(Bangladesh,Per1millionpopulationBhutan,India,Maldives,andPakistan),parlia-PercentofGDPExternal4mentaryornationalassemblyelectionsare25scheduledorplannedin2024.Theheightened3uncertaintyaroundtheseelectionscoulddampenFiscalactivityintheprivatesector,includingforeign2investment.Ifcombinedwithpoliticalorsocial20unrestandelevatedviolence,thiscouldfurther1disruptandweakeneconomicgrowth.In15addition,particularlyincountrieswiththeweak0fiscalpositions,anincreaseinspendingpriorto10201820192020202120222023theseelectionscouldexacerbatemacro-fiscalvulnerabilities.However,theimplementationof5policiestoreduceuncertaintyandstrengthengrowthpotentialafterelectionscouldleadtoan0improvementinprospects.BGDINDMDVNPLPAKLKASources:ConsensusEconomics;EM-DAT(database);FoodandAgricultureOrganization;InternationalMonetaryFund;Koseetal.(2022);WorldBank.Note:BGD=Bangladesh;IND=India;LKA=SriLanka;MDV=Maldives;NPL=Nepal;PAK=Pakistan;SAR=SouthAsia.A.Shareofundernourishment,weightedbypopulation.Sampleincludessixcountries(Afghanistan,Bangladesh,India,Nepal,Pakistan,andSriLanka).B.One-year-aheadinflationexpectations,basedonconsensusforecastsurveysinrespectivemonthsof2023.AggregateiscalculatedusingnominalGDPinU.S.dollarsasweights.Sampleincludesfourcountries(Bangladesh,India,Pakistan,andSriLanka).LastobservationisDecember2023.C.Externalfinancingneedsaredefinedasthesumofamortizationoflong-termexternaldebt,stockofshort-termexternaldebtinthepreviousyear,andcurrentaccountdeficits.Fiscalfinancingneedsaredefinedasasumofshort-termcentralgovernmentdebtandfiscaldeficits.D.TotalnumberofdeathscausedbynaturaldisastersinSAR,dividedbypopulationinmillions.86CHAPTER2.5GLOBALECONOMICPROSPECTSJANUARY2024TABLE2.5.1SouthAsiaforecastsummaryPercentagepointdifferencesfromJune2023projections(RealGDPgrowthatmarketpricesinpercent,unlessindicatedotherwise)202120222023e2024f2025f2023e2024f2025f0.5-0.5EMDESouthAsia,GDP1,28.35.95.75.65.9-0.20.5-0.5-0.5-0.6GDPpercapita(U.S.dollars)7.25.04.74.54.8-0.20.5-0.5EMDESouthAsiaexcludingIndia,GDP6.13.32.83.84.1-0.10.5-0.5-1.11.1(Averageincludingcountriesthatreportexpenditurecomponentsinnationalaccounts)31.42.51.10.3EMDESouthAsia,GDP38.25.95.75.65.9-0.2-2.80.4-2.63.8PPPGDP8.25.95.75.65.9-0.20.2-1.0Privateconsumption10.66.84.34.96.0-0.62024/25f2025/26f0.00.0Publicconsumption7.52.12.25.55.4-0.32023/24f2024/25fFixedinvestment15.68.37.57.97.20.3-0.6-0.6-0.3-0.6Exports,GNFS421.515.83.56.26.7-2.3Imports,GNFS421.514.12.75.57.7-3.2Netexports,contributiontogrowth-1.6-0.80.0-0.3-0.80.5Memoitems:GDP22021/222022/232023/24e2024/25f2025/26f2023/24eIndia9.17.26.36.46.50.02020/212021/222022/23e2023/24f2024/25f2022/23eBangladesh6.97.16.05.65.80.8Pakistan(factorcost)5.86.2-0.21.72.4-0.6Source:WorldBank.Note:e=estimate;f=forecast;EMDE=emergingmarketanddevelopingeconomy;PPP=purchasingpowerparity.WorldBankforecastsarefrequentlyupdatedbasedonnewinformationandchanging(global)circumstances.Consequently,projectionspresentedheremaydifferfromthosecontainedinotherBankdocuments,evenifbasicassessmentsofcountries’prospectsdonotdifferatanygivenmomentintime.1.GDPandexpenditurecomponentsaremeasuredinaverage2010-19pricesandmarketexchangerates.ExcludesAfghanistanbecauseofthehighdegreeofuncertainty.2.Nationalaccountdatarefertofiscalyears,whileaggregatesarepresentedincalendaryearterms.ThefiscalyearrunsfromJuly1throughJune30inBangladesh,Bhutan,andPakistan;fromJuly16throughJuly15inNepal;andApril1throughMarch31inIndia.3.SubregionaggregateexcludesAfghanistan,Bhutan,andMaldives,forwhichdatalimitationspreventtheforecastingofGDPcomponents.4.GNFSreferstogoodsandnon-factorservices.TABLE2.5.2SouthAsiacountryforecastsPercentagepointdifferencesfromJune2023projections(RealGDPgrowthatmarketpricesinpercent,unlessindicatedotherwise)202120222023e2024f2025f2023e2024f2025fCalendaryearbasis1-20.7..............Afghanistan237.713.96.55.25.5-0.1-0.1-0.4Maldives3.5-7.8-3.81.72.40.50.50.4SriLanka2020/212021/222022/23e2023/24f2024/25f2022/23e2023/24f2024/25fFiscalyearbasis16.97.16.05.65.80.8-0.6-0.6Bangladesh-3.34.84.64.04.60.10.90.3Bhutan4.85.61.93.95.0-2.2-1.0-0.5Nepal5.86.2-0.21.72.4-0.6-0.3-0.6Pakistan(factorcost)2021/222022/232023/24e2024/25f2025/26f2023/24e2024/25f2025/26f9.17.26.36.46.50.00.00.0IndiaSource:WorldBank.Note:e=estimate;f=forecast.WorldBankforecastsarefrequentlyupdatedbasedonnewinformationandchanging(global)circumstances.Consequently,projectionspresentedheremaydifferfromthosecontainedinotherBankdocuments,evenifbasicassessmentsofcountries’prospectsdonotsignificantlydifferatanygivenmomentintime.1.Historicaldataarereportedonamarketpricebasis.NationalaccountdatarefertofiscalyearswiththeexceptionofAfghanistan,Maldives,andSriLanka,whichreportincalendaryears.ThefiscalyearrunsfromJuly1throughJune30inBangladesh,Bhutan,andPakistan;fromJuly16throughJuly15inNepal;andApril1throughMarch31inIndia.2.DataforAfghanistan(beyond2021)areexcludedbecauseofahighdegreeofuncertainty.GrowthinSub-SaharanAfrica(SSA)isprojectedtoreboundto3.8percentin2024and4.1percentin2025ascountry-specificfactorsthathavetemporarilyweighedongrowth,includingreducedfiscalsupportandmetal-exportingeconomies’adjustingtolowerprices,graduallyease.Nevertheless,elevatedcostsoflivingcontinuetolimitconsumptiongrowth,andpoliticalinstabilityhasincreasedinpartsoftheregion.Highdebtburdensandinterestrateshavenarrowedfiscalspaceandheightenedfinancingneeds.Despitetheprojectedpickupingrowth,increasesinpercapitaincomeswillremaininadequatetoenabletheregion’seconomiesmakesignificantprogressinreducingextremepoverty.Riskstothebaselinegrowthforecastremaintiltedtothedownside.eyincludeafurtherriseinglobalorregionalinstability,suchasthepossibleescalationoftheconflictintheMiddleEast,whichcoulddriveupglobalenergyandfoodprices;asharper-than-expectedglobaleconomicslowdown;increasedfrequencyandintensityofadverseweatherevents;andincreaseddefaultsifattemptstoreduceelevatedpublicdebtburdensweretofail.Materializationoftheseriskswouldalsoexacerbatepovertyandlimittheabilityofmanycountriestocopewithclimatechange.RecentdevelopmentsInNigeria,theregion’slargesteconomy,growthsoftenedtoanestimated2.9percentin2023.GrowthinSSAdeceleratedtoanestimated2.9Whileservicesgrowthweakenedmarkedlyinpercentin2023,whichis0.3percentagepoint2023,partlydrivenbyadisruptivecurrencylowerthanprojectedinJune.Variouscountry-demonetizationpolicyinthefirstquarterof2023,specificchallenges,includinghigherinputpricesannualoilproductionincreasedafteranotableforbusinessesinNigeriaandanenergycrisisindeclineinpreviousyears(figure2.6.1.C).SouthAfrica,contributedtoaslowdownintheregion’seconomicactivityduring2023(figureInSouthAfrica,growthweakenedfurtherin2023,2.6.1.A).Growthintheregion’sthreelargesttoanestimated0.7percent,reflectingtheeffectseconomies—Nigeria,SouthAfrica,andAngola—structuralconstraints,especiallytheenergycrisisslowedtoanaverageof1.8percentin2023.Inandtransportbottlenecks,andweakerdemandintheregion’sothercountries,growthsoftenedtoacontextofweakjobcreation,highpricesand3.9percent,partlyreflectingasharpdeclineinmonetarypolicytightening.Poweroutageshitmetalexporters’growthalongsidelowerglobalrecordhighsin2023,holdingbackmanufacturingmetalsprices(chapter1).Moreover,growthinandminingproduction.severalcountrieswashamperedbyintenseandprotractedconflicts,mostnotablythatinSudan,GrowthinAngolaweakenedtoanestimated0.5andrecentflareupsofviolenceinChadandNiger,percentin2023,withmaturingoilfieldscontributingtoanincreaseinviolenteventsinthecontributingtomarkedlyloweroilproduction,region(figure2.6.1.B).Moreover,post-pandemicleadingtorevenueshortfallsandtriggeringpublicrecoverieswereslowedbyweakeningexternalexpenditurecuts.demandanddomesticpolicytighteningtoaddresspersistentinflation.Elsewhereintheregion,activityinresource-richcountriesweakened.GrowthinBotswanasoftenedNote:ThissectionwaspreparedbyDominikPeschel.owingtodeclinesinglobaldemandandpricesfordiamonds,whilegrowthinNamibia,amineralandmetalresource-richcountry,slowedowingto88CHAPTER2.6GLOBALECONOMICPROSPECTSJANUARY2024FIGURE2.6.1SSA:RecentdevelopmentsthoughmostofthesecountriesareagriculturalcommodityexportersbenefitingfromdecliningEconomicactivityinSSAslowedinthesecondhalfof2023,whilethefertilizerprices.Despiteapickupinitsagriculturalnumberofviolenteventspickedup.Oilproductiondeclinedin2023insector,Ethiopia—SSA’slargestagriculturalAngolabutincreasedinNigeriaafterseveralyearsofdecline.Inflationincommodityproduceranditsmostpopulouslow-theregiondeclinedin2023butremainedathighlevels.incomecountry—sawitsgrowthslowto5.8percentin2023,asaresultofincreasedfiscalandA.Purchasingmanagers’indexB.Incidenceofviolenteventsexternalpressures.Incontrast,growthinTanzaniaandUgandaedgedupin2023,supportedbyIndex,50+=expansionReportedviolenteventshighergovernmentspending.602,500Low-incomecountriesHeadlineconsumerpriceinflationinSSAGDP-weightedcompositePMI2,000FragileSSAmoderatedin2023followingsharprisesinglobal55SSAfoodandenergypricesin2022,yetitremainedelevated(figure2.6.1.D).Thecostofliving501,500continuestobehigh,whichhasworsenedtheeconomichardshipofthepoorandincreasedfood451,000insecurityacrosstheregion.InWestAfrica,asignificantportionofthepopulation—ofteneven40500themajorityincountrieslikeBurkinaFaso,Chad,Guinea,Mali,Niger,andSierraLeone—hasDec-21insufficientfood(WorldBank2023p).Feb-22Apr-22OutlookJun-22Aug-22GrowthinSSAisexpectedtoaccelerateto3.8Oct-22percentin2024andfirmfurtherto4.1percentinDec-222025asinflationarypressuresfadeandfinancialFeb-23conditionsease(table2.6.1).TheprojectionsforApr-23regionalgrowthin2024and2025arelittleJun-23changedfromJuneforecasts,buttheseaggregatesAug-23maskamixofupgradesanddowngradesattheOct-23countrylevel.WhilegrowthinthelargestJan-19economiesinSSAisexpectedtolagtherestoftheAug-19region,non-resource-richeconomiesareforecastedMar-20tomaintainagrowthrateabovetheregionalOct-20average.ExcludingthethreelargestSSAMay-21economies,growthintheregionisexpectedtoDec-21acceleratefrom3.9percentin2023to5percentin2024,andfurther5.3percentin2025(figureJul-222.6.2.A).Non-resource-richcountriesareexpectedFeb-23tocontinuebenefitingfromthemoderationinSep-23fertilizerprices.AlthoughmetalexportersareexpectedtorecoverfromtheirgrowthslumpinC.OilproductionD.ConsumerpriceinflationinSSA2023,downgradesarestillconcentratedamongtheseeconomies,withcontinuedweakgrowthinPercent2020202120222023ePercentFooddemandfromChinaexpectedtobeadragon1015Non-foodactivity(figure2.6.2.B).Inflation510Morebroadly,limitedfiscalspace,resultingfromhighdebtlevelsandincreasedborrowingcosts,0-55-100-15Jan-19AngolaCongo,Rep.NigeriaAug-19Mar-20Oct-20May-21Dec-21Jul-22Feb-23Sep-23Sources:ACLED(database);HaverAnalytics;InternationalEnergyAgency;InternationalMonetaryFund;WorldBank.Note:EMDEs=emergingmarketsanddevelopingeconomies;SSA=Sub-SaharanAfrica.A.GDP-weightedaverage.SamplecomprisesGhana,Kenya,Mozambique,Nigeria,SouthAfrica,Uganda,andZambia.Shadedareaindicatestheinterquartilerange.LastobservationisNovember2023.B.Three-monthmovingaverages.Violenteventsincludebattles,explosions,riots,andviolenceagainstcivilians.LastobservationisNovember2023.C.Year-on-yearincrease.YeartoNovember2023relativetocorrespondingperiodof2022.D.Changeinpricesfrom12monthsearlier.Unweightedaveragesforthesampleof20SSAEMDEs.Non-foodincludeshousing,utilities,fuel,transport,andothergoodsandservices.LastobservationisOctober2023.thelossofmomentuminminingoutputgrowthandtightermonetarypolicyweighingondomesticdemand.InNiger,alsoametalexporter,growthslowedsharplyfollowingacoupinlateJuly,whichwasfollowedbyinternationaleconomicandfinancialsanctionsagainstthejunta.Morebroadly,lowermetalpricesweighedongrowthinmanymetal-exportingeconomies(Botswana,DemocraticRepublicofCongo,Liberia,SierraLeone,Zambia).Amidpersistentlylargecurrentaccountandfiscaldeficits,andtheassociatedneedforfiscalconsolidation,growthinnon-resource-richcountriesgenerallyweakenedin2023,evenGLOBALECONOMICPROSPECTSJANUARY2024SUB-SAHARANAFRICA89alongwithtightmonetarypolicies,areexpectedtoFIGURE2.6.2SSA:Outlookweighoninvestmentgrowthacrosstheregion.AlthoughwaninginflationarypressuresshouldGrowthinSSAisexpectedtopickupin2024-25,approachingitsaverageallowforagradualeasingofinterestrates,therebyrateofthepasttwodecades.GrowthinthelargesteconomiesinSSAisbolsteringprivateconsumptionandinvestmentexpectedtolagthatintherestoftheregion,whileitisforecasttoremainduringtheforecastperiod,theweaknessesintheabovetheregionalaverageinnon-resource-richcountries.Forecastregion’sthreelargesteconomieswilllimitthedowngradesareconcentratedinmetal-exportingcountriesamidweakpickupinSSA’sgrowth.demandfromChina.PercapitaincomesinSSAin2025areexpectedtobebarelyabovethoseof2019,andtheywillbenotablylowerinthelargestGrowthinNigeriaisprojectedat3.3percentthiseconomies.Thecurrentaccountbalancesinmanyindustrial-commodity-yearand3.7percentin2025—up0.3and0.6exportingcountriesareexpectedtodeterioratefurtherin2024-25.percentagepoint,respectively,sinceJune—asmacro-fiscalreformsgraduallybearfruits.TheA.GrowthinSSAB.GrowthforecastrevisionssincebaselineforecastimpliesthatpercapitaincomeJune2023willreachitspre-pandemiclevelonlyin2025.PercentGrowthisexpectedtobedrivenmainlyby82000-19averagePercent2023e2024fagriculture,construction,services,andtrade.61Inflationshouldgraduallyeaseastheeffectsoflast40year’sexchangeratereformsandremovaloffuel2-1subsidiesfade.Thesestructuralreformsare0-2expectedtoboostfiscalrevenueovertheforecast-3period.-42022GrowthinSouthAfricaisprojectedtofirmtoa2023eSub-still-subdued1.3percentin2024andthenedge2024fSaharanupto1.5percentin2025.Whileenergysector2025freformsareexpectedtoimproveenergyavailabilityAfricainthemediumterm,increasinglyprevalent2022infrastructurebottlenecks,exacerbatedbytheslow2023epaceofstructuralreforms,arelikelytocontinueto2024flimitthecountry’sgrowthpotential.Domestically,2025ffiscalpressuresfromunderperformingrevenueandtherisingcostsofsocialtransfersandsubsidiesof2022state-ownedenterprises,aswellasrisingpublic2023esectorwagesanddebt-servicepayments,may2024frequirecurbsonothergovernmentspendingto2025freducethefiscaldeficit.Inaddition,constrainedrailandportcapacityareexpectedtoweighon2022exportperformance.2023e2024fGrowthinAngolaisprojectedtopickupto2.82025fpercentthisyear,halfapercentagepointlowerSub-SaharanthananticipatedintheJuneGlobalEconomicAfricaProspectsreport,asinvestmentgrowsmoreslowlyAngola,thanexpected.Non-oileconomicactivitywillbeNigeria,andthemaindriverofgrowth,whiletheoilandgasSouthAfricaindustryisexpectedtogrowbyamere1percentaIndustrial-yearonaccountoffielddepletionandlackofcommodityinvestment.ProjectedgrowthisbroadlyinlineexporterswithAngola’spopulationgrowth,implyingthatNon-resource-richcountriesMetalexportersAngola,Industrial-Non-Nigeria,commodityresource-andSouthexportersrichAfricacountriesC.IncomepercapitaD.CurrentaccountbalanceIndex(2019=100)PercentofGDP2000-19averageSub-SaharanAfrica0-2110ASnSgAoLlaI,CNsigexecrila.,CaOnDdSaonudthETAHfrica-4105-6-81009590201020132016201920222024f2025f2020202120222023f2024f2025f2020202120222023f2024f2025f2020202120222023f2024f2025fSub-SaharanNon-resource-Industrial-AfricarichcountriescommodityexportersSources:InternationalMonetaryFund;WorldBank.Note:e=estimates;f=forecasts.COD=DemocraticRepublicofCongo;ETH=Ethiopia;LICs=low-incomecountries;SSA=Sub-SaharanAfrica.A.AggregategrowthratescalculatedusingconstantGDPweightsataverage2010-19pricesandmarketexchangerates.B.RevisionsrelativetoforecastpublishedintheJune2023editionoftheGlobalEconomicProspectsreport.C.PanelreflectstheevolutionofrealpercapitaGDP,rebasedto2019=100.D.Simpleaveragesofcountrygroupings.Sampleincludes45SSAcountries.A.B.D.Industrial-commodityexportersexcludesAngola,Nigeria,andSouthAfrica.Non-resource-richcountriesrepresentagriculturalcommodity-exportingandcommodity-importingcountries.averagepercapitaincomeswillbebroadlyunchangedattheendof2025fromcurrentlevels,whicharenearly13percentlowerthanbeforethepandemic.Inflationarypressuresareexpectedtoeasein2024,decliningtowardthecentralbank’stargetof7percent.GrowthinSSA’sresource-richcountriesisexpectedtopickupin2024and2025.Industrialcommodityexportersintheregion,excludingthethreelargesteconomies,areforecasttogrowby90CHAPTER2.6GLOBALECONOMICPROSPECTSJANUARY20243.8percentin2024and4.1percentin2025,upMeanwhileaccesstoexternalfinancehasbecomefrom2.0percentin2023.Thisuptickisduetomorechallengingwiththetighteningofglobalthediminishingimpactofthesharpfallinfinancialconditions,especiallyforcountrieswithcommoditypricesfromtheir2022peak.Growthreduceddonorsupportorshrinkingforeigninthenon-miningsectors,especiallyservices,isexchangereserves.Theneedtoboostfiscalexpectedtopickupasinflationgraduallydeclinesrevenues,and,whereadequate,implementfiscal(Botswana,Cameroon,DemocraticRepublicofconsolidationhasbecomeevenmorepressingCongo).throughoutSSA,especiallyinhighlyindebtedcountriesfacingrisksofdebtdistress.Growthinnon-resource-richcountriesisprojectedtostrengthento5.4percentin2024andRisks5.7percentin2025.IncreasinginvestmentisexpectedtodrivegrowthinKenyaandUganda,Riskstothebaselinegrowthforecastaretiltedtopartlyowingtoimprovedbusinessconfidence.thedownside.TheyincludeariseinpoliticalUgandawillalsobenefitfrominfrastructureinstabilityandviolence,suchastheintensificationinvestmentaheadofnewoilproductionin2025,oftheconflictintheMiddleEast,disruptionstoandinvestmentinKenyashouldbeboostedbyglobalorlocaltradeandproduction,increasedincreasedcredittotheprivatesectorasthefrequencyandintensityofadverseweatherevents,governmentreducesdomesticborrowing.Inasharper-than-expectedglobaleconomicTanzania,reformstoimprovethebusinessclimateslowdown,andhigherriskofgovernmentdefaults,areexpectedtoliftgrowth.especiallyifdebtrestructuringattemptsbyhighlyindebtedcountriesproveunsuccessful.PercapitaincomeinSSA,onaverage,isprojectedtogrowbyameager1.2percentthisyearand1.5AnescalationoftheconflictintheMiddleEastpercentin2025(figure2.6.2.C).However,percouldacerbatethesituationinSSAintermsofcapitaincomeisexpectedtofallinbothyearsinfoodinsecurity(figure2.6.3.A;WorldBankChad,EquatorialGuinea,andSudan,with2023g).Aconflict-inducedsustainedoilpriceparticularlysharpdeclinesinSudan.Additionally,spikewouldnotonlyraisefoodpricesbyitisanticipatedtostagnatein2025aftershrinkingincreasingproductionandtransportationcostsbutin2024inAngolaandtheCentralAfricancouldalsodisruptsupplychains,leadingtolessRepublic.By2025,percapitagrossdomesticaffordablefoodandanuptickinmalnutritionproduct(GDP)inabout30percentoftheregion'sratesintheregion.economies,withatotalpopulationofmorethan250million,willnothavefullyrecoveredtotheirAlthoughglobalfoodandenergypriceshavepre-pandemiclevels.Thisimpliesthattheseretreatedfromtheirpeaksin2022,disruptionstoeconomieswillhavelostseveralyearsinadvancingglobalorlocaltradeandproductioncouldreignitepercapitaincome.consumerpriceinflation,especiallyfoodpriceinflation,throughouttheregion.Suchdisruptions,Externalfinancingneedsacrosstheregionhaveespeciallyinminingandagriculture,couldbeincreasedsincetheonsetofthepandemic,partlytriggeredbyextremeweathereventslinkedpartlyreflectinghigherimportbillsanddebt-servicetoclimatechange.Theregionishighlyvulnerablecosts.Consequently,currentaccountdeficitstosuchevents.Forinstance,thecurrentElNiñoremainelevatedinmanyeconomies.Higherweatherpatterncouldbringabove-averagerainfalldeficitsforindustrial-commodity-exportingandfloodingtoEastAfrica,anddroughttocountriesoutweighimprovementsfornon-SouthernAfrica(figure2.6.3.B;WMO/WHOresource-richeconomies(figure2.6.2.D).The2023).SubsistenceagricultureisthemainsourcegrossfinancingneedsofthemedianSSAcountryoflivelihoodandemploymentformanypoorandintheLow-IncomeCountryDebtSustainabilityvulnerablepeopleinSSA.AnincreaseintheFrameworkhavemorethanquadrupledsincefrequencyandseverityofdroughts,floods,and2012,risingfrom2.4percentto11percentoftropicalcycloneswouldaggravatepovertyacrossGDPin2022(WorldBank2023q).GLOBALECONOMICPROSPECTSJANUARY2024SUB-SAHARANAFRICA91SSA,whileincreasingfoodinsecurityinmanyFIGURE2.6.3SSA:Riskscountries.Overtheperiod1991-2021,SSAhasbeenthemostaffectedregionintermsoflostFoodinsecurityintheregionremainselevatedandcouldworsenifthevalueaddedinagricultureduetoextremeeventsconflictintheMiddleEastintensifies.Theshareofthepopulationaffectedaffectingcropsandlivestock(FAO2023).Inthebyadverseweathereventshasincreasedinrecentyears.Interestlongterm,climatechange-inducedrisesinaveragepaymentsonpublicdebtareexpectedtoriseasaresultoftheincreaseintemperaturescouldadverselyaffectcropyieldsglobalinterestrates,whilethenumberofcountriesindebtdistressoracrosstheregion,reducingfoodsuppliesaswellasfacinghighriskofdebtdistresswilllikelyremainelevated.exports.A.FoodinsecurityinSSAB.ShareofpopulationaffectedbyGlobalgrowthcouldweakenmorethanexpected,adverseweathereventsperhapsowingtotighterfinancingconditionsorMillionpeoplefurtherdeteriorationinChina’sgrowth(chapter600PercentFloodsandstorms1).Insuchascenario,thepricesofmanyofSSA’s6Droughtexportcommodities,especiallymetalsandStressedminerals,couldweaken.CountriesthatrelyFoodcrisis&worse4heavilyonChinaasanexportdestinationforthese400commoditieswouldbehitespeciallyhardby2slower-than-projectedChinesegrowth.2000Public-debt-servicecostshaverisensharplyin02010-192020-232010-192020-23manySSAeconomiessincethepandemic(figure201920202021202220232.6.3.C).ThishasincreasedtheneedfordebtAgriculturalSSAOtherSSAreduction,particularlyinhighlyindebtedcountries.IfglobalordomesticinflationturnsoutC.PublicdebtandinterestpaymentsD.RiskofdebtdistressinSSAtobehigherthanexpected,interestratescouldinSSAremainelevatedforalongerdurationthanassumedinthebaselinescenario,leadingtotighterPercentofGDPPercentofrevenuePercentofcountriesfinancialconditionsgloballyandinSSA.ThiscouldlimitaccesstofinancialmarketsandGovernmentdebtLowModerateHighIndebtdistressincreaserisksoffinancialdistressandgovernment100debtdefaults(figure2.6.3.D).80Interestpayments(RHS)20ManySSAeconomiessufferfromfragility601575stemmingfrompersistentpoverty,aswellasfesteringviolenceandconflict,includingthe4010DemocraticRepublicofCongo,Ethiopia,Somalia,SouthSudan,andSudan.Peacemaking20550effortsintheDemocraticRepublicofCongoandEthiopiahavebornefruit,butrecentcoups00d’état—inNigerandGabonin2023;BurkinaFasoin2022;andChad,Guinea,Mali,and201925Sudanin2021—haveresultedinanescalationof2020politicalinstabilityinmuchoftheregion.Further20210increasesinviolentconflictscouldpushgrowth2022belowthebaselineandresultinextended2023fhumanitariancrisesinmanyofSSA’smost2024feconomicallyvulnerablecountries.Thesenations2025farealreadyfrequentlyfacinghighlevelsofdebt(or2019evendebtdistress),heavydependenceonfoodand2020fuelimports,andelevatedinflation.202120222023f2024f2025f20192020202120222023f2024f2025f20192020202120222023Sub-SaharanNon-Industrial-Africaresource-richcommoditycountriesexportersSources:EM-DAT(database);FSINandGNAFC(2023);InternationalMonetaryFund(IMF);WorldBank.Note:SSA=Sub-SaharanAfrica.A.Numberofpeoplefacingfoodsecuritystressorfoodsecuritycrisisandworse.Sampleincludesupto41countriesinSub-SaharanAfrica.UnitedNationsWorldFoodProgrammeestimatesfor2023.B.Barsindicatepercentofpopulationaffected.“OtherSSA”referstonon-agricultureexportingcountries.LastobservationisDecember5,2023.C.Simpleaveragesofcountrygroupings.Sampleincludes45SSAcountries.Industrial-commodityexportersexcludesAngola,Nigeria,andSouthAfrica.Non-resource-richcountriesrepresentagriculturalcommodity-exportingandcommodity-importingcountries.D.PanelshowstheshareofSSAcountrieseligibletoaccesstheIMF’sconcessionallendingfacilitiesbylevelofdebtdistress.Thesamplesizevariesbetween36and37countries.Eritreaisexcludedbecauseofdatarestrictions.92CHAPTER2.6GLOBALECONOMICPROSPECTSJANUARY2024TABLE2.6.1Sub-SaharanAfricaforecastsummaryPercentagepointdifferencesfromJune2023projections(RealGDPgrowthatmarketpricesinpercent,unlessindicatedotherwise)202120222023e2024f2025f2023e2024f2025f-0.10.1EMDESSA,GDP14.43.72.93.84.1-0.3-0.10.0GDPpercapita(U.S.dollars)1.81.20.31.21.5-0.3-0.3-0.1-0.3-0.1(Averageincludingcountriesthatreportexpenditurecomponentsinnationalaccounts)20.10.1-1.3-0.7EMDESSA,GDP2,34.73.92.83.94.2-0.5-0.1-0.8-1.9-0.8PPPGDP4.63.92.74.04.3-0.7-1.4-1.40.10.5Privateconsumption4.83.62.33.73.8-0.9-0.3-0.2Publicconsumption2.72.81.62.02.20.60.10.3-0.3-0.1Fixedinvestment8.06.75.66.26.3-1.00.10.3-0.20.2Exports,GNFS46.88.04.24.55.2-2.1-0.2-0.2-0.10.4Imports,GNFS410.910.54.94.74.8-1.60.00.30.30.6Netexports,contributiontogrowth-1.2-0.9-0.3-0.20.00.2-0.2-0.1-0.50.0Memoitems:GDPEasternandSouthernAfrica4.73.72.53.63.8-0.6WesternandCentralAfrica4.03.83.34.04.30.0SSAexcludingNigeria,SouthAfrica,andAngola4.94.83.95.05.3-0.7Oilexporters53.23.22.63.13.60.0CFAcountries64.34.74.25.35.3-0.3CEMAC71.73.02.72.62.80.0WAEMU86.05.75.06.96.6-0.5SSA33.92.71.82.42.80.1Nigeria3.63.32.93.33.70.1SouthAfrica4.71.90.71.31.50.4Angola1.23.00.52.83.1-2.1Source:WorldBank.Note:e=estimate;f=forecast;PPP=purchasingpowerparity;EMDE=emergingmarketanddevelopingeconomy.WorldBankforecastsarefrequentlyupdatedbasedonnewinformationandchanging(global)circumstances.Consequently,projectionspresentedheremaydifferfromthosecontainedinotherBankdocuments,evenifbasicassessmentsofcountries’prospectsdonotdifferatanygivenmomentintime.1.GDPandexpenditurecomponentsaremeasuredinaverage2010-19pricesandmarketexchangerates.2.SubregionaggregateexcludestheCentralAfricanRepublic,Eritrea,Guinea,Nigeria,SãoToméandPríncipe,Somalia,andSouthSudan,forwhichdatalimitationspreventtheforecastingofGDPcomponents.3.SubregiongrowthratesmaydifferfromthemostrecenteditionofAfrica'sPulse(https://www.worldbank.org/africas-pulse)becauseofdatarevisions.4.Exportsandimportsofgoodsandnonfactorservices(GNFS).5.IncludesAngola,Cameroon,Chad,theRepublicofCongo,EquatorialGuinea,Gabon,Ghana,Nigeria,andSouthSudan.6.TheFinancialCommunityofAfrica(CFA)franczoneconsistsof14countriesinSub-SaharanAfrica,eachaffiliatedwithoneoftwomonetaryunions.7.TheCentralAfricanEconomicandMonetaryUnion(CEMAC)comprisesCameroon,theCentralAfricanRepublic,Chad,theRepublicofCongo,EquatorialGuinea,andGabon.8.TheWestAfricanEconomicandMonetaryUnion(WAEMU)comprisesBenin,BurkinaFaso,Côted’Ivoire,Guinea-Bissau,Mali,Niger,Senegal,andTogo.GLOBALECONOMICPROSPECTSJANUARY2024SUB-SAHARANAFRICA93TABLE2.6.2Sub-SaharanAfricacountryforecasts1PercentagepointdifferencesfromJune2023projections(RealGDPgrowthatmarketpricesinpercent,unlessindicatedotherwise)Angola202120222023e2024f2025f2023e2024f2025fBenin1.23.00.52.83.1-2.1-0.50.0Botswana7.26.35.86.06.0-0.20.1-0.1BurkinaFaso11.85.83.84.14.3-0.20.10.3Burundi6.91.54.34.85.10.00.00.0CentralAfricanRepublic3.11.82.94.24.5-0.10.20.3CaboVerde1.00.51.31.63.1-1.7-2.2-0.7Cameroon5.617.14.54.74.7-0.3-0.7-0.6Chad3.63.84.04.24.50.10.00.0Comoros-1.22.23.02.82.7-0.2-0.6-0.4Congo,Dem.Rep.2.12.63.03.54.00.20.60.4Congo,Rep.6.28.96.86.56.2-0.9-1.1-1.3Côted’Ivoire1.01.53.24.13.0-0.3-0.20.2EquatorialGuinea7.06.76.36.56.50.10.00.0Eritrea-0.93.1-2.5-6.1-3.91.2-0.1-0.8Eswatini2.92.52.63.23.3-0.10.30.5Ethiopia210.70.53.62.92.80.60.00.1Gabon6.36.45.86.47.0-0.2-0.20.0Gambia,The1.53.02.73.02.8-0.40.0-0.2Ghana4.34.34.85.35.5-0.2-0.2-0.3Guinea5.13.12.32.84.40.7-0.1-0.4Guinea-Bissau4.34.75.15.86.2-0.50.00.6Kenya6.43.52.85.64.5-1.71.10.0Lesotho7.64.85.05.25.30.00.00.0Liberia1.61.82.22.52.1-0.4-0.6-1.2Madagascar5.04.84.55.46.20.2-0.10.6Malawi5.73.84.04.84.7-0.20.0-0.4Mali2.80.91.62.83.30.20.40.3Mauritania3.13.74.04.05.00.00.00.0Mauritius0.76.44.85.15.50.3-0.5-1.3Mozambique3.48.85.04.63.60.30.50.0Namibia2.34.26.05.05.01.0-3.3-0.3Niger3.54.62.82.93.10.41.21.0Nigeria1.411.52.312.87.4-4.60.3-1.7Rwanda3.63.32.93.33.70.10.30.6SãoToméandPríncipe10.98.26.97.57.80.70.00.3Senegal1.90.10.52.53.3-1.6-0.9-0.4Seychelles6.54.24.18.89.3-0.6-1.14.1SierraLeone5.49.04.34.13.90.51.10.8SouthAfrica4.13.53.13.74.3-0.30.0-0.1Sudan4.71.90.71.31.50.4-0.2-0.1SouthSudan2-1.9-1.0-12.0-0.60.2-12.4-2.1-1.8Tanzania-5.1-2.3-0.42.32.40.00.00.0Togo4.34.65.15.56.10.0-0.1-0.1Uganda26.05.85.25.25.80.3-0.10.3Zambia3.44.75.36.06.6-0.4-0.2-0.1Zimbabwe4.64.72.74.64.8-1.5-0.10.08.56.54.53.53.51.60.10.1Source:WorldBank.Note:e=estimate;f=forecast.WorldBankforecastsarefrequentlyupdatedbasedonnewinformationandchanging(global)circumstances.Consequently,projectionspresentedheremaydifferfromthosecontainedinotherBankdocuments,evenifbasicassessmentsofcountries’prospectsdonotsignificantlydifferatanygivenmomentintime.1.DataarebasedonGDPmeasuredinaverage2010-19pricesandmarketexchangerates.2.Fiscalyear-basednumbers.94CHAPTER2GLOBALECONOMICPROSPECTSJANUARY2024ReferencesGatti,R.,D.Lederman,A.M.Islam,C.A.Wood,R.Y.Fan,R.Lotfi,M.E.Mousa,andH.Nguyen.2022.ACLED(ArmedConflictLocation&EventDataRealityCheck:ForecastingGrowthintheMiddleEastandProject)database.AccessedonDecember18,2023.NorthAfricainTimesofUncertainty.MiddleEastandhttps://acleddata.com/data-export-tool.NorthAfricaEconomicUpdate.April.Washington,DC:WorldBank.ArroyoMarioli,F.,A.Fatás,andG.Vasishtha.2023.“FiscalPolicyVolatilityandGrowthinEmergingGrekou,C.,V.Mignon,andL.Ragot.2023.“Russie:MarketsandDevelopingEconomies.”PolicyResearchSanctionsOccidentalesetéchappatoiresOrientales.”LaWorkingPaper10409,WorldBank,Washington,DC.LettreduCEPIIN°439,Centred’EtudesProspectivesetd’InformationsInternationales,Paris.Arteta,C.,S.Kamin,andF.U.Ruch.2022.“HowDoRisingU.S.InterestRatesAffectEmergingandJafino,B.A.,B.Walsh,J.Rozenberg,andS.Hallegat-DevelopingEconomies?ItDepends.”PolicyResearchte.2020.“RevisedEstimatesoftheImpactofClimateWorkingPaper10258,WorldBank,Washington,DC.ChangeonExtremePovertyby2030.”PolicyResearchWorkingPaper9417,WorldBank,Washington,DC.Cai,W.,G.Wang,A.Santoso,M.J.McPhaden,L.Wu,F.Jin,A.Timmermann,etal.2015.“IncreasedKose,M.A.,S.Kurlat,F.Ohnsorge,andN.Sugawara.FrequencyofExtremeLaNiñaEventsunder2022.“ACross-CountryDatabaseofFiscalSpace.”GreenhouseWarming.”NatureClimateChange5(2):JournalofInternationalMoneyandFinance128132-37.(November):102682.Davies,S.,T.Pettersson,andM.Öberg.2023.Kose,M.A.,andF.Ohnsorge,eds.2023.FallingLong-“OrganizedViolence1989-2022,andtheReturnofTermGrowthProspects:Trends,Expectations,andConflictbetweenStates.”JournalofPeaceResearch60Policies.Washington,DC:WorldBank.(4):691-708.Maloney,W.,D.Riera-Crichton,E.I.Ianchovichina,Dieppe,A.,S.KilicCelic,andC.Okou.2020.G.Vuletin,G.Beylis,andG.Vuletin.2023.The“ImplicationsofMajorAdverseEventsonProductivi-PromiseofIntegration:OpportunitiesinaChangingty.”PolicyResearchWorkingPaper9411,WorldGlobalEconomy.April.Washington,DC:WorldBank.Bank,Washington,DC.OECD(OrganisationforEconomicCo-operationandEM-DAT(TheInternationalDisasterDatabase)Development).2018.“Climate-ResilientInfrastruc-database.CentreforResearchontheEpidemiologyofture.”OECDEnvironmentPolicyPaper14,Organisa-Disasters(CRED),UCLouvain,Brussels.AccessedtionforEconomicCo-operationandDevelopment,December18,2023.https://www.emdat.be.Paris.FAO(FoodandAgricultureOrganizationofthePfeiffer,P.,J.Varga,andJ.in’tVeld.2023.UnitedNations).2023.TheImpactofDisasterson“UnleashingPotential:Model-BasedReformBench-AgricultureandFoodSecurity2023—AvoidingandmarkingforEUMemberStates.”Luxembourg,ReducingLossesthroughInvestmentinResilience.Rome:EuropeanCommission.FoodandAgricultureOrganizationoftheUnitedNations.Pigato,M.A.,ed.2019.FiscalPoliciesforDevelopmentandClimateAction.Washington,DC:WorldBank.Feenstra,R.C.,R.Inklaar,andM.P.Timmer.2015.“TheNextGenerationofthePennWorldTable.”Schady,N.,A.Holla,S.Sabarwal,J.Silva,andA.Y.AmericanEconomicReview105(10):3150-82.Chand.2023.CollapseandRecovery:HowtheCOVID-19PandemicErodedHumanCapitalandWhattoDoGatti,R.,D.Lederman,N.Elmallakh,J.Torres,J.aboutIt.Washington,DC:WorldBank.Silva,R.Lotfi,andI.Suvanov.2023.BalancingAct:JobsandWagesintheMiddleEastandNorthAfricaWang,B.,X.Luo,Y.Yang,W.Sun,M.A.Cane,W.WhenCrisesHit.MiddleEastandNorthAfricaCai,S.Yeh,andJ.Liu.2019.“HistoricalChangeofElEconomicUpdate.October.Washington,DC:WorldNiñoPropertiesShedsLightonFutureChangesofBank.ExtremeElNiño.”ProceedingsoftheNationalAcademyofSciences116(45):22512-17.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER295WHO(WorldHealthOrganization)andWMOWorldBank.2023i.TowardaFrameworkforthe(WorldMeteorologicalOrganization).2023.“HealthSustainableHeatingTransitioninEuropeandCentralandtheElNiño-SouthernOscillation(ENSO).”Brief,Asia.September.Washington,DC:WorldBank.WHO-WMOClimateandHealthOffice,Geneva.WorldBank.2023j.“BangladeshDevelopmentWorldBank.Forthcoming.“BulgariaPublicFinanceUpdate:NewFrontiersinPovertyReduction.”Review.”WorldBank,Washington,DC.October.WorldBank,Washington,DC.WorldBank.2022a.CatchingUp:InclusiveRecovery&WorldBank.2023k.“NepalDevelopmentUpdate:GrowthforLaggingStates.MalaysiaEconomicMonitor.RestoringExportCompetitiveness.”October.WorldJune.Washington,DC:WorldBank.Bank,Washington,DC.WorldBank.2022b.ChinaCountryClimateandWorldBank.2023l.“AfghanistanDevelopmentDevelopmentReport.Washington,DC:WorldBank.Update:UncertaintyafterFleetingStability.”October.WorldBank,Washington,DC.WorldBank.2023a.ServicesforDevelopment.EastAsiaandPacificEconomicUpdate.October.Washington,WorldBank.2023m.“IndiaDevelopmentUpdate.”DC:WorldBank.October.WorldBank,Washington,DC.WorldBank.2023b.SustainingGrowththroughtheWorldBank.2023n.SouthAsiaDevelopmentUpdate:RecoveryandBeyond.ChinaEconomicUpdate.June.TowardFaster,CleanerGrowth.October.Washington,Washington,DC:WorldBank.DC:WorldBank.WorldBank.2023c.“LeveragingDiasporaFinancesforWorldBank.2023o.ExpandingOpportunities:TowardPrivateCapitalMobilization.”MigrationandInclusiveGrowth.SouthAsiaEconomicFocus.April.DevelopmentBrief39,WorldBank,Washington,DC.Washington,DC:WorldBank.WorldBank.2023d.SluggishGrowth,RisingWorldBank2023p.“FoodSecurityUpdate.”October.Risks.EuropeandCentralAsiaUpdate.October.GlobalMarketOutlook,WorldBank,Washington,Washington,DC:WorldBank.DC.WorldBank.2023e.TowardSustainableGrowth.WorldBank.2023q.Africa’sPulse:DeliveringGrowthWesternBalkansRegularEconomicReport24.toPeoplethroughBetterJobs.October.Washington,October.Washington,DC:WorldBank.DC:WorldBank.WorldBank.2023f.Women,BusinessandtheLawWorldBankandDRC(DevelopmentResearchCenter2023.September.Washington,DC:WorldBank.oftheStateCouncil,thePeople’sRepublicofChina).2022.FourDecadesofPovertyReductioninChina:WorldBank.2023g.CommodityMarketsOutlook:Drivers,InsightsfortheWorld,andtheWayAhead.UndertheShadowofGeopoliticalRisks.October.Washington,DC:WorldBank.Washington,DC:WorldBank.WorldBank.2023h.TheBusinessoftheState.November.Washington,DC:WorldBank.CHAPTER3THEMAGICOFINVESTMENTACCELERATIONSGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER399Investmentpowerseconomicgrowth,helpsdrivedownpoverty,andwillbeindispensablefortacklingclimatechangeandachievingotherkeydevelopmentgoalsinemergingmarketanddevelopingeconomies(EMDEs).Withoutfurtherpolicyaction,investmentgrowthintheseeconomiesislikelytoremaintepidfortheremainderofthisdecade.Butitcanbeboosted.Thischapteroffersthefirstcomprehensiveanalysisofinvestmentaccelerations—periodsinwhichthereisasustainedincreaseininvestmentgrowthtoarelativelyrapidrate—inEMDEs.Duringtheseepisodesoverthepastsevendecades,investmentgrowthtypicallyjumpedtomorethan10percentperyear,whichismorethanthreetimesthegrowthrateinother(non-acceleration)years.Countriesthathadinvestmentaccelerationsoftenreapedaneconomicwindfall:outputgrowthincreasedbyabout2percentagepointsandproductivitygrowthincreasedby1.3percentagepointsperyear.Otherbenefitsalsomaterializedinthemajorityofsuchepisodes:inflationfell,fiscalandexternalbalancesimproved,andthenationalpovertyratedeclined.Mostaccelerationsfollowed,orwereaccompaniedby,policyshiftsintendedtoimprovemacroeconomicstability,structuralreforms,orboth.Thesepolicyactionswereparticularlyconducivetosparkinginvestmentaccelerationswhencombinedwithwell-functioninginstitutions.Abenignexternalenvironmentalsoplayedacrucialroleincatalyzinginvestmentaccelerationsinmanycases.IntroductioninvestmentneedsinmanyEMDEs:substantialinvestmentisrequiredtofillinfrastructuregaps,Overthepasttwodecades,capitalaccumulationisenableadaptationtoclimatechange,facilitatetheestimatedtohaveaccountedformorethanhalfofenergytransitionawayfromfossilfuels,acceleratepotentialoutputgrowthinemergingmarketandpovertyreduction,andadvancesharedprosperitydevelopingeconomies(EMDEs),highlightingthe(G20-IEG2023;RozenbergandFay2019;criticalroleofinvestmentindrivingeconomicStammandVorisek2023;UNEP2023).2growth(figure3.1).1Yet,investmentgrowthintheseeconomiesisgoingthroughaprolonged,Althoughthereisextensivediscussionaboutthebroad-basedslowdownsincetheglobalfinancialurgentneedtoraiseinvestmentgrowth,thereiscrisisthatbeganin2008.InvestmentgrowthininsufficientresearchonpastinvestmentEMDEs(excludingChina)averagedabout6accelerations—definedasperiodsinwhichthereispercentperyearinthe2000s,beforeslowingtoanasustainedincreaseininvestmentgrowthtoaannualaverageof3percentinthe2010s(Worldrelativelyrapidrate.AfullerunderstandingofBank2023a).Duringthe2020globalrecessiontheseaccelerationscouldprovideusefullessonsfortriggeredbytheCOVID-19pandemic,achievinglong-termgrowthanddevelopmentinvestmentcontractedmuchmoredeeplythanitgoalsinEMDEs.didduringthe2009globalrecession.Despiteacyclicalreboundin2021,investmentgrowthinThischapterexaminesthedriversofinvestmentEMDEswilllikelybesubduedoverthemediumaccelerationsandassociatedeconomicoutcomesterm.byaddressingthefollowingquestions:Prolongedweakinvestmentgrowthdampens2ToreachtheclimatetargetsoftheParisAgreementalone,therepotentialoutputgrowthandmakesitmoreisaglobalneedofmorethanUS$4trillioninannualinvestmentdifficulttoachieveclimate-relatedandotherthrough2030(IRENA2023).EMDEsareprojectedtorequireannu-developmentgoals.Italsoexacerbatesthealinvestmentequivalentto1to8percentofGDPthrough2030tochallengesassociatedwithsizeableunmetreducegreenhousegasemissionsby70percentby2050andmeetotherdevelopmentgoals(WorldBank2022a).Thecostsofadapta-Note:ThischapterwaspreparedbyKerstenStammandShuYu.tionareestimatedtobeinaplausiblerangeofUS$215billion-ItisbasedonandextendsStamm,Yu,anddeHaan(2024).US$387billionperyearthrough2030(UNEP2023).Eveniftheseneedsarefulfilled,therewouldbesignificantinvestmentgapsfor1Thisestimateisderivedbyapplyingthestandardgrowthac-deliveringthenationallydeterminedcontributionsoftheParisCli-countingframeworktodecomposeoutputgrowthintoestimatedmateAgreement(IEAandIFC2023;McCollumetal.2018).Thesecontributionsofthegrowthinfactorinputsandthegrowthoftotalgapsimplythatlargeamountsofprivatefundingmustbemobilizedfactorproductivity.SeeKoseandOhnsorge(2023).tocomplementthelimitedpublicsources(G20andIEG2023;Zattler2023).100CHAPTER3GLOBALECONOMICPROSPECTSJANUARY2024FIGURE3.1Evolutionofinvestmentgrowth•Whatarethemainfeaturesofinvestmentaccelerations?Capitalaccumulationisakeydriverofpotentialoutputgrowth.Sincetheglobalfinancialcrisis,mostEMDEshaveexperiencedprolonged,broad-•Whatarethekeymacroeconomicandbasedinvestmentgrowthslowdownsthathaveexacerbatedtheirunmetdevelopmentoutcomesassociatedwithinvestmentgaps.Theyespeciallyneedaresilientandlow-carbonpathwayinvestmentaccelerations?ofgrowth.•WhatpolicyinterventionsaremostlikelytoA.ContributionstoaverageannualB.Averageannualinvestmentgrowth,sparkinvestmentaccelerations?potentialoutputgrowthbycountrygroupContributionsPercentCapitalLaborTFPPercent612Thechaptermakesthefollowingcontributionsto10theliterature:48Exclusivefocusoninvestmentaccelerations.26Thisisthefirststudythatexaminesperiods4characterizedbyasustainedincreaseininvestment02growthtoarelativelyrapidrate.3Theearlier0literatureoftenexaminedthedriversofinvestment2000-09growthinthecontextofstandardcross-country2010-22growthregressions.Theevent-studyapproach2023-30employedheredemonstratesastrongerlink2000-09betweeninvestmentaccelerationsontheonehand2010-22andinitialconditionsandpolicyinterventionson2023-30theother.42000-092010-22Detailedanalysisofinvestmentaccelerations.2023-30Thechapterpresentsacomprehensiveanalysisof1980-89theevolutionofinvestment,output,andotherkey1990-99macroeconomicandfinancialvariablesduring2000-09investmentaccelerations.Itexamines1042010-22economies—35advancedeconomiesand691980-89EMDEs—from1950to2022.Thisanalysis1990-99documentsthemacroeconomiccorrelatesof2000-09investmentaccelerations,suchascapital2010-22accumulation,totalfactorproductivity(TFP)1980-89growth,andemploymentgrowth,which1990-99contributetooutputgrowth.Italsostudieshow2000-092010-223Macroeconomicstudiesofcross-countryinvestmentincludeAnandandTulin(2014);Caselli,Pagano,andSchivardi(2003);andWorldAdvancedEMDEsEMDEsEMDEsexcl.AdvancedQureshi,Diaz-Sanchez,andVaroudakis(2015).Koseetal.(2017)economiesandWorldBank(2019,2023a)alsoexamineinvestmenttrendsandChinaeconomiescorrelatesinalargesampleofEMDEs.C.Averageannualinvestmentgrowth,D.Investmentgrowthforecasts4ThechapterbuildsuponstudiesidentifyingaccelerationsinrealbyincomelevelGDPpercapita.Hausmann,Pritchett,andRodrik(2005)andJong-Percent2000-19averageA-PinanddeHaan(2011)identifyoutputaccelerationsandshowPercent12thatthesearerelatedtotrade,investment,andpositiveregime14changes.JonesandOlken(2008)documentthatmostcountries129experienceoutputaccelerationsandslowdowns.Berg,Ostry,and106Zettelmeyer(2012)findthatadverseexternalshocksand3macroeconomicvolatilityreducethedurationofoutputaccelerations80whilestronginstitutionsarepositivelycorrelatedwithlonger-lasting6accelerations.4201980-891990-992000-092010-221980-891990-992000-092010-221980-891990-992000-092010-22202120222023e2024f202120222023e2024f202120222023e2024fLowincomeLowermiddleUppermiddleEMDEsEMDEsexcl.AdvancedChinaeconomiesincomeincomeE.InvestmentneedsforaresilientandF.Theclimateadaptationfinancegaplow-carbonpathway,2022-30indevelopingcountriesPercentofGDPperyearUS$,billions10400830062004100200LowincomeLowermiddleUppermiddleAdaptationModelledInternationalincomeincomefinancingcostsofpublicneedsadaptationfinanceSources:HaverAnalytics;Feenstra,Inklaar,andTimmer(2015);KoseandOhnsorge(2023);UnitedNationsEnvironmentProgramme(2023);WDI(database);WorldBank(2022a);WorldBank.Note:e=estimate;f=forecast.“Investment”referstogrossfixedcapitalformation.EMDEs=emergingmarketanddevelopingeconomies.A.AdvancedeconomyandEMDEaveragesarecalculatedusingGDPweightsataverage2010-19pricesandmarketexchangerates.Sampleincludes30advancedeconomiesand53EMDEs.SeeKoseandOhnsorge(2023)forestimationdetails.B.C.InvestmentgrowthaveragesarecalculatedusingGDPweightsataverage2010-19pricesandmarketexchangerates.Sampleincludesupto35advancedeconomiesand69EMDEs.D.Investmentgrowthiscalculatedwithcountries’realannualinvestmentinconstantU.S.dollarsasweights.Sampleincludes35advancedeconomiesand68EMDEs.E.Barsshowestimatesoftheannualinvestmentneedstobuildresiliencetoclimatechangeandputcountriesontracktoreduceemissionsby70percentby2050.Dependingondataavailability,estimatesincludeinvestmentneedsrelatedtotransport,energy,water,urbanadaptations,industry,andlandscape.F.Comparisonofadaptationfinancingneeds,modelledcostsandactualinternationalpublicadaptationfinanceflows(red)indevelopingcountries.Valuesforneedsandflowsareforthisdecadethrough2030,whileinternationalpublicfinanceflowsarefor2021.Domesticandprivatefinanceflowsareexcluded.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER3101somekeymacroeconomicandfinancialtheincreaseinpublicandprivateinvestmentindicators—suchasfiscalbalances,trade,growtharoundinvestmentaccelerationsdiffersexchangerates,andcredit—evolvearoundtheseacrossEMDEregions,thedifferenceswereepisodes.Finally,thisstudyanalyzestherelativelysmall.associationbetweeninvestmentaccelerationsandkeydevelopmentoutcomes,suchaschangesinInvestmentaccelerationsoftencoincidedwithpovertyandinequality.periodsoftransformativegrowth.Duringinvestmentaccelerations,outputgrowthinIn-depthstudyofpolicies.echapterdrawsEMDEsreached5.9percentperyear,whichis1.9bothonempiricalmodelsandcountrycasestudiespercentagepointshigherthaninotheryears.This(box3.1)toanalyzethelinkagesbetweenpoliciesrapidgrowthratetranslatesintoanexpansionofandinvestmentaccelerations.eempiricalalmosttwo-fifthsinGDPoversixyears,almostmodelsassesstherolesplayedbyvariousinitialone-and-a-halftimesthemedianexpansionduringconditionsandpolicyinterventionsintriggeringacomparableperiodoutsideaccelerations.aninvestmentacceleration.eyalsoconsidertheInvestmentaccelerationsareassociatedwithhigherinterplaybetweenpoliciesandinstitutionaloutputgrowthastheyhelpboostcapitalaccumu-environmentsinacceleratinginvestment.ecaselation,increaseemploymentgrowthandstrength-studieszoominontheexperiencesofselectedengrowthofTFP—thatis,theportionofgrowthcountriestopresentmoredetailedaccountsofthethatisnotduetoincreasedinputsoflaborandrolesofpolicies,initialconditions,andthecapitalandisgenerallyconsideredameasureofexternalenvironmentinspecificinvestmentefficiency.Specifically,aninvestmentaccelerationaccelerations.inEMDEs,onaverage,wasassociatedwithanincreaseofalmost1.3percentagepointsinannualMainfindingsTFPgrowth,fromslightlyabovezeroinotheryears.Also,therewasmuchhighergrowthofThechapter’sprincipalfindingsare:employmentandoutputinthemanufacturingandservicessectorsbecauseinvestmentaccelerationsInvestmentaccelerationshavehappenedinsupportfastershiftsofresourcesfromlessproduc-manyEMDEs,buttheyhavebecomelesstivesectors,mainlyagriculture,tomoreproduc-common.Thechapteridentifies192investmenttivesectors.accelerationsin93economies(34advancedeconomiesand59EMDEs)over1950-2022.OnAccelerationshavecoincidedwithbetteraverage,theprobabilitythatanEMDEexperi-encedaninvestmentaccelerationinanydecademacroeconomicanddevelopmentoutcomes.was40percent.AlongwiththeprotractedInvestmentaccelerationshavealsofrequentlybeenslowdownininvestmentgrowthsincetheglobalaccompaniedbyimprovedfiscalbalances,fasterfinancialcrisis,thenumberofinvestmentaccelera-creditexpansion,andlargernetcapitalinflows.IntionsinEMDEshasdeclinedovertime.Inaddition,theyhavetendedtocoincidewithbetterparallel,theexternalenvironmenthasbecomelessdevelopmentoutcomes,includingfasterpovertysupportiveanddomesticreformdrivesoftheearlyreduction,lowerinequality,andimprovedaccess2000slostmomentum(KoseandOhnsorge2019;toinfrastructure,suchastheinternet.StammandVorisek2023).PolicieshavehelpedtoigniteinvestmentFasterinvestmentgrowthhasoftenbeendrivenaccelerations.Boththechapter’sempiricalbyboththepublicandprivatesectors.Theanalysisanditscountrycasestudiesarriveatthreemedianannualgrowthofinvestmentwas10.4keyobservationsabouttheroleofpoliciesinpercentinEMDEsduringinvestmentaccelera-investmentaccelerations:tions,slightlymorethanthreetimesthegrowthrateof3.2percentinotheryears.Often,both•Policyinterventionsthatimprovepublicandprivateinvestmentgrowthhavepickedmacroeconomicstability—suchasfiscalupduringtheseepisodes.Althoughtheextentofconsolidations(actionstoreducedeficits)andinflationtargeting—andstructuralreforms,includingmeasuresthateasecross-border102CHAPTER3GLOBALECONOMICPROSPECTSJANUARY2024tradeandfinancialflows,havebeenPopulationProspectsdatabase.Thedatasetcoversinstrumentalinsparkinginvestmentupto35advancedeconomiesand69EMDEsforaccelerations.1950-2022.TheIMFInvestmentandCapitalStockdataset,whichcoverstheperiod1960-2019,•Althoughindividualpolicyinterventionshaveisusedtoseparatepublicfromprivateinvestmentplayedarole,country-specificcomprehensive(forinformationonotherdatausedinthechapter,packagesofpoliciesfosteringmacroeconomicseeannex3.2).stabilityandaddressingstructuralissueshavetendedtobemorepotentindrivingIdentificationmethodologyinvestmentaccelerations.Whenacountry’sprimaryfiscalbalanceandopennesstotradeAsimpleeventstudyapproachisemployedtoandfinancialflowshavesubstantiallyidentifyinvestmentaccelerations.Theapproachimproved,theprobabilityofignitinganfollowsearlierstudiesonaccelerationsofoutputinvestmentaccelerationhasincreasedby9andcapitalstock,butitisadjustedtoensurethatpercentagepoints.Countrycases,suchasthetheidentifiedepisodesarecharacterizedbyRepublicofKoreainthelate1990sandsustainedincreasesinpercapitainvestmentgrowthtoTürkiyeintheearly2000s,illustratethearelativelyrapidrate.5Themethodologyimposespotentialefficacyofcomprehensivepolicythefollowingrules,basedonthedataandthepackages.literature:•Havinghighqualityinstitutions(suchasa•Sustained.Eachepisodemustbesustainedforwell-functioningandimpartiallegalsystem)isatleastsixyears.Thedurationofepisodesiscriticalforthesuccessofpolicyinterventionsselectedtoexcludepurelycyclicalreboundsininstartinginvestmentaccelerations.Theinvestmentgrowth(BarroandSara-i-Martinlikelihoodofinvestmentaccelerationsandthe1992;ChristianoandFitzgerald2003).ultimateimpactofpolicyreformshavebeengreaterincountrieswithbetterinstitutions.•Rapid.Theaverageannualgrowthrateofinvestmentintheacceleration(ofatleastsixDatabaseandidentificationyears)mustbeatleast4percent.Onlyone-methodologythirdofthecountriesinthesamplehadamedianannualpercapitainvestmentgrowthDatabaserateexceeding4percentbetween1950and2022.BecauseofthevolatilenatureofInvestmentisdefinedasrealgrossfixedcapitalinvestmentgrowth,a4percentthresholdwasformation,includingbothprivateandpublicselectedbecauseitissufficientlyhigh,andinvestment(WorldBank2023a).Dataonsurpassinganaveragegrowthrateof4percentinvestmentaretakenfromPennWorldTableisunlikelytobedrivenbyoneyearofvery10.01(PWT),extendedto2022usingdatafromhighgrowth.HaverAnalytics,anddatabasesfromtheWorldBank’sWorldDevelopmentIndicatorsandGlobal•Highergrowthrate.ToensurethattheepisodeEconomicProspects(seeannex3.2fordetailsonisanacceleration,theaveragepercapitadata).Thischapterfocusesongrowthingrowthrateofinvestmentmustbeatleast2investmentpercapitabecauseitpresentsaclearpercentagepointshigherthantheaverageofparallelwithgrowthinGDPpercapita,whichisthemostbasicmeasureofgrowthinliving5Hausmann,Pritchett,andRodrik(2005),Jong-A-Pinanddestandardsand,assuch,centraltotheanalysisofHaan(2011),andLibman,Montecino,andRazmi(2019)employlong-termeconomicgrowth(Libman,Montecino,similarmethodstoidentifyoutputandcapitalstockaccelerations(seeandRazmi2019).Investmentandoutputdataareannex3.1).Alternativerules(involvingthedurationofepisodesandconvertedintopercapitatermsusingpopulationotherthresholdsusedinthebaselineeventstudy)donotchangethedatafromPWTandtheUnitedNationsWorldheadlineresults(seeannex3.3foranextensivelistofsensitivityexercises).GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER3103theprevioussixyears.Inaddition,toensureElevenofthe104countriesinthesamplethattheepisodeisnotmerelyacyclicalexperiencednoacceleration.Thesecountrieshadrecovery,thecapitalstockattheendoftheperiodsofrapidinvestmentgrowth,butnotrueperiodmustexceeditspre-episodepeak.accelerations.Insomecountries,investmentwassovolatilethatnosignificantincreaseinAnaccelerationisconsideredtoendwhenperinvestmentgrowthlastedaslongassixyearscapitainvestmentgrowthturnsnegative,orwhen(Guatemala,andIceland).Inothercountries,theinclusionofthecurrentyearreducestheperiodsofrapidinvestmentgrowthfollowedaverageannualpercapitainvestmentgrowthratedeclinesinthecapitalstock,wererelativelyshort-sincethestartoftheaccelerationtobelow4lived,andwereinsufficienttoraisethecapitalpercent.Investmentaccelerationscanendforastocktoitspreaccelerationpeaks(Côted’Ivoire,varietyofreasons:diminishingreturnstocapitalGhana,Niger,SouthAfrica).stockthatnaturallyreducetheaverageinvestmentgrowthrate,domesticshocksdrivenbytheDistributionofaccelerationsovertimeandaccumulationofmacroeconomicandfinancialimbalances,orexternalshockssuchasaregionalacrosscountriesorglobalfinancialcrisis.Ingeneral,accelerationshaverarelybeenfollowedbycrisesormajorGlobally,42percentofcountrieshadanrecessions:four-fifthsofthoseinthesamplewereinvestmentaccelerationinthe2000s.Inthenotfollowedbyacurrency,debt,orbankingcrisisfollowingdecadeonlyaboutaquarteroftheinthefouryearsaftertheacceleration.world’seconomieshadone.ThisdeclinewasfullyaccountedforbyEMDEs,astheshareofTherestofthechapterfocusesongrowthratesofadvancedeconomieswithaccelerationswasinvestment,output,andothermacroeconomicvirtuallyunchanged(figure3.2).Thewaveofvariablesinthethreestagesaroundaninvestmentinvestmentaccelerationsintheseeconomiesacceleration—namelybefore,during,andafter,duringtheearly2000swaspartiallysupportedbywithduringcapturingthefulldurationofbenignglobalconditions,strongcross-borderaccelerationyears.Toreportcomparablestatisticstradeandfinancialflows,andstructuralreformsacrossthesethreestages,theanalysisfocusesthatimprovedmanycountries’policyframeworksmainlyonthemediansofchangesinvariablesin(KoseandOhnsorge2019).Sincetheglobaleachstage.financialcrisis,thecombinationofanincreasinglydifficultexternalenvironmentandalossofFeaturesofinvestmentdomesticreformmomentumhasweighedoninvestmentgrowthinEMDEs(StammandaccelerationsVorisek2023).NumberofaccelerationsAnEMDE,onaverage,experiencedabout1.7investmentaccelerationsbetween1950and2022,emethodidentifies192investmentcomparedwithabout2.2suchepisodesintheaccelerationsin93economies(34advancedaverageadvancedeconomy.Atypicallow-incomeeconomiesand59EMDEs)overtheperiod1950-country(LIC)experiencedfewerinvestment2022(seeannex3.1).Foratypicalcountry,theaccelerationsthanahigh-incomecountry,butitsprobabilityofaninvestmentaccelerationinanynumberwassimilartothoseinatypicalEMDE.givendecadewas44percent,slightlyhigherthanAcrossEMDEregions,thehighestnumberoftheprobabilityinanEMDE(40percent).Amonginvestmentaccelerationspercountry(nearly2.4)thecountriesthatexperiencedatleastoneoccurredinEastAsiaandPacific,whichregisteredinvestmentacceleration,fewerthanone-thirdofmuchhigherinvestmentgrowththanotherthemhadthreeormoreinvestmentaccelerations.regionsoverthepastsevendecades.ReflectingtheIncountrieswithmultipleaccelerations,thehighvolatilityoftheirinvestment,commodityaveragetimebetweentwoepisodeswasabout10exporters,economiesfacingfragileandconflict-years,withafewexceptions.affectedsituations(FCS),andsmallstatesexperiencedfewerinvestmentaccelerationsthanothercountrygroups.104CHAPTER3GLOBALECONOMICPROSPECTSJANUARY2024FIGURE3.2FrequencyofinvestmentaccelerationsAmplitudeanddurationofaccelerationsForEMDEs,theshareofinvestmentaccelerationspeakedinthe2000sInEMDEs,themedianannualgrowthrateofandfellbyabouthalfinthe2010s.Moreinvestmentaccelerationsperinvestmentwas10.4percentinatypicalcountryhavebeenobservedinEastAsiaandthePacific,onaverage,thaninvestmentaccelerationduring1950-2022,justinotherEMDEregions.Investmentaccelerationshaveoccurredlessoverthreetimesthemediangrowthrateinotherfrequentlyincommodityexporters,fragileandconflict-affectedsituations,yearsof3.2percent(figure3.3).Therateofandsmallstates—groupsofcountrieswhereoutputgrowthperformanceisinvestmentgrowthtypicallyexceeded5percentinrelativelyvolatile.thefirstyearofanaccelerationepisodeandpeakedat13percentinthefollowingyear.Inone-fourthA.ShareofcountrieswithinvestmentB.Shareofcountrieswithinvestmentoftheepisodes,annualinvestmentgrowthreachedaccelerations,bydecadeaccelerations,bydecadeandcountryapeakofatleast21percent.EMDEstypicallygroupexperiencedagreaterincreaseininvestmentPercentofcountriesAverage(1950-2022)growththanadvancedeconomies.Reflectingthe60Percentofcountrieshighervolatilityofinvestment,EMDEsalso50EMDEsAdvancedeconomiestypicallyexperiencedalargerdeclineininvestment40growthinthesixyearsfollowingtheendofan3060accelerationthandidadvancedeconomies.The20basicpatternofinvestmentgrowthoverthethree1050stagesofaccelerationepisodesshowsonlyminordifferencesacrossEMDEsindifferentregionsand040countrygroups.Mostaccelerationslastedsixtosevenyears,withamediandurationofsevenyears.30One-fifthofaccelerationslastedlongerthan10years.20Duringatypicalinvestmentacceleration,median10privateandpublicinvestmentgrowthbothimprovedsignificantlyfromtheprecedingsix0years—byabout7percentagepointsperyearglobally—andbysomewhatmoreinEMDEsthan1950-59inadvancedeconomies(figure3.4).Ofthe1921960-69accelerations,justoverhalfsawhigherprivatethan1970-79publicinvestmentgrowth.Thesubsequentdecline1980-89ingrowthwasslightlymorepronouncedinprivate1990-99thanpublicinvestment—byabout1to22000-09percentagepointsayear—perhapsbecauseofthe2010-22supportiverolethatfiscalpolicytendstoplayin1950-59periodsofweakerprivateinvestmentgrowth.The1960-69declineinprivateinvestmentafteraccelerations1970-79wasalsomorepronouncedinEMDEsthanin1980-89advancedeconomies.Thebehaviorofpublicand1990-99privateinvestmentgrowtharoundinvestment2000-09accelerationsdidnotdiffermuchacrossEMDE2010-22regions.Acrossthesixregions,LACandSSAhadthelowestshareofaccelerationswithhigherC.NumberofinvestmentD.Numberofinvestmentprivatethanpublicinvestmentgrowth,with37accelerations,bycountrygroupaccelerations,byincomelevelpercentinLACandalmost32percentinSSA.NumberofepisodesNumberofepisodesNumberofepisodesNumberofepisodes2.4AverageTotal(RHS)3002.4AverageTotal(RHS)1202501001.81.8200801.21501.260100400.60.650200.000.00AdvancedEMDEsHICUMCLICeconomiesLMCE.NumberofinvestmentF.Numberofinvestmentaccelerations,byEMDEregionaccelerations,byEMDEcountrygroupNumberofepisodesNumberofepisodesNumberofepisodesNumberofepisodes3.0AverageTotal(RHS)602.5AverageTotal(RHS)1002.5502.0802.0401.5601.0401.5300.5201.0200.000.510Commodityimporters0.00CommodityexportersEAPECALACMNASARSSAFCSSmallstatesSources:Feenstra,Inklaar,andTimmer(2015);HaverAnalytics;WDI(database);WorldBank.Note:EAP=EastAsiaandPacific;ECA=EuropeandCentralAsia;EMDEs=emergingmarketanddevelopingeconomies;FCS=fragileandconflict-affectedsituations;HIC=high-incomecountries;LAC=LatinAmericaandtheCaribbean;LIC=low-incomecountries;LMC=low-middleincomecountries;UMC=upper-middleincomecountries;MNA=MiddleEastandNorthAfrica;SAR=SouthAsia;SSA=Sub-SaharanAfrica.Sampleincludes192investmentaccelerationsin93economies,including34advancedeconomiesand59EMDEs.A.B.Barsanddiamondsshowtheshareofcountriesstartinganinvestmentaccelerationduringthecorrespondingdecade.TheredlineinAshowsthelong-runaverageshareofcountriesstartinganinvestmentaccelerationoverthepastsevendecades.Thenumberofaccelerationsinthe1950sisconstrainedtoepisodesstartingin1956orlaterbythefiltercriteria.C.-F.Barsshowtheaveragenumberofinvestmentaccelerationspercountryovertheperiod1950-2022,whilediamondsshowthetotalnumberofepisodesbetween1950and2022.E.F.ThesamplecontainsEMDEsalone.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER3105CorrelatesofinvestmentFIGURE3.3InvestmentgrowthduringaccelerationsaccelerationsDuringaninvestmentacceleration,theannualinvestmentgrowthratehastypicallyreached9percent,significantlyhigherthanthepaceoftheInvestmentaccelerationsareassociatedwithfasterprecedingandfollowingyears,by7and8percentagepoints,respectively.outputgrowthbecausetheyhelpboostcapitalaccumulationandthegrowthofproductivityandA.Investmentgrowthaccelerations,B.Investmentgrowtharoundemployment,andalsobecausetheytendtobeworldinvestmentaccelerations,worldaccompaniedbysignificantshiftsofresourcesfromlessproductivetomoreproductiveuses.PercentMedianInterquartilerangePercentNon-accelerationmedianInvestmentaccelerationstendtocoincidewith3010improvementsinsomekeymacroeconomicandfinancialvariables.Inaddition,theyareassociated208withstrongerprogresstowardsomeofthekeydevelopmentgoals,suchasreductioninpoverty106andinequalityandincreasedaccesstoinfrastructure.04Outputgrowthanditsunderlyingchannels-102Outputgrowth.Outputgrowthhastendedto-200DuringAftersurgeduringinvestmentaccelerations(figure3.5).-2-101234567BeforeInEMDEs,outputgrowthreached5.9percentYearsperyearduringinvestmentaccelerationsovertheperiod1950-2022—1.9percentagepointsmoreC.InvestmentgrowtharoundD.Durationofinvestmentthaninotheryears.Thisrapidgrowthrateinvestmentaccelerations,bycountryaccelerationstranslatesintoanexpansionofalmost40percentgroupinGDPoverasix-yearperiod,morethanone-and-a-halftimestheexpansioninacomparablePercentNon-accelerationmedianNumberofaccelerationssix-yearperiodoutsideaccelerationyears.InLICs,12120outputgrowthwashigherduringaccelerationsthanbeforeandafterthem,butnottoa10100statisticallysignificantextent.Thisispartlyduetothehighlyvolatilenatureofoutputgrowthin880theseeconomiesandthesmallsampleofLICs.Similarly,FCSdisplayveryvolatilegrowthin660periodsbeforeaccelerations,withhighergrowthduringandafteraccelerations.Forsmallstates,4GDPgrowthroseparticularlyrapidlyduringaccelerations,from2.5percentbeforeatypical240investmentaccelerationtomorethan7.4percentduringone.Afteraccelerations,outputgrowthfell020backto4.7percent.Forsmallstates,thesechangesBeforeDuringAfterBeforeDuringAfterinoutputgrowtharestatisticallysignificant.0AdvancedEMDEs6-78-1011-15Over15InvestmentaccelerationsareassociatedwithhighereconomiesyearsyearsyearsyearsoutputgrowththroughtheirimpactoncapitalaccumulationandthegrowthofbothTFPandE.InvestmentgrowtharoundF.Investmentgrowtharoundemployment.accelerations,byEMDEregionaccelerations,byEMDEcountrygroupPercentBeforeDuringAfterPercentBeforeDuringAfter121610128864420-2-40EAP-4ECALACMNASARSSACommodityimportersCommodityexportersFCSSmallstatesSources:Feenstra,Inklaar,andTimmer(2015);HaverAnalytics;WDI(database);WorldBank.Note:EAP=EastAsiaandPacific;ECA=EuropeandCentralAsia;EMDEs=emergingmarketanddevelopingeconomies;FCS=fragileandconflict-affectedsituations;LAC=LatinAmericaandtheCaribbean;LICs=low-incomecountry;MNA=MiddleEastandNorthAfrica;SAR=SouthAsia;SSA=Sub-SaharanAfrica.Thesampleincludes192investmentaccelerationepisodesin93economies,including34advancedeconomiesand59EMDEs.A.t=0referstothestartyearofaninvestmentaccelerationepisode.Thebluelineshowsthemedian,reddashedlinesshowthe25thand75thpercentileofinvestmentgrowthineachyeararoundaninvestmentacceleration.B.C.E.F.Barsshowmedianannualinvestmentgrowthduringthesixyearsbefore,theentiredurationof,andthesixyearsafteraninvestmentacceleration.Atthe10percentlevel,differencesbetweenbefore,during,andafterperiodsarestatisticallysignificantunlessotherwisespecified.B.C.Redtickmarkindicatesthemedianinvestmentgrowthrateduringnon-accelerationyearsinthesample.D.Barsshowthenumberofinvestmentaccelerationsthatfallintoeachdurationcategory.F.Forsmallstates,thedifferencebetweenbeforeandduringisnotstatisticallysignificant.106CHAPTER3GLOBALECONOMICPROSPECTSJANUARY2024FIGURE3.4Publicversusprivateinvestmentduring•Capitalaccumulation.Investmentaccelera-investmentaccelerationstionsareassociatedwithstrongeroutputgrowthdirectlythroughtheirlinkswithfasterBothpublicandprivateinvestmentgrowthhaveincreasedduringcapitalaccumulation(KoseandOhnsorgeinvestmentaccelerations.Whiletheriseandsubsequentdeclineingrowth2023;LoayzaandPennings2022).Capitalhasbeensimilarinmagnitudeinregardtobothprivateandpublicaccumulationaloneaccountedfor45percentinvestmentinEMDEs,theriseanddeclineinprivateinvestmenthasbeenofoutputgrowthduringinvestmentaccelera-morenotablethanthatinpublicinvestmentinadvancedeconomies.Thetionsgloballyin1950-2022(figure3.6).behaviorofpublicandprivateinvestmentgrowthbeforeandduringTheshareofoutputgrowthexplainedbyinvestmentaccelerationshasnotdifferednotablyacrossEMDEregions,capitalaccumulationismarkedlyhigherinexceptthatpublicinvestmenthasaccountedforalargershareofEMDEs—almosthalf—thaninadvancedaccelerationsinLatinAmericaandtheCaribbeanandSub-SaharanAfrica.economies,whereitaccountsforone-thirdduringtheseepisodes.ThiscontributionA.PublicinvestmentgrowtharoundB.Privateinvestmentgrowtharoundremainssizableafteraccelerations,contrib-investmentaccelerations,worldinvestmentaccelerations,worldutingto77percentofgrowthinEMDEs,comparedwith48percentintheyearsbeforePercentMedianInterquartilerangePercentMedianInterquartilerangeanacceleration.Globally,theannualgrowth3030rateofthecapitalstockincreasedbyalmost50percentfromitsprecedinglevelduringa2020typicalinvestmentacceleration,reaching5.2percent,andkeptgrowingatafasterrateafter1010anaccelerationcomparedwithbefore.ForEMDEs,thepickupincapitalstockgrowth00duringinvestmentaccelerationswassignifi-cantlylarger,andfromlowerinitiallevels,-10-10thanforadvancedeconomies.Growingat6.2percentayear,thecapitalstockinEMDEs-20-20expandedbynearly44percentoverthefirst-2-101234567sixyearsofaninvestmentacceleration,almost-2-101234567Years45percentmorethantheexpansionoveraYearssimilarperiodoutsideanacceleration.C.PublicinvestmentgrowtharoundD.Privateinvestmentgrowtharound•Productivitygrowth.HeightenedoutputinvestmentaccelerationsinvestmentaccelerationsgrowthduringaninvestmentaccelerationisalsooftenaccompaniedbyincreasedTFPPercentNon-accelerationmedianPercentNon-accelerationmediangrowth(figure3.7).During1950-2022,TFP1212typicallygrewby1.7percentayearin1010EMDEsduringaccelerations,significantlyfasterthaninotheryears.WhileTFPgrowth88tendedtoreturnclosetoitsprecedingrate66afteraccelerationsinadvancedeconomies,it44droppedbelowitspreaccelerationpacein22EMDEs.AlongwithTFPgrowth,labor00productivitygrowth,oneofthemaindrivers-2-2ofpercapitaincomegrowth,alsosignificantlyincreasesduringtheseepisodes.BeforeDuring•Employmentgrowth.InvestmentaccelerationswereoftenaccompaniedbysignificantAfterincreasesinemploymentgrowth(figure3.7).BeforeDuringAfterBeforeDuringAfterBeforeDuringAfterBeforeDuringAfterBeforeDuringAfterWorldAdvancedEMDEsWorldAdvancedEMDEseconomieseconomiesE.ShareofinvestmentaccelerationsF.Privateinvestmentgrowtharounddrivenbyprivateinvestmentinvestmentaccelerations,byEMDEregionPercent70PercentBeforeDuringAfter60145012401030208106402EAPECALACMNASARSSA0-2-4-6EAPECALACMNASARSSASources:Feenstra,Inklaar,andTimmer(2015);HaverAnalytics;IMF,InvestmentandCapitalStockdataset;WDI(database);WorldBank.Note:EAP=EastAsiaandPacific;ECA=EuropeandCentralAsia;EMDEs=emergingmarketanddevelopingeconomies;LAC=LatinAmericaandtheCaribbean;MNA=MiddleEastandNorthAfrica;SAR=SouthAsia;SSA=Sub-SaharanAfrica.Sampleincludes192investmentaccelerationepisodesin93economies,including34advancedeconomiesand59EMDEs.A.B.t=0referstothestartyearofaninvestmentaccelerationepisode.Thebluelineshowsthemedianandthereddashedlinesshowthe25thand75thpercentileofinvestmentgrowth(publicinA,privateinB)ineachyeararoundaninvestmentacceleration.C.D.F.Barsshowmedianannualinvestmentgrowthduringthesixyearsbefore,theentiredurationof,andthesixyearsafteraninvestmentacceleration.Atthe10percentlevel,differencesbetweenbefore,during,andafterperiodsarestatisticallysignificantunlessotherwisespecified.C.D.Redtickmarkindicatesthemedianpublicinvestmentgrowthrate(inC)andprivateinvestmentgrowthrate(inD)duringnon-accelerationyearsinthesample.E.BarsshowtheshareofaccelerationsineachEMDEregionduringwhichmedianprivateinvestmentgrowthexceededpublicinvestmentgrowth.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER3107Globally,theemploymentrateexpandedFIGURE3.5Growthofoutputduringinvestmentsignificantlyby0.3percentagepointayearaccelerationsduringaccelerations,comparedwithslightcontractionsinthesixyearsbeforeandafterOutputgrowthhasrisennotablyduringinvestmentaccelerations.Inaccelerations.Thoughstillsignificant,theEMDEs,annualoutputgrowthhastypicallyreached5.9percentduringanpickupinemploymentgrowthduringinvestmentacceleration—about2percentagepointshigherthanthatininvestmentaccelerationsinEMDEswasotheryears.Cumulatively,GDPhastypicallyexpandedbytwo-fifthsduringsmallerthaninadvancedeconomies,whileaninvestmentacceleration.TheincreaseinoutputgrowthduringtheseEMDEsavoidedadecreaseintheemploy-episodeshasvariedacrossEMDEregions.mentrateafteraccelerationsandadvancedeconomiesdidnot.A.OutputgrowthduringinvestmentB.Outputgrowtharoundinvestmentaccelerations,worldaccelerationsSectoralshifts.InvestmentaccelerationsarealsoassociatedwithhigherproductivitygrowthPercentMedianInterquartilerangePercentNon-accelerationmedianthroughintersectoralresourceshifts(Dieppe102021;Hoyos,Libman,andRazmi2021).During7atypicalinvestmentacceleration,thecomposition86ofemploymenthasmovedsignificantlyawayfrom5theagriculturesectortowardmanufacturingand64services,andoutputgrowthinmanufacturingand3serviceshasregisteredsignificantincreases(figure423.7).Thepaceofsectoralshiftshastendedtogain1momentumduringaccelerationsasthegrowth20ratesofemploymentinthemanufacturingandservicessectorstendtobesignificantlyhigherthan0Beforeinotheryears.ThereallocationofworkersfromDuringlessproductivesectorstomoreproductivesectors-2isasubstantialsourceofproductivitygrowth—-2-101234567AfterparticularlyinrecentdecadesinEMDEs,suchasYearsBeforeChina.Itisestimated,forinstance,thatsuchDuringreallocationsaccountedfortwo-thirdsofproductivitygrowthinLICsinthedecadesAfterleadinguptotheglobalfinancialcrisis(DieppeBefore2021).DuringOthermacroeconomicandfinancialAftercorrelatesWorldAdvancedEMDEseconomiesConsumption.Duringinvestmentaccelerations,bothpublicandprivateconsumptiongrowthC.CumulativechangeinoutputD.Cumulativechangeinoutputimprovedsignificantly,byabout1and1.6aroundinvestmentaccelerations,aroundinvestmentaccelerations,bypercentagepointayearglobally,respectivelyworldcountrygroup(figure3.8).InEMDEs,theincreaseinthegrowthofpublicconsumption(includingallPercentPercentBeforeDuringAftergovernmentcurrentexpenditures)during4045EMDEsaccelerationswascomparabletothatinprivate3540Advancedconsumption,whereasinadvancedeconomies,3035economiespublicconsumptionincreasedmuchless.Both2530publicandprivateconsumptiongrowthtendedto2025fallbacktopreaccelerationrates.15201015105050BeforeDuringAfterE.OutputgrowtharoundinvestmentF.Outputgrowtharoundinvestmentaccelerations,byEMDEcountrygroupaccelerations,byEMDEregionPercentBeforeDuringAfterPercentBeforeDuringAfter887665ECALACMNASARSSA4432210FCSSmallstates0LICEAPSources:Feenstra,Inklaar,andTimmer(2015);WDI(database);WorldBank.Note:EAP=EastAsiaandPacific;ECA=EuropeandCentralAsia;EMDEs=emergingmarketanddevelopingeconomies;FCS=fragileandconflict-affectedsituations;LAC=LatinAmericaandtheCaribbean;LIC=low-incomecountry;MNA=MiddleEastandNorthAfrica;SAR=SouthAsia;SSA=Sub-SaharanAfrica;TFP=totalfactorproductivity.Sampleincludes192investmentaccelerationepisodesin93economies,including34advancedeconomiesand59EMDEs.A.t=0referstothestartofaninvestmentgrowthacceleration.Thebluelineshowsthemedianandthereddashedlinesshowthe25thand75thpercentileofoutputgrowthineachyeararoundaninvestmentacceleration.B.E.F.BarsshowmedianannualGDPgrowthduringthesixyearsbefore,theentiredurationof,andthesixyearsafteraninvestmentacceleration.TheredtickmarkinBindicatesthemedianGDPgrowthrateduringnon-accelerationyearsinthesample.Atthe10percentlevel,differencesbetweenbefore,during,andafterperiodsarestatisticallysignificantunlessotherwisespecified.C.D.Cumulativechangeiscalculatedforasix-yearperiodbasedonannualmediangrowthratesbygroupandperiod.E.ForLICs,thedifferenceinvaluesbeforeandduringisnotstatisticallysignificant.F.ForMNA,thedifferenceinvaluesbeforeandduringisnotstatisticallysignificant.108CHAPTER3GLOBALECONOMICPROSPECTSJANUARY2024FIGURE3.6ContributionstoGDPgrowthduringFiscalpositions.Fiscalbalanceshavetendedtoinvestmentaccelerationsimproveduringinvestmentaccelerations(figure3.8).Globallytheprimarybalance(whichCapitalaccumulationmadeamajorcontributiontooutputgrowthin1950-excludesnetinterestongovernmentdebt)shifted2022,especiallyinEMDEs.DuringaninvestmentaccelerationinEMDEs,fromasmalldeficitintheprecedingsixyearstoaannualgrowthofcapitalalmostdoubledfromitsprecedingrate.Bothtotalsmallsurplusduringaccelerations.InEMDEs,itfactorproductivity(TFP)growthandemploymentgrowthcontributedmoreremainedunchanged,whiletheoverallfiscaltooutputgrowthduringinvestmentaccelerationsthanduringotherdeficitnarrowedbyabout1percentagepointofperiods.ThemoderationinTFPgrowthafterinvestmentaccelerationswasGDP.Duringaccelerations,theratioofsharperinEMDEsthaninadvancedeconomies.governmentdebttoGDPfellby9percentagepointsbothinEMDEsandglobally,largelyA.DecompositionofGDPgrowthB.DecompositionofGDPgrowthreflecting,inEMDEs,bothfasterGDPgrowthduringaccelerations,worldduringaccelerations,bycountryandimprovementsinprimarybalances.However,groupasoutputgrowthmoderatedafterinvestmentaccelerations,improvementsinfiscalandprimaryPercentTFPCapitalLaborPercentTFPCapitalLaborbalanceshavetendedtoerode.AfterBeforeDuring66Internationaltrade.Tradegrowthhastendedtoincreasesignificantlyduringinvestmentaccele-55rations,partlyreflectingshiftsofresourcestothetradeablemanufacturingsectorandincreased4growthinimportsofcapitalgoods(figure3.8;Irwin2021;Lee1995).Bothimportandexport43growthincreasedmarkedlyduringaccelerations,withimportgrowthroughlytriplingtherateprior32toaccelerations.ThesurgesinimportandexportgrowthwereslightlylargerinEMDEsthanin1advancedeconomies;thelargerincreaseinimportgrowthinEMDEsmaypartlyreflectEMDEs’20greaterrelianceonimportsforcapitalgoods(Bustein,Cravino,andVogel2013).Asaresultof1-1Afterthegrowthofimportsrelativetoexports,currentBeforeDuringaccountdeficitstendedtowidensomewhatinEMDEsandgloballyduringandafter0DuringAfterAdvancedEMDEsaccelerations.BeforeeconomiesCapitalinflows.CapitalinflowsincreasednotablyC.CapitalstockgrowtharoundD.Capitalstockgrowtharoundduringinvestmentaccelerations(figure3.8).Ininvestmentaccelerationsinvestmentaccelerations,byEMDEEMDEs,capitalinflowsrosebyabout2regionpercentagepointsofGDPduringaccelerations,relativetotheirprecedinglevels,partlyonaccountPercentNon-accelerationmedianPercentBeforeDuringAfterofincreasesinFDIinflowsrelativetoGDP.710Increasesincapitalinflowsseemtohavesupported6someinvestmentaccelerationsinEMDEs—such58asthoseinTürkiyeinthe2000sandPolandinthe41990s(box3.1).Increasesincapitalinflowswere36oftensustainedaftertheacceleration.214Creditandsaving.Bothdomesticcreditandgross0domesticsavinggrewsignificantlyfasterduringinvestmentaccelerations.InEMDEs,creditBefore2DuringAfterBeforeDuringAfterBeforeDuringAfterWorldAdvancedEMDEs0economiesEAPECALACMNASARSSAE.CapitalstockgrowtharoundF.Capitalstockgrowtharoundinvestmentaccelerations,byincomeinvestmentaccelerations,byEMDElevelcountrygroupPercentBeforeDuringAfterPercentBeforeDuringAfter109887664542302Commodityimporters1Commodityexporters0FCSHICUMCLMCLICSmallstatesSources:Feenstra,Inklaar,andTimmer(2015);HaverAnalytics;WDI(database);WorldBank.Note:EAP=EastAsiaandPacific;ECA=EuropeandCentralAsia;EMDEs=emergingmarketanddevelopingeconomies;FCS=fragileandconflict-affectedsituations;HIC=high-incomecountry;LAC=LatinAmericaandtheCaribbean;LIC=low-incomecountry;LMC=lower-middle-incomecountry;MNA=MiddleEastandNorthAfrica;SAR=SouthAsia;SSA=Sub-SaharanAfrica;TFP=totalfactorproductivity;UMC=upper-middle-incomecountry.Sampleincludes192investmentaccelerationepisodesin93economies,including34advancedeconomiesand59EMDEs.A.B.BarsshowthemediancontributionofTFPgrowth,capitalaccumulation,andlabortooutputgrowth.Capitalaccumulationandlaborareweightedbythelaborshare.C.-F.Barsshowmedianannualcapitalstockgrowthduringthesixyearsbefore,theentiredurationof,andthesixyearsafteraninvestmentacceleration.TheredtickmarksinCindicatethemediancapitalstockgrowthrateduringnon-accelerationyearsinthesample.Atthe10percentlevel,differencesbetweenbefore,during,andafterperiodsarestatisticallysignificantunlessotherwisespecified.D.ForallregionsexceptEAPandLAC,thedifferenceincapitalstockgrowthbetweenduringandaftertheaccelerationisnotstatisticallysignificant.E.ForLMC,thedifferenceincapitalstockgrowthbetweenduringandaftertheaccelerationisnotstatisticallysignificant.F.Forsmallstates,thedifferenceincapitalstockgrowthbetweenduringandaftertheaccelerationisnotstatisticallysignificant.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER3109growthincreasedbyabout4.5percentagepointsaFIGURE3.7Totalfactorproductivitygrowth,yearduringaccelerations,whiletherealinterestemploymentgrowth,andsectoralshiftsaroundratefellbymorethanhalf.Growthofsavinginvestmentaccelerationsincreasedby3percentagepointsayear.TheincreasesinbothcreditgrowthandsavinggrowthInvestmentaccelerationshaveoftenbeenaccompaniedbyimprovementswerelargerinEMDEsthaninadvancedinproductivitygrowth,strongeremploymentgrowth,andgreatereconomies.Whilesavinggrowthtendedtoreallocationacrosssectors.moderateafterinvestmentaccelerationsinEMDEs,creditgrowthtendedtoremainelevated.A.TFPgrowtharoundinvestmentB.TFPgrowtharoundinvestmentAccelerationsthatweresupportedbycreditaccelerationsaccelerations,bycountrygroupgrowthlastedlongerandsawsignificantlyhigheroutputgrowththanaccelerationsthatwerenotPercentMedianInterquartilerangePercentNon-accelerationmedianaccompaniedbycreditgrowth.52.04012345671.6Inflationandrealeffectiveexchangerates.3Years1.2Fallinginflationrateshaveoftenprecededor20.8accompaniedinvestmentaccelerations(for10.4example,Koreainthelate1990s;seebox3.1).00.0Globally,annualinflationfellduring1950-2022,-1-0.4fromabout7percentbeforetoabout4percent-2duringaccelerations,whileinEMDEs,itdropped-3Beforefrom8percentto6percent.Thelowinflation-2-1Duringratesweretypicallysustainedafterinvestmentaccelerations(especiallyafterthe1980s).AfterBeforeRealeffectiveexchangerateshavenotchangedDuringmateriallyduringinvestmentaccelerations,butroseslightly(statisticallysignificantly)afterward,AfterwithdomesticcurrenciesthusappreciatinginrealBeforeeffectiveterms.Thereisevidencethat,atleastinDuringEMDEs,acompetitiveexchangeratecanfacilitatecapitalaccumulationboththroughhouseholds’Aftersavingandinvestmentbehaviorsandbyexpandingthetradeablesector,whichsupportsinvestmentWorldAdvancedEMDEsgrowth.6Somecountries,suchasGermany,Japan,economiesandKorea,haveattimesreliedlargelyonexportstoachievefastergrowth.ThesecountriesC.ChangeinlaborproductivityD.Changeinemploymentratearoundeventuallyhadtoallowtheircurrenciestogrowtharoundinvestmentinvestmentaccelerations,bycountryappreciateaftertheperiodofrapidgrowthaccelerationsgroup(Rodrik2010).PercentNon-accelarationmedianPercentagepointsNon-accelerationmedian6Rodrik(2008)arguesthatcurrencyundervaluationhelpsthe40.5rapiddevelopmentofthetradeablesector,whichismorereliantoninvestmentinEMDEs.BleaneyandGreenaway(2001)suggestthat3therearetworeasonswhycurrencyovervaluationcanhurtinvestmentinSub-SaharanAfrica:first,overvaluationreducesthe20.0returnstoinvestmentinthetradablessector,andsecond,theaccompanyingcurrentaccountdeficitmaycauseatighteningof1importlicensingprocedures,whichfurtherreducesthereturnstoinvestment.Therearealsodrawbacks,suchasincreasesinincome0-0.5inequalityandlackofproductdiversification,associatedwithcurrencyundervaluation(Bergin2022;Ribeiro,McCombie,andBeforeLima2020).DuringAfterBeforeDuringAfterBeforeDuringAfterBeforeDuringAfterBeforeDuringAfterBeforeDuringAfterWorldAdvancedEMDEsWorldAdvancedEMDEseconomieseconomiesE.Outputgrowth,bysector,aroundF.Employmentgrowth,bysector,investmentaccelerationsaroundinvestmentaccelerationsPercentBeforeDuringAfterPercentBeforeDuringAfter645342321100-1AgricultureManufacturingServicesAgricultureManufacturingServicesSources:Dieppe(2021);Feenstra,Inklaar,andTimmer(2015);HaverAnalytics;WDI(database);WEO(database);WorldBank.Note:EMDEs=emergingmarketanddevelopingeconomies;TFP=totalfactorproductivity.Sampleincludesupto192investmentaccelerationepisodesin93economies,including34advancedeconomiesand59EMDEs.A.t=0referstothestartyearofaninvestmentaccelerationepisode.Thebluelineshowsthemedian,reddashedlinesshowtheinterquartilerangeofTFPgrowthineachyeararoundanacceleration.B.-F.Atthe10percentlevel,differencesbetweenbefore,during,andafterperiodsarestatisticallysignificantunlessotherwisespecified.B.-D.Barsshowmedianannualgrowth(medianannualchangeintheemploymentrateinD)duringthesixyearsbefore,theentiredurationof,andthesixyearsafteraninvestmentacceleration.Redtickmarkindicatesthemedianannualgrowth(annualchangeintheemploymentrateinD)duringnon-accelerationyears.C.Differencebetweenbeforeandduringforadvancedeconomiesisnotstatisticallysignificant.E.F.Barsshowmedianannualsectoroutput(inE;employmentinF)growthduringthesixyearsbefore,theentiredurationof,andthesixyearsafteraninvestmentacceleration.InE,thedifferenceinoutputgrowthbetweenthebeforeandduringperiodsfortheagriculturesectorarenotstatisticallysignificant.InF,thedifferenceingrowthratesintheagriculturesectorduringandaftertheaccelerationarenotstatisticallysignificant,aswellasthedifferenceinthegrowthrateofemploymentintheservicessectorbeforeandduringtheacceleration.110CHAPTER3GLOBALECONOMICPROSPECTSJANUARY2024FIGURE3.8MacroeconomicindicatorsaroundDevelopmentoutcomesinvestmentaccelerationsPovertyandinequality.DuringinvestmentInvestmentaccelerationsinEMDEshavebeenaccompaniedbyaccelerations,moreprogresshasoftenbeenmadeimprovementsinkeymacroeconomicvariables:bothprivateandpublicinreducingbothpovertyandinequality(figureconsumptiongrowthhavepickedup;fiscaldeficitsandgovernmentdebt,3.9).TheshareofthepopulationinextremerelativetoGDP,havedeclined;thegrowthofcredithasincreased;andpovertybarelychangedinthesixyearsbeforeainflationhasdeclined.Whilethegrowthofbothimportsandexportshastypicalinvestmentaccelerationin1950-2022,butpickedupduringsuchaccelerations,theriseinimportsgrowthhasbeendeclinedsignificantly,by0.2percentagepointperrelativelylargerinEMDEs,partlyreflectingtheirgreaterrelianceonimportsyear,duringtheacceleration.Similarly,theGiniforcapitalgoods.coefficient,whichmeasuresincomeinequality,fellsignificantlyduringthetypicalinvestmentA.PublicandprivateconsumptionB.Fiscalindicatorsaccelerationafterrisingslightlyintheyearsgrowthprecedingit.Measuredatnationalpovertylines,thefallinpovertywasevenmorepronouncedPercentBeforeDuringAfterPercentofGDPAfterPercentofGDPwitha0.5percentagepointimprovementinthe65BeforeDuring50nationalpovertyheadcountratioperyear.5440Incomeconvergence.Thesegainsinpovertyandequalityareunderpinnedbytherapidincreasein4330percapitaoutputgrowthduringinvestmentaccelerations,whichledtofasterincomeconver-3220gencetowardadvanced-economyincomelevels.Specifically,themedianpercapitaoutputgrowth2110inEMDEswas0.6percentagepointhigherthaninadvancedeconomies(4.3percentcompared100with3.7percent).Incontrast,EMDEsregisteredweakerpercapitaoutputgrowththanadvanced0-1-10economiesinotheryears(1.8percentversus2.1WorldEMDEsWorldEMDEspercentperyear).WorldEMDEsWorldEMDEsWorldEMDEsAccesstoinfrastructure.AccesstoinfrastructurePrimaryFiscaldeficitGovernmentimprovedduringinvestmentaccelerations.Fordeficitsdebt(RHS)example,theshareofthepopulationwithaccesstoPrivateconsumptionPublicconsumptionbasicsanitationincreasedby0.4percentagepointgloballyduringinvestmentaccelerations,whiletheC.InternationaltradeD.Capitalinflowsincidenceofstuntingamongchildrenaged5oryoungerfellby0.6percentagepoint.SincethePercentBeforePercentofGDPPercentofGDPBeforeDuringAfter1990s,accesstotheinternethasalsotendedtorise12DuringAfter128WorldEMDEssignificantlyduringinvestmentaccelerations:2.4percentofthepopulationperyeargainedaccessto10107theinternetduringatypicalacceleration,twotimestheincreaseduringthepriorperiod.886Driversofinvestment665accelerations444Arichbodyofempiricalresearchhasshownthat3investmentgrowthinacountryisaffectedbybothglobal(orregional)conditionsandthecountry’s222001WorldEMDEsWorldEMDEsWorldEMDEs0WorldEMDEsImportgrowthExportgrowthCurrentaccountdeficitCapitalinflowsFDIinflows(RHS)E.DomesticcreditgrowthandrealF.InflationandexchangeratesinterestratesPercentBeforeDuringAfterPercentIndex=10(2010)1210Before1010During88After866644422200WorldEMDEs0WorldEMDEsWorldEMDEsWorldEMDEsInflationREER(RHS)CreditgrowthRealinterestrateSources:BankforInternationalSettlements;Feenstra,Inklaar,andTimmer(2015);Ha,Kose,andOhnsorge(2021);HaverAnalytics;IMF,InternationalFinancialStatistics;WDI(database);WEO(database);WorldBank.Note:EMDEs=emergingmarketanddevelopingeconomies.FDI=foreigndirectinvestment;REER=realeffectiveexchangerate.Sampleincludesupto192investmentaccelerationepisodesin93economies,including34advancedeconomiesand59EMDEs.A.-F.Barsshowthemedianvaluesforthesixyearsbefore,theentiredurationof,andsixyearsfollowinginvestmentaccelerations.Atthe10percentlevel,differencesbetweenbefore,during,andafterperiodsarestatisticallysignificantunlessotherwisespecified.B.ForEMDEs,differencesbetweenbeforeandduringinprimaryandfiscaldeficitsarenotstatisticallysignificant.C.ForWorldandEMDEcurrentaccounts,differencesbetweenbeforeandduring,andduringandafterarenotstatisticallysignificant.D.ForEMDEcapitalinflows,differencesbetweenduringandafterarenotstatisticallysignificant.E.ForWorldandEMDErealinterestrates,differencesbetweenduringandafterarenotstatisticallysignificant.F.ForWorldinflation,differencesbetweenduringandafterarenotstatisticallysignificant.ForWorldandEMDEREERs,differencesbetweenbeforeandduringarenotstatisticallysignificant.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER3111initialconditions,economicpoliciesandFIGURE3.9Developmentoutcomesduringinvestmentinstitutionalsettings.7However,thisliteraturehasaccelerationsnotconsideredtherolesofthesefactorsinsparkinginvestmentaccelerations.ThissectionInvestmentaccelerationshavetypicallybeenaccompaniedbyfasterpresentstheresultsofaseriesofempiricalexercisespovertyreduction,largerimprovementsinincomeequalityandhumanandcomparesthesewithinsightsfromthecountrydevelopmentindicators,andgreaterenhancementsinaccesstocasestudies(box3.1)onhowthesefactorshelpinfrastructurethanatothertimes.triggerinvestmentaccelerations.A.ChangeinextremepovertyB.ChangeinGinicoefficientInitialconditionsheadcountChangeinGiniindex,0-100InitialconditionshaveinfluencedtheonsetofPercentofpopulation0.1investmentaccelerations(figure3.10).For0.0example,economieswithhigherinstitutionalqualityhavebeenmorelikelytoexperiencean-0.1investmentacceleration:specifically,movingfromthebottomquartiletothetopquartilein-0.20.0institutionalqualityincreasestheprobabilityofstartinganinvestmentaccelerationby5.6-0.3percentagepoints.Similarly,amoreundervaluedcurrencyisassociatedwithasignificantlyhigher-0.4-0.1likelihoodofaninvestmentacceleration,whereasovervaluedcurrencieshaveoftenbeenasignof-0.5macroeconomicandfinancialimbalances.InBeforeDuringAfterBeforeDuringAfterEMDEs,acompetitiveexchangeratecanfacilitatecapitalaccumulationeitherbyboostinghigher-ExtremepovertyNationalpoverty-0.2DuringAfterincomehouseholds’propensitytosaveandinvestheadcountheadcountBeforeorbysupportingthetradablessector(Gluzmann,Levy-Yeyati,andSturzenegger2012,2013;C.ChangeinincidenceofstuntingD.ChangeinaccesstoinfrastructureGuzman,Ocampo,andStiglitz2018).Inbothcases,maintainingacompetitivecurrencymayPercentofchildrenunder5yearsoldPercentofpopulationBeforeDuringAfterhelpinitiateandsustaininvestmentaccelerations.0.03Benignglobaleconomicconditions,proxiedby-0.1strongglobaloutputgrowth,alsosubstantiallyincreasethelikelihoodofanacceleration.Inthe-0.22sampleperiodofthisstudy,raisingglobalGDPgrowthfromthebottomtothetopquartile—-0.3from2.1percentto3.5percent—increasedthe-0.417Koseetal.(2017)showhowtheslowdownininvestmentgrowthinEMDEsfollowingtheglobalfinancialcrisiswasdrivenby-0.5spilloversfromslowinggrowthinadvancedeconomies,heavierdebtburdens,andfallingcommodityprices.Libman,Montecino,and-0.60Razmi(2019)showhowcapitalstockaccumulationispositivelyWorldEMDEsWorldEMDEscorrelatedwithhigherhumancapitalendowments,exchangerate-0.7undervaluation,lowcapital-outputratios,andnetcapitaloutflows.BeforeDuringAfterBasicsanitationInternetaccessManzanoandSaboin(2022)findthathigherinstitutionalqualityiscorrelatedwithcapitalstockaccelerations.StammandVorisekE.OutputgrowthpercapitaaroundF.Cumulativechangeinoutputper(2023)documentthecontributionoftheCOVID-19pandemictoinvestmentaccelerationscapitaaroundinvestmenttheslowdownininvestmentgrowthandshowhowtheweakaccelerationsinvestmentrecoverycoincideswithsubduedgrowthinoutput,trade,productivity,andcredit,andhighdebtlevels.PercentNon-accelerationmedianPercentBeforeDuringAfter5354330212502015Before10During5AfterBefore0DuringAfterBeforeDuringAfterWorldAdvancedEMDEsWorldAdvancedEMDEseconomieseconomiesSources:Feenstra,Inklaar,andTimmer(2015);SDGdatadashboard;WDI(database);WorldBank.Note:EMDEs=emergingmarketanddevelopingeconomies.A.-D.Barsaremediansoftheannualchangesinthecorrespondingindicatorsduringthesixyearsbefore,entiredurationof,andsixyearsafterinvestmentaccelerations.Sampleincludesupto192investmentaccelerationepisodesin93economies,including34advancedeconomiesand59EMDEs.Atthe10percentlevel,differencesbetweenbefore,during,andafterperiodsarestatisticallysignificantunlessotherwisespecified.A.ThedifferenceinnationalpovertychangebetweenbeforeandduringisnotsignificantforWorld,butisstatisticallysignificantforEMDEs.B.TheGinicoefficientisameasureofincomeinequality.Thesmallerthecoefficient,themoreincomeisequallydistributed.D.Dataavailabilitylimitedto1998andlater.Differencesforbasicsanitationindicatornotstatisticallysignificant.E.Barsshowmedianpercapitagrowthofoutputinthesixyearsbefore,entiredurationof,andsixyearsfollowinganacceleration.Redtickmarksindicatenon-acceleration-yearmedians.F.CumulativechangeisbasedonthemediangrowthratesshowninEandcalculatedforasix-yearperiod.112CHAPTER3GLOBALECONOMICPROSPECTSJANUARY2024FIGURE3.10Initialconditionsandthestartofaboutone-fourthhigherincountriesintheinvestmentaccelerationsbottomquartileofincomepercapitacomparedwiththoseinthetopquartile.Economieswithbetterinstitutionalqualityandamorecompetitiveexchangeratearemorelikelytoexperienceaninvestmentacceleration.MacroeconomicpoliciesandstructuralAdditionally,benignglobaleconomicconditionshavealsotendedtoreformsincreasethelikelihoodofaccelerations.Conversely,theprobabilityofinitiatinganinvestmentaccelerationtendstobelowerwithhigherlevelsofInvestmentaccelerationshaveoftenbeenprecededpercapitaGDP.oraccompaniedbypolicymeasurestoimprovemacroeconomicstabilityorreducerestrictionsonA.ProbabilityanaccelerationwillB.Probabilityanaccelerationwillcross-bordertradeorfinancialflows.Animprovedstart,byinstitutionalqualitystart,byexchangerateprimaryfiscalbalanceorreducedcapitalflowundervaluationrestrictionstendedtoprecedeoraccompanyaboutathirdofinvestmentaccelerationsduring1956-PercentPercent2017.Traderestrictionswererelaxedbypolicy2530measurespriorto70percentofaccelerationsinthisperiod.Theadoptionortighteningofan2025inflationtargetwasfollowedoraccompaniedby10percentofaccelerations(figure3.11).81520Acombinationofmorestringentfiscalpolicies,15theadoptionofaninflationtarget,andstructuralreformstopromotetradeandfinancialopenness1010canraisethelikelihoodofaninvestmentaccelerationbymorethanmightbededucedfrom55theeffectsofeachoftheseindividualpolicyimprovementsinisolation.Usingthesampleof0Median75thpercentile0Median75thpercentileaccelerations,itisestimatedthatiftheprimary25thpercentile25thpercentilebalanceandtradeandfinancialopennessindiceswereallimprovedbyonestandarddeviation,thereInstitutionalqualityUndervaluationindexwouldbeamarkedincreaseof9percentagepointsintheprobabilityofstartinganinvestmentC.ProbabilityanaccelerationwillD.Probabilityanaccelerationwillacceleration.Ifthesereformswerealsostart,byglobalGDPgrowthstart,bypercapitaGDPaccompaniedbytheadoptionofaninflation-targetingregime,theprobabilitywouldberaisedPercentPercentbyanadditional33percentagepoints.9These2525resultsunderlinethecaseforacomprehensivepackageofstabilizationandreformpoliciesto2020sparkaninvestmentacceleration.15158Inflationtargetinghasbecomeapolicytoolinrecentdecades,withNewZealandbeingthefirsteconomyadoptingitin1990inthe1010sample.Itistypicallyimplementedasaone-timepolicymeasure.559Specifically,aone-standard-deviationincreaseinallofthefollowingthreepolicymeasures(excludingtheadoptionofinflation-0Median75thpercentile0Median75thpercentiletargeting)resultsin9percentagepointincreaseintheprobabilityof25thpercentile25thpercentilestartinganacceleration:aone-standard-deviationincreaseinvolvesa35percentincreaseinthecapitalopennessindex(rangesfrom0to1GlobalGDPgrowthPercapitaGDPwithahighervalueindicatingmorecapitalopenness),an8percentincreaseinthetradeopennessindex(rangesfrom0to1withahigherSources:Feenstra,Inklaar,andTimmer(2015);HaverAnalytics;PRSGroup;WDI(database);valueindicatingmoretradeopenness),anda2.3percentagepointWorldBank.increaseintheprimarybalance.Fordetails,seeannex3.2.Note:FigureisbasedontheregressionresultsoftableA3.2.1,column(6).Seeannex3.2foradescriptionofthedataandsources.A.ThebarsshowthepredictedprobabilityofaninvestmentaccelerationatdifferentlevelsofthelaggedInternationalCountryRiskGuideLawandOrderindex.Yellowwhiskersrefertothe90percentconfidenceinterval.Thepercentilethresholdsoftheindexare3,4,and5.B.Thebarsshowthepredictedprobabilityofaninvestmentaccelerationatdifferentlevelsofthelaggedexchangerateundervaluationindex.Yellowwhiskersrefertothe90percentconfidenceinterval.Thepercentilethresholdsofthelogindexare-0.32,-0.01,and0.25.C.ThebarsshowthepredictedprobabilityofaninvestmentaccelerationatdifferentlevelsoflaggedglobalGDPgrowth.Yellowwhiskersrefertothe90percentconfidenceinterval.Thepercentilethresholdsare2.1percent,2.8percent,and3.5percent.D.ThebarsshowthepredictedprobabilityofaninvestmentaccelerationatdifferentlevelsoflaggedpercapitaGDPlevels(inlogs).Yellowwhiskersrefertothe90percentconfidenceinterval.Thepercentilethresholdsare8.3,9.2,and10.1.probabilityofstartinganinvestmentaccelerationforanaverageeconomyby4.7percentagepoints.Severalofthecountrycasestudies(box3.1)illustratehowcommitmenttocomprehensivereformsenablescountriestoseizeonsupportiveexternalfactors,suchashighcommoditypricesorinternationalassistance.Theprobabilityofaninvestmentaccelerationalsoincreasedsignificantlyincountrieswithlowerpercapitaincome.Forinstance,thelikelihoodofanaccelerationwasGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER3113ThecountrycasesalsohighlighttheroleofFIGURE3.11Policyimprovementsandthestartofpoliciesaimedatstabilizingthemacroeconomyinvestmentaccelerationsandimplementingstructuralreforms,particularlywhenthesearepartofacomprehensivepackage,Improvementsintheprimaryfiscalbalance,theadoptionorreductionofininitiatingaccelerations(box3.1).Ingeneral,theinflationtargets,andstructuralreformsthatincreaseopennesstocountrycasesshowthatinvestmentaccelerationsinternationaltradeorfinancialflowshavebeenconducivetoinvestmentwereprecededbyatleastoneofthetwotypesofaccelerations.Thescaleoftheeffectsofimprovementsinthefiscalpolicyintervention:thoseaimedatimprovingbalanceandtradeliberalizationhavedependedontheinstitutionalmacroeconomicstability(suchasTürkiyeintheenvironment.early2000s)andthoseintendedtoaddressstructuralshortcomings(suchasendingpublic-A.ShareofinvestmentaccelerationsB.ShareofinvestmentaccelerationssectormonopoliesinIndiainthe1990s).Often,precededbyfiscalormonetarypolicyprecededbystructuralpolicycomprehensivepackagescontainingbothtypesofimprovementsimprovementspolicyintervention(suchasinKoreainthelate1990sandMoroccointhe1990sand2000s)PercentofepisodesWorldEMDEsPercentofepisodesWorldEMDEsaccompaniedorprecededstronggrowth4070accelerations.Demonstratedcommitmenttosuchreformsallowedcountriestoseizefavorable60externalconditionsandturnthemintoinvestmentaccelerations.3050Institutionalquality2040Theeffectofeconomicpoliciesonthelikelihood30ofaccelerationsdependsoninstitutionalquality.Therewasagreaterlikelihoodthatimprovedfiscal1020policiesandtradereformswereassociatedwithinvestmentaccelerationsincountrieswithbetter10institutionsthaninthosewithweakerinstitutions.Specifically,incountrieswithinstitutionalquality00inthetopquartileofthesample,improvementsinDecreaseincapitaltheprimaryfiscalbalanceorreductionsintradeIncreaseinAdoption/reductionflowrestrictionsDecreaseinrestrictionssignificantlyincreasedthelikelihoodoftraderestrictionsstartinganacceleration,whereassuchpolicieshadprimarybalanceofinflationtargetnostatisticallysignificantimpactincountrieswherethequalityofinstitutionswasinthebottomC.AveragemarginaleffectofanD.Averagemarginaleffectofanquartileofthesample(figure3.11).improvementinfiscalormonetaryimprovementininternationaltradeorpolicycapitalflowrestrictionsRobustnessPercentagepointsPercentagepointsPercentagepointsAbroadarrayofrobustnessexerciseswas1.0360.30conducted,includingemployingdifferentthresholdstoidentifyinvestmentaccelerations;0.8300.25addingadditionalcontrolvariablestocheckwhethertheresultsweredrivenbyglobal240.20economicconditionsorfinancialcycles;andusing0.6aggregateinvestmentgrowth,ratherthanper0.15capitainvestmentgrowth(seeannexes3.3and183.4).Thesechangesdidnotaltertheheadline0.40.10results.120.260.050.000.00TradeopennessPrimarybalanceInflationtargetCapitalaccountopenness(RHS)E.AveragemarginaleffectofanF.Averagemarginaleffectofaimprovementinprimarybalance,byreductionintraderestrictions,byinstitutionalqualityinstitutionalqualityPercentagepointsPercentagepoints1.50.81.00.60.40.50.20.00.0-0.5Median75th-0.2Median75th25thpercentile25thpercentilepercentilepercentileLevelofinstitutionalqualityLevelofinstitutionalqualitySources:Alesinaetal.(2020);ChinnandIto(2008);IMF,InternationalFinancialStatistics;PRSGroup;WDI(database);WEO(database);WorldBank.Note:EMDEs=emergingmarketanddevelopingeconomies.Seeannex3.2foradescriptionofthedataandsources.A.B.Barsshowtheshareofinvestmentaccelerationsthatwereprecededbyorcoincidedwithanimprovementinthepolicyvariablesofatleast2percent(traderestrictionsindexorcapitalaccountopennessindex)or2percentagepointsofGDP(primarybalance)oranadoptionortighteningofaninflationtargetallwithintheprecedingfiveyears.Forthetraderestrictionsindex,primarybalancetoGDPratio,andcapitalaccountopennessindex,animprovementisanincreaseinthevariable.Dataoninflationtargetingareavailablefrom1990.C.D.PanelsarebasedonregressionresultsshownintableA3.2.2.Barsshowtheaveragemarginaleffectofimprovementsineconomicpolicies.Yellowwhiskersrefertothe90percentconfidenceinterval.E.F.PanelsarebasedonregressionresultsshownintableA3.2.2.Barsshowtheaveragemarginaleffectofimprovementsineconomicpoliciesatdifferentquartilesoftheinstitutionalqualityindex(basedonInternationalCountryRiskGuide’sLawandOrderindex).Yellowwhiskersrefertothe90percentconfidenceinterval.Thequartilethresholdsforinstitutionalqualityare3,4,and5.114CHAPTER3GLOBALECONOMICPROSPECTSJANUARY2024FIGURE3.12EnablingfactorsforinvestmentPoliciestostartinvestmentaccelerationsaccelerationsPolicyandinstitutionalconditionsthathavehelpedtriggerinvestmentaccelerationshavebeenmoreprevalentinadvancedeconomiesthaninTopromoteinvestmentaccelerations,EMDEsEMDEs.Overthepastfewdecades,EMDEshavemadesomeprogressinneedtoimplementacomprehensivepackageofremovingtraderestrictions,butlessprogressinenhancinginstitutionalpolicies,tailoredtotheirspecificcircumstances.qualityandreducingfiscalimbalances.ThenumberofrestrictivetradeThispackagetypicallyincludesfiscalandpolicymeasuresinEMDEshasincreasedsignificantlyoverthepasteightmonetaryinterventions,structuralpolicies,andyears.effortstoimproveinstitutionalquality(figure3.12).A.InstitutionalqualityB.FiscalpolicyFiscalandmonetarypoliciesIndex,0-6,6=highestPercentofGDPPercentofGDP2PrimarybalanceBoththeempiricalanalysisandcountrycases61990-992000-092010-220Govexpenditures(RHS)50highlighttheimportantrolethatfiscalpolicycanEMDEs-240playinsparkinginvestmentaccelerations.5-430Expenditureandrevenuemeasures,andfiscal-620rules,canhelpimprovefiscalpositions.4100Revenuemeasuresthatcanimprovefiscal3balancesincludereformingtaxadministrations,enlargingtaxbases,andincreasingtaxrates.In21990-99manyEMDEs,particularlythoseinSouthAsia2000-09andSub-SaharanAfrica,revenue-to-GDPratios12010-22aremuchlowerthaninadvancedeconomies1990-99(WorldBank2015,2016b).Eliminatingtax2000-09exemptionsandstrengtheningtheadministration2010-22oftaxcollectioncouldimprovefiscalpositionsbyincreasingrevenues.Taxpoliciescanalsobeused0AdvancedEMDEstoimproveincentives,particularlyforinvestmentAdvancedeconomieseconomiesintheprivatesector(Djankovetal.2010).Forexample,theeliminationoffossilfuelsubsidies,C.FDIinflows,bydecadeD.EMDEtradegrowthtogetherwiththeintroductionofcarbontaxes,canincentivizeinvestmentintoenergy-efficientPercentofGDPPercent2000-19averagetechnologies(WorldBank2023b).59Expendituremeasuresthatcanimprovefiscal4balancesincludeeliminatingdistortiveagricultureandfossilfuelsubsidies,whichcurrentlyaccount36forsizablesharesofgovernmentexpenditureinmanyEMDEs.EMDEscanalsoenhancethe2efficiencyandpredictabilityoftheirexpenditures.Byeliminatingwastefulspendingandprioritizing13publicinvestmentinassetssuchasproductiveinfrastructureandhumancapital,through00educationandhealthcarespending,theycan2000-112012-222000-112012-222000-092010-22improvefiscalpositionsandcontributetobothinvestmentaccelerationsandimprovedoutputAdvancedeconomiesEMDEs20232024growth.Efficientpublicinvestmentininfrastruc-turecanalsocrowdinprivateinvestmentbyE.TraderestrictionsF.TradepolicyinterventionsIndex,0-1,1=leastrestrictiveNumber20232015Traderestriction2,8001.0Capitalaccountrestriction0.80.62,1000.40.21,4000.01990-997002000-092010-latest01990-99Restricting2000-092010-latestAdvancedeconomiesEMDEsLiberalizingSources:Alesinaetal.(2020);ChinnandIto(2008);GlobalTradeAlerts;IMF,InternationalFinancialStatistics;PRSGroup;WDI(database);WEO(database);WorldBank.Note:Seeannex3.2foradescriptionofthedataandsources.EMDEs=emergingmarketanddevelopingeconomies;FDI=foreigndirectinvestment.Barsshowsimpleaveragesbycountryclassification.A.InstitutionalqualityisproxiedwiththeInternationalCountryRiskGuideLawandOrderindex,whichrangesfrom0(lowest)to6(highest).C.AverageFDI-to-GDPratioofamediancountry.Balancedsampleof35advancedeconomies,135EMDEsand4unclassifiedeconomies.D.Tradereferstovolumeofgoodsandnonfactorservicesandisdefinedasanaverageofexportsandimports.Aggregateiscalculatedusingtradeweightsataverage2010-19pricesandmarketexchangerates.Datafor2023areestimates,anddatafor2024areforecasts.E.Latestavailabledatafortraderestrictionsarefrom2014,andthoseforcapitalaccountrestrictionsarefrom2019.F.PanelshowsthenumberofimplementedtradepolicyinterventionssinceNovember2008.Restricting(Liberalizing)measuresareinterventionsthatdiscriminateagainst(benefit)foreigncommercialinterests.AdjusteddataasofNovember26,2023.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER3115stimulatingeconomicdevelopment(Ansaretal.andTürkiye(box3.1).Inrecentdecades,tariffs2016;WorldBank2023b).havebeenloweredsubstantiallyinmanyEMDEs,butcostlyandwidespreadnon-tariffbarriersFiscalrules,overthepastthreedecades,haveremain.reducedthevolatilityoffiscalpolicyinEMDEsandallowedgovernmentstorespondtoadverseEasingthesedefactorestrictions,whichincludeeventscountercyclicallybyconservingfiscalspaceunwieldycustomsprocedures,poortrade-related(IMF2022;Marioli,Fatas,andVasishtha2023).infrastructure,anduncompetitivedomesticFiscalrulesthatensurethatcurrentexpenditureslogisticssectors,cansignificantlyimprovetradearefullyfinancedbyrevenuesoverthecyclecanflowsandsupportinvestmentgrowth(Koseandprovideappropriateprotectionforpublicinvest-Ohnsorge2023,Breton,Farrantino,andment.ByimplementingfiscalrulesandutilizingMaliszewska2022;WorldBank2021a).Astabilizationfunds,commodity-exportingEMDEscomprehensivereformpackagecouldlowertradecanimprovebudgetpositionswhilereducingthecostsbymorethanone-halfamongtheEMDEsprocyclicalityoffiscalpolicies(WorldBankthatperformworstinshippingandlogistics—2022e).whichaccountforthebulkoftradecosts.Digitaltechnologycanfacilitatemanyofthesereforms,Ifexcessive,governmentborrowingtofundforexample,byenablingtheelectronicprocessingdeficitscanputpressureoncreditmarkets,tightenofdocumentsaheadoftime,linkinglogisticsfinancialconditions,andcrowdoutprivateservicesatborders,andhelpinglowerbarrierstoinvestment(Huang,Pagano,andPanizza2020;entryforsmallandmedium-sizedenterprises.WorldBank2023c).Conversely,improvingfiscalpositionscan,undercertaincircumstances,boostThenontariffcostsinvolvedinbordercrossings(crowdin)privateinvestment(Essletal.2019).canbereducedbylesseningwaittimescreatedbyThisisparticularlytrueforEMDEsthatareinorlengthyadministrativeproceduresandunclearorneardebtdistress,asmeasurestoimprovetheirextensivedocumentationrequirements.Thefiscalpositions,whenfeasible,canyieldbenefits.WTOAgreementonTradeFacilitation,forInmanyEMDEs,fiscalpolicyintheneartermexample,providesaframeworktosimplifyborderneedstobecalibratedtoregaintheabilitytotakeprocedures.Harmonizinginspectionrequirementsappropriateexpansionarymeasureswhenneed-andlabelingstandardsbetweencountriescanalsoed—creatingso-called“fiscalspace,”whichwaslowerfirms’costsandsmoothbordercrossingserodedduringthepandemic.(WorldBank2021a).Regardinglogistics,improvingphysicalinfrastructure,likeports,Monetarypolicyreforms,suchastheestablish-airports,androads,canreducetraveltimeandmentorreinforcementofcentralbankindepend-variability.enceortheadoptionofaninflation-targetingregime,mayalsobeimportanttosecuringastableMembershipintradeagreements—forexample,macroeconomicenvironmentthatsupportstheAfricanContinentalFreeTradeAreainvestmentgrowth.Lowandstableinflationintheagreement—canhelpsolidifytradefacilitationmediumtermisakeyrequirementofmacroeco-reformsandlowertariffs.Further,tradetreatiesnomicstabilityandhealthyinvestmentgrowth.canboosteconomiesofscaleandlowercostsbystandardizingregulatoryrequirementsacrossStructuralpoliciesmultiplejurisdictions.TradeagreementsalsopromoteregionalandglobalvaluechainAbroadrangeofstructuralpoliciescanpromoteparticipationbycodifyingintellectualpropertyinvestmentaccelerations.rights,andcompetitionandinvestmentprotocols.ThiscansignificantlybenefitsmallcountriesandTradepolicy.Reducingrestrictionsoncross-countriesthataregeographicallyisolatedfrombordertradecanplayanimportantroleintradehubs(Echandi,Maliszewska,andsparkinginvestmentaccelerations.SuchmeasuresSteenbergen2022;MoïséandLeBris2013;havesignificantlyincreasedthelikelihoodofWorldBank2020b).startinganinvestmentaccelerationandhaveoftenprecededaccelerations,suchasinIndia,Morocco,116CHAPTER3GLOBALECONOMICPROSPECTSJANUARY2024Financialsectorpolicies.Improvementsinaccessagainstpoliticalandothernoncommercialriskstoexternalfinancehavetendedtoraisethe(WorldBank2015a,2022d).probabilityofstartinganinvestmentacceleration.ActionstoenhanceaccesstoexternalfinanceInmanyEMDEs,itiscriticaltoimprovetheincludethelooseningofregulationsoncapitaldigitalandtechnologicalinfrastructure.Thisflows(Alesinaetal.2020).Sincerestrictionsonenhancementisessentialtolowerthecostsofoutflowstendalsotodiscourageinflows,theaccesstofinanceandrunningabusiness,andtoeasingofrestrictionsonbothcapitalinflowsandenableruralresidentstoaccessbroadbandoutflowswillgenerallyneedtobeconsiderednetworks.Facilitatinginvestmentindigital(ChinnandIto2008;Lee1997).Nevertheless,infrastructurerequiresaligningregulationswiththeeasingofcapitalflowrestrictionsmayneedtointernationalstandards,encouragingcompetitionbeaccompaniedbymeasurestomitigaterisksamongproviderstolowerpricesandimprovearisingfrominstabilityincapitalinflowsandservices,andeducatingtheworkforceinrelevantoutflows,whichcoulddestabilizethedomesticskills(OECDandIDB2016).Increasingaccesstoeconomy.Suchmeasuresincludesafeguardstotheinternethasbeenshowntoboostforeignpreventcapitalinflowsurgesfromgeneratingdirectinvestment,increasetheincomesofruralboom-and-bustcycles,aswasexperiencedbyhouseholds,andlowerpovertyrates(Bahiaetal.Malaysiainthe1990s(box3.1).Awell-regulated2020;MensahandTraore2022).domesticfinancialsectorisessential.Alsoimportantaremeasurestoreducecountryrisk,Institutionalqualityincludingsoundmacroeconomicpolicies(Fratzscher2012;Koepke2019).InEMDEswithbetterinstitutions,particularlythoseemphasizingtheimprovementinlawandPoliciesthathelpdevelopdomesticcapitalorderandpropertyrightsprotection,themarketscanalsosupportinvestmentaccelerations.likelihoodofinitiatinganinvestmentaccelerationCapitalmarketdevelopmentcanimproveaccesstoishigher.Additionally,insuchenvironments,creditandfinancinginlocalcurrency,especiallypolicieshavebeenmoreeffectiveinleadingtolong-termfinancing.Policiestopromotecapitalinvestmentaccelerations.ThepotentialformarketdevelopmentincludeimprovingcontractinstitutionalimprovementsinEMDEsisindicatedenforcementtoreducecollateralrequirements,bythefactthatthequalityofinstitutionsismuchmitigatingcountry-specificrisksormarketfailureslowerthaninadvancedeconomies(figure3.12).throughpartialcreditguaranteestointermediaries,anddevelopingdigitalinfrastructuretoallowPolicymakerscanimproveinstitutionsby,forsmallfirmsandfinancialinstitutionstoparticipateexample,definingpropertyrightsmoreclearlyandinfinancialmarketsatlowcost(UnitedNationsprotectingthemmoreeffectively,increasingthe2022;WorldBank2022d).independenceofthejudiciaryandstrengtheningtheruleoflaw,andimprovingtheenforcementofTheestablishmentoflocalcurrencyequityandcontracts.InmanyEMDEs,reformsarealsodebtmarketscanhelpattractinstitutionalneededtoimproveandunifyregulatoryandinvestorstoEMDEswithless-developedfinancialinstitutionalstructures,whichareoftenintermediationinfrastructure.Forinstance,fragmented,tohelpeaseexcessiveconstraintsonpensionfundsandprivateequityfirms,whichprivateinvestorsandbusinesses,andtoensurethetendtohavehigherrisktolerance,mayprovideeffectiveenforcementofnecessaryregulations.financinginsituationswheretraditionalbanksareunwillingtodoso(UnitedNations2022).ToenhancethequalityofpublicinfrastructureMultilateraldevelopmentbanksplayacriticalroleinvestment,countriescanestablishpublicinsupportingthesemarketsbyprovidingliquidityinvestmentmanagementsystems,robustprojectthroughinnovativeproducts,includingappraisalsystems,andeffectiveprocurementandcatastrophebonds,blueandgreenbonds,monitoringframeworkstomitigatetheproblemsprovisioningofloansinlocalcurrenciesintheofasymmetricinformationandmoralhazardmostilliquidmarketsandofferingguarantees(GardnerandHenry2021;Kim,Fallov,andGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER3117Groom2020).Public-privatepartnershipsareFIGURE3.13Policypackagesandpotentialgrowthcommonlyutilizedfordeliveringpublicinvestmentandservices,whilelimitingfiscalrisks,Inthepastseveraldecades,comprehensivepolicypackagesthathaveprovidedthatarobustframeworkofcontractimprovedmacroeconomicstabilityandpromotedcross-bordertradeandpreparation,procurementandmanagementisinfinancialflowshavesignificantlyincreasedthelikelihoodofinitiatinganplace(Dappeetal.2023;Dappe,Melecky,andinvestmentacceleration.Basedpartlyonthisevidence,ascenarioinTurkgulu2022;Engel,Fischer,andGaletovicwhichEMDEsthatexperiencedanaccelerationbetween2000and20222020).Thesereformstendtobeespeciallystartanotherin2023andallEMDEsreplicatetheirbestreformeffortsinaimportantinLICs,whereregulatoryframeworksdecade,suggeststhattheslowdowninpotentialgrowthprojectedintheareofteninadequate(WorldBank2020a).baselinefor2022-30wouldnotoccur.CountrieswithbettergovernanceofpublicinvestmentprojectstendtoregisterlargerA.PotentialgrowthB.Impactofinvestmentaccelerationsimprovementsinmacroeconomicandfiscalonpotentialgrowthoutcomes(Schwartzetal.2020).Percent8PercentSocialbenefitreformsInterventionsatthemicrolevel66Labormarketreforms45EducationandhealthreformsInadditiontomacro-levelpolicyinterventions,2Investmentaccelerationimpactmicro-interventionsalsoplayapivotalrolein0Potentialgrowthsupportinginvestment,especiallyintheprivatesector.Forinstance,trainingandmentorship4programstargetedatentrepreneurscanenhancetheircapabilitiesinscalinguptheirbusinesses,3adoptingnewtechnologies,andconductinglong-termprofitableinvestment(Donaldetal.2022;2000-102Karlan,Knight,andUdry2012;McKenzieand2011-21Woodruff.2014).Providingfinancialeducationto2022-302011-212022-30Reform2011-212022-30Reformthegeneralpubliccanimprovefinancialliteracy,2000-10whichispositivelycorrelatedwithplanningfor2011-21impactimpactsavingsandwealthaccumulation(Hastings,2022-30Madrian,andSkimmyhorn2013;KaiserandMenkhoff2017).EMDEsEMDEsexcl.ChinaEMDEsEMDEsexcl.ChinaDesigningapolicypackageSources:KoseandOhnsorge(2023);WorldBank.PoliciestoaccelerateinvestmentneedtotakeNote:EMDE=emergingmarketanddevelopingeconomies.accountofcountry-specificconditions,beformulatedinawell-designedpackage,andbeA.Bluebarsshowthepotentialoutputgrowthratesbasedonproductionfunctionapproach.carefullysequenced.TheempiricalanalysisandGDP-weightedaveragesforasampleof53EMDEs.countrycasestudiesdemonstratetheimportanceofcombiningpoliciesthatenhancemacro-B.Thescenarioassumesthatin40EMDEs(excludingChina)thatexperiencedaninvestmenteconomicstabilitywithpoliciesthataddressaccelerationbetween2000and2022,investmentgrowthwillincreaseto10.4percentperyearfromstructuralbarriersfacingprivate-sectordevelop-2023-28beforereturningto0.4percentperyearin2029-30.The40EMDEswerechosenbecausementandinstitutionalweaknesses.Countrytheyhavethehighestexpectedaverageinvestmentgrowthfor2021-25andareincludedintheexperiences,suchasthoseinKoreainthelateKoseandOhnsorge(2023)sample.Theincreaseininvestmentgrowthto10.4percentand1990sandTürkiyeintheearly2000s,supportthesubsequentfallto0.4percentmatchesthemedianinvestmentgrowthduringandafterinvestmentviewthatacomprehensivepackageofpoliciescanaccelerationsinEMDEsbetween1950-2022.bepotentintriggeringaninvestmentacceleration.Whendesigningapolicypackage,thesequencingofmeasuresshouldbecarefullyplanned.Forexample,fiscalmeasuresmayneedtotakeprecedenceincountrieswithsignificantfiscalchallenges.Theimplementationofinstitutionalpolicies,includingmeasurestoimprovethebusinessclimateandregulatorystructures,mayneedtobeadvancedparticularlyincountriesthathavedifficultymobilizingprivateinvestment.Policiestostrengthentheregulationofthefinancialsystemandreformexchangeratearrangementsmayneedtobeimplementedbeforetheliberalizationofcapitalflows.Suchcarefulsequencinghelpscountriesgirdagainstpotentialdisruptionsthatcouldotherwiseimperilreformefforts,andlaysthegroundworktotakeadvantageofanyfavorableturnintheexternalenvironment.Intheabsenceofadditionalpolicyreforms,potentialoutputgrowthinEMDEsisprojectedtodeclinefromanannualaverageof4.9percentin118CHAPTER3GLOBALECONOMICPROSPECTSJANUARY20242011-21to4.0percentayearin2022-30(figureoutcomes.However,itisimportanttohighlight3.13;KoseandOhnsorge2023).Nevertheless,ifthattheydonotimplyaone-waycausallink.theEMDEsthatregisteredaninvestmentIndeed,therecanbeself-reinforcingdynamicsaccelerationsince2000wereabletosparkanotherbetweeninvestmentaccelerationsandothersuchepisodebetween2022and2030,theirbeneficialdevelopmentsduringtheseepisodes.annualpotentialoutputgrowthwouldbe0.3percentagepointhigherthanprojectedintheatsaid,theregularcoincidenceofinvestmentbaseline.10Furthermore,inascenariowhereallaccelerationsandtransformativephasesofEMDEsreplicatedtheirbest10-yearperformancemacroeconomicanddevelopmentalprogressinlaborforceparticipationreforms,aswellasunderscoresthecriticalimportanceofperiodsofhealthandeducationimprovements,potentialrapidandsustainedinvestmentgrowth.growthfor2022-30couldincreaseby0.5percentagepointsperyearhigher,reaching4.6Nationalpolicieshaveplayedanimportantroleinpercent.Thisincreasewouldalmosteliminatethesparkinginvestmentaccelerations.Forexample,declineprojectedinthebaseline(figure3.13).bothfiscalconsolidationmeasuresandstructuralreformstoliberalizeinternationaltradeandConclusionfinancialflowshavefacilitatedinvestmentaccelerations.However,whileindividualpolicyRaisinginvestmentgrowthisacriticalobjectivemeasurescanhelpigniteaccelerations,forEMDEs.eyhavesignificantinvestmentcomprehensivepackagesofmeasureshavetendedneedstoenablethemtodeliversustainableandtobemoreeffective.Inaddition,anenablinginclusiveoutputgrowth,copewithclimateinstitutionalenvironmenthastendedtochange,andmakeprogresstowardbroadersignificantlyamplifytheimpactofpoliciesondevelopmentgoals.Nevertheless,EMDEsfaceinvestmentgrowthandincreasethelikelihoodofmanyobstaclesinseekingtoaccelerateinvestment:accelerations.Acountrythatisbolsteringitsthenear-terminvestmentgrowthoutlookisweak,institutions,fosteringmacroeconomicstability,long-termgrowthprospectshavedeteriorated,anddemonstratingcommitmenttostructuralfiscalresourcesarelimited,andexternalborrowingreformsisparticularlywellplacedtoturncostsareelevated.supportiveexternalconditionsintoatransformativeinvestmentacceleration.ischapterhaspresentedthefirststudyofinvestmentaccelerationsusingalargesampleofToboostprivatecapitalmobilization,multilateralcountriesoveranextendedperiod.Investmentaccelerationsareoftenassociatedwithmuchdevelopmentbanks(MDBs)canoffervariousimprovedmacroeconomicanddevelopmentoutcomes.emedianannualgrowthrateoffinancialinstrumentsandsupport(G20-IEGinvestmentjumpedto10.4percentduringtheseepisodes,threetimesthemedianinotheryears.2023).eseincludeprovidingcreditInvestmentaccelerationsalsocoincidedwithsubstantialincreasesinoutputgrowthcomingenhancementanddisasterriskmanagementalongsidefastercapitalaccumulationandgrowthofTFPandemployment,relativetonon-instruments,enhancingliquidityinlocal-currencyaccelerationyears.Inaddition,povertyandinequalitydeclinedduringtheseepisodes.debtandequitymarketsinEMDEswithless-eseresultscollectivelysuggestastrongdevelopedfinancialmarkets,andpromotingassociationbetweeninvestmentaccelerationsandimprovedmacroeconomicanddevelopmentinnovativeinvestmentproductssuchasblueand10Forty-oneoutof67EMDEsinthesampleusedforthisgreenbonds.Insituationswheremarketfailuresexercisehaveexperiencedaninvestmentaccelerationsince2000.preventinvestorsfrominsuringrisks,MDBscanalsoofferloanguarantees.Additionally,MDBscanprovidetechnicalassistancebyadvisinggovernmentsoncreatingtheregulatoryandinstitutionalframeworkforwell-functioningmarkets.isassistanceextendstosupportingtheformulationofprudentfiscalpolicies,andprovidingguidanceonachievingtheenergytransitionandfacilitatingadaptationtoclimatechange.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER3119BOX3.1Sparkinginvestmentaccelerations:LessonsfromcountrycasestudiesInvestmentaccelerationsoftenhavebeenprecededbyatleastoneoftwotypesofpolicyintervention:measurestoimprovemacroeconomicstabilityandreformstoaddressstructuralproblems.Whileeachtypeofpolicymeasurehashelpedtriggerinvestmentaccelerations,comprehensivepackagesofpoliciesthatcombinebothtypesappeartohavesparkedfasterinvestmentandoutputgrowththanmighthavebeenexpectedfromtheindividualeffectsofeachtypeofmeasure.Abenignexternalenvironmenthasalsoplayedacrucialroleincatalyzinginvestmentaccelerationsinmostcases.Introductioninvestmentgrowthaveraged17.9percentduringthisperiod,exceedingthelevelinotheryearsby20.9Theempiricalanalysisinthischapterdocumentsthepercentagepoints(figureB3.1.1).Privateinvestmentcommonfeaturesofinvestmentaccelerations—periodsgrowthincreasedmorethanpublicinvestmentgrowth.inwhichtherearesustainedincreasesininvestmentBothcreditgrowthandcapitalinflowsplayedmajorgrowthtoarelativelyrapidrate—andthepoliciesthatrolesintriggeringthisepisode.Duringtheaccelerationhavebeenassociatedwiththem.Italsohighlightssomeininvestment,outputgrowthaveraged9.2percent,substantialdifferencesacrossinvestmentaccelerations.enablingMalaysiatoattainupper-middle-income-Thisboxpresentsabriefaccountofnotableinvestmentcountrystatusin1992.accelerationsinselectcountries.Specially,itaimstoanswerthefollowingquestions:Policydrivers.The1988accelerationwastriggeredbypolicychangesthatreducedrestrictionsoncapital•Whattypesofpolicychangeshavetriggeredflowinginandoutofthecountry(so-calledcapitalinvestmentaccelerations?accountliberalization),whichtranslatedintoasharpincreaseincapitalinflowsandimprovedaccessto•Howhavethemacroeconomicimplicationsofdomesticcredit,aswellasstructuralreformsintheFifthinvestmentaccelerationsdiffereddependingontheMalaysiaPlan.Netcapitalinflowsincreasedfrom-2underlyingpolicydrivers?percentofGDP(thatis,anetoutflow)in1988to16percentatthepeakin1993,andthefinancialsectorTheboxfocuseson13investmentaccelerationsin10undertookanexpandingarrayofactivitiesthatcountries(tablesB3.1.1,B3.1.2,andB3.1.3):Chileincreasedcreditflowespeciallythroughbanklending(1986-93),Colombia(2001-07),India(1994-99),(GhaniandSuri1999).WithimprovedaccesstocreditMalaysia(1988-97),Morocco(1996-2009),Polandandforeigncapital,exportsofmanufacturedgoodsrose(1992-2000and2003-08),RepublicofKorea(1985-96(NaguibandSmucker2009).Acurrencydevaluationand1999-2007),Türkiye(2003-08),Uganda(1993-andtaxreformimprovedthebusinessclimatewhile2012),andUruguay(1991-98and2004-14).apublicrevenueshortfallswerepreventedthroughtheeliminationoftaxloopholes(Somogyi1991).However,EastAsiaandPacifictheepisodewasnotaccompaniedbypolicychangestocontrolfinancialexcessesassociatedwiththerapidMalaysia(1988-97)openingofthecapitalaccount,amajorfactorinthefinancialcrisisof1997.Economicperformance.Malaysiaexperiencedaninvestmentaccelerationfrom1988to1997.AnnualRepublicofKorea(1985-96and1999-2007)Note:ThisboxwaspreparedbyMarieAlbert,JongrimHa,ReinaEconomicperformance.TheRepublicofKoreaKawai,PhilipKenworthy,JeetendraKhadan,DohanKim,EmilianoexperiencedtwoinvestmentaccelerationssincetheLuttini,JosephMawejje,ValerieMercer-Blackman,KerstenStamm,1980s—onein1985-96andtheotherin1999-2007.GuillermoVerduzco,ColletteWheeler,andShuYu.Investmentgrowthsurgedduringbothaccelerations,reaching9.2percentayear(figureB3.1.1).OutputaThe13investmentaccelerationscoveredherearenotallofthegrowthpickedupby4percentagepointsperyearaccelerationsthese10countrieshaveexperiencedsince1980.Theduringtheaccelerations,relativetootheryears.Whileaccelerationswerechosenbecausetheyarerepresentativeofthefiscal,capitalaccumulationhadplayedalargeroleinKorea’smonetary,orstructuralreformeffortsthatoftenprecedeaccelerations.growthmiraclesincethe1960s,thetwoepisodeswereTheotheraccelerationsinthesecountrieswere:Chile(2002-08),India(1985-90;2004-12),Malaysia(2006-18),Poland(1983-88;2017-22),theRepublicofKorea(2013-18),andTürkiye(2010-17).TablesB3.1.1,B3.1.2andB3.1.3presentanoverviewoftheaccelerationsandaccompanyingpoliciesforeachcountry.120CHAPTER3GLOBALECONOMICPROSPECTSJANUARY2024BOX3.1Sparkinginvestmentaccelerations:Lessonsfromcountrycasestudies(continued)FIGUREB3.1.1InvestmentaccelerationsintheRepublicofKoreaandMalaysiaMalaysiaexperiencedaninvestmentaccelerationfrom1988to1997.Inthatepisode,privateinvestmentgrowthincreasedmorethanpublicinvestmentgrowth.Bothcreditgrowthandcapitalinflowsplayedmajorrolesintriggeringthisepisode.TheRepublicofKoreaexperiencedtwoinvestmentaccelerations—in1985-96andin1999-2007.WhilecapitalaccumulationplayedalargeroleinKorea’sgrowthmiracle,thetwoepisodeswerealsoassociatedwithfastergrowthofemploymentandproductivity.A.OutputandinvestmentgrowthinB.MacroeconomicconditionsinC.NetcapitalinflowsandpublicandMalaysiaMalaysiaprivateinvestmentgrowthinMalaysiaPercentPercent/PercentagepointsPercent/PercentofGDPPercent/PercentofGDP20Inaccelerationyears25Inaccelerationyears2.515Innon-accelerationyears20Inaccelerationyears20Innon-accelerationyears210Innon-accelerationyears151.551510101050.5-500-105InflationPrimaryGov'tCurrentCredit-5-0.5balancedebtaccountgrowth0(intens)balanceOutput-5InvestmentEmploy-PrivatePublicNetcapitalment(RHS)TFP(RHS)investmentinvestmentinflowD.OutputandinvestmentgrowthintheE.MacroeconomicconditionsintheF.NetcapitalinflowsandpublicandRepublicofKoreaRepublicofKoreaprivateinvestmentgrowthintheRepub-licofKoreaPercentPercent/PercentagepointsPercent/PercentofGDPPercent/PercentofGDP20Inaccelerationyears420Inaccelerationyears20Inaccelerationyears15Innon-accelerationyears315Innon-accelerationyearsInnon-accelerationyears1021015515100005-5-1-50Output-10-5InvestmentInflationPrimaryGov'tCurrentCreditEmploy-balancedebtaccountgrowthPrivatePublicNetcapitalment(RHS)(intens)balanceTFP(RHS)investmentinvestmentinflowSources:BankforInternationalSettlements;Feenstra,Inklaar,andTimmer(2015);Ha,Kose,andOhnsorge(2021);HaverAnalytics;IMF,InternationalFinancialStatistics;IMF,InvestmentandCapitalStockdataset;WDI(database);WEO(database);WorldBank.Note:Thesampleperiodis1980-2022.Accelerationyearscoverthefulldurationoftheepisode.Non-accelerationyearsexcludeaccelerationyearsthatwerenotincludedinthisbox;CPI=consumerpriceindex;TFP=totalfactorproductivity.A.D.Barsaresimpleaveragesofgrowthinoutput,investment,andTFP,aswellasthepercentagepointchangeintheemploymentrate.B.E.BarsaresimpleaverageofthechangeinCPIinpercent,primarybalanceasapercentofGDP,governmentdebtasapercentofGDP,currentaccountbalanceasapercentofGDP,andrealcreditgrowthinpercent.C.F.Barsaresimpleaveragesofgrowthinprivateinvestmentandpublicinvestmentinpercent,andthenetcapital-inflow-to-GDPratioinpercentofGDP.alsoassociatedwithmuchfastergrowthofemploymentpercentagepointincreaseinannualprivateinvestmentandproductivity,andimprovementsinhumancapitalgrowthunderpinnedbothaccelerationepisodes.Korea(Rodrik1995;KimandLau1994).attainedhigh-income-countrystatusin1995,fellbackin1998becauseofthe1997Asianfinancialcrisis,andFurthermore,enhancedpricestability,strengthenedthenregainedhigh-incomestatusin2001.fiscalpositions,andimprovedcurrentaccountbalancesaccompaniedbothaccelerations:onaverageacrossthePolicydrivers.The1985accelerationwasprecededbytwoaccelerations,inflationfellto4.3percent;acomprehensivesetofmacroeconomicstabilizationgovernmentdebtdeclinedby15percentagepointsofpolicies.First,tocurbinflationthatwaspartlydrivenGDP;theprimarybalancewasinsurplusby2.4percentbythegovernment-ledgrowthstrategyinthelateofGDPandthecurrentaccountbalancewasinaslight1970s,fiscalpolicywastightenedbasedonabalancedsurplusof0.9percentofGDP.Anotable8.3budgetprinciple.ThisendedthesubordinationofGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER3121BOX3.1Sparkinginvestmentaccelerations:Lessonsfromcountrycasestudies(continued)monetarypolicytogovernmentfinancing(Koh2007;centrallyplannedeconomytowardamarket-orientedChoandKang2013).Second,thenumberofpriceone.Priortothe1992acceleration,thecollapseofthecontrolswasreduced,andtheMonopolyRegulationSovietUnioncausedoutputandinvestmenttoandFair-TradeActwasestablishedtoensuremarketplummetandinflationtoskyrocketinPoland.Tocurbcompetition(Nam1988).Third,restrictionsoninflation,astabilizationprogramwasemployedtoimportswereloosenedwhichhelpedrelievepressureontightenmonetarypolicy,restrictcreditflow,andinflationbypromotingdomesticcompetitionenhancecentralbankindependence.Theexchangerate(DornbuschandPark1987;Koh2010).systemtransitionedfromafixedregimein1990toacrawlingpegin1991,andthenprogressivelytoafullyAgainstabackdropofbroadermeasurestobolsterfloatingregimein2000.macroeconomicstability,theaccelerationthatbeganin1999benefitedfromstructuralreformstoaddressFiscalsustainabilityimprovedbecauseofafinancialandcorporatesectorproblemsthatcomprehensivesetofinterventions:cutsinsubsidiescontributedtothe1997crisis.Theseincludedandspendingbypublicenterprises;theintroductionofcomprehensivestepstoliberalizecapitalmarketsandpersonal,corporate,valueadded,andexcisetaxes;theforeigninvestment(Lee2013;Vashakmadzeetal.implementationofamoretargetedsystemofsocial2023).Extensiverestructuringofcorporatesandtransfers;andsizabledebtreliefsgrantedbytheParisfinancialinstitutionsalsostrengthenedfinancialClub(BergandBlanchard1994;WorldBank2022c).soundness,governance,andprofitability.Notably,Polandalsoundertookstructuralpolicychanges—reformsgearedtowardChaebolgroups(family-liberalizinginternationaltradetobecomeakeyexportercontrolledlargeconglomerates)requiredtheiraffiliatedtoWesternEurope,encouragingcapitalinflowsfirmstoexitnonviablebusinesses,whichimprovedloan(especiallyFDI),privatizingstate-ownedenterprises,availabilityforsmallerfirms(KruegerandYoo2002).recapitalizingthefinancialsystem,andloweringentryInaddition,afloatingexchangeratesystemwasbarriersfornewfirms(Georgiev,Nagy-Mohacsi,andadoptedinlate1997,andaninflation-targetingregimePlekhanov2017).Privatesectordevelopmentwasalsowithenhancedcentralbankindependencewassupportedbycapitalmarketdeepening,reinforcedbyestablishedin1998.thecreationofregulatorybodies,theStockExchange,andanincreasingroleofforeignbanks(deHaasandEuropeandCentralAsiavanLelyveld2006).Poland(1992-2000and2003-08)The2003accelerationwastriggeredbyreformstiedtoPoland’sEUaccessionprocesswhichgrantedtheEconomicperformance.PolandexperiencedtwocountryaccesstothesingleEuropeanmarketandinvestmentaccelerations,during1992-2000and2003-additionalEUstructuralfunds(IMF2003;IMF2008;08(figureB3.1.2).DuringtheseaccelerationsthereWorldBank2022b).TobecomeanEUmember,weresharpincreasesinbothinvestmentgrowth(whichPolandmaintainedprudentfiscalpolicyandaveraged10.4percentperyear)andoutputgrowthtransitionedtoaninflation-targetingregimein1998.(whichaveraged5percentperyear).Incontrast,innonLowercorporateincometaxesandresearchand-accelerationyearssince1980,investmentfell3percentdevelopmenttaxallowanceswereintroducedtoperyearandoutputdeclined0.7percentperyear.Bothpromoteinvestment(Murgasova2005).privateandpublicinvestmentgrowthrosesharplyintheseepisodes,withthe2003episodedrivenbyamoreAttainingfullEUmembershipacceleratedPoland’spronouncedincreaseinpublicinvestment.Thetwostructuralchangesandintegrationwiththeglobalaccelerationswerealsoaccompaniedbyaneconomy.TheEUaccessionprocessledtoimprovementinthefiscalpositionandanuptickinnetimprovementsininstitutionalqualityasPolandalignedcapitalinflows.InflationdeclinednotablyduringthepoliciesandregulationstoEuropeanstandards,1992acceleration.privatizedthetelecommunicationsandenergysectors,strengthenedbankingregulation,andimprovedaccessPolicydrivers.The1992accelerationinPolandwastopublicinfrastructure(BrusztandCampos2016).precededbyreformstostabilizetheeconomyandLabormarketpoliciesbecamemoreflexible.Capitalstructuralpolicyshiftsthathelpedtransitionfroma122CHAPTER3GLOBALECONOMICPROSPECTSJANUARY2024BOX3.1Sparkinginvestmentaccelerations:Lessonsfromcountrycasestudies(continued)FIGUREB3.1.2InvestmentaccelerationsinPolandandTürkiyePolandhadtwoinvestmentaccelerations—in1992-2000and2003-08.Bothprivateandpublicinvestmentgrowthrosesharplyintheseepisodes,withthe2003episodedrivenbyamorepronouncedincreaseinpublicinvestment.Thetwoepisodeswerealsoaccompaniedbyimprovedfiscalpositionsandhighernetcapitalinflows.Türkiye’sinvestmentaccelerationoccurredduring2003-08.Bothprivateandpublicinvestmentgrowthsurgedtosimilardegrees,whilecreditgrowthandnetcapitalinflowsmorethantripled.A.OutputandinvestmentgrowthinB.MacroeconomicconditionsinPolandC.NetcapitalinflowsandpublicandPolandprivateinvestmentgrowthinPolandPercent/PercentofGDPPercentPercent/Percentagepoints20InaccelerationyearsPercent/PercentofGDP15Innon-accelerationyears20Inaccelerationyears820Inaccelerationyears1015Innon-accelerationyears6515Innon-accelerationyears0104-51052-105InflationPrimaryGov'tCurrentCredit00(intens)balancedebtaccountgrowth0(intens)balance-5-2-5Output-10InvestmentEmploy--15ment(RHS)TFP(RHS)PrivatePublicNetcapitalinvestmentinvestmentinflowD.OutputandinvestmentgrowthinE.MacroeconomicconditionsinTürkiyeF.NetcapitalinflowsandpublicandTürkiyeprivateinvestmentgrowthinTürkiyePercentPercent/PercentagepointsPercent/PercentofGDPPercent/PercentofGDP25Inaccelerationyears20Inaccelerationyears420Innon-accelerationyears20Inaccelerationyears1515Innon-accelerationyears315Innon-accelerationyears101021055150000-5-5-1-5-10OutputInflationPrimaryGov'tCurrent-10Investment(intens)balancedebtaccountEmploy-(intens)balanceCredit-15ment(RHS)growthTFP(RHS)PrivatePublicNetcapitalinvestmentinvestmentinflowSources:BankforInternationalSettlements;Feenstra,Inklaar,andTimmer(2015);Ha,Kose,andOhnsorge(2021);HaverAnalytics;IMF,InternationalFinancialStatistics;IMF,InvestmentandCapitalStockdataset;WDI(database);WEO(database);WorldBank.Note:Thesampleperiodis1980-2022.Accelerationyearscoverthefulldurationoftheepisode.Non-accelerationyearsexcludeaccelerationyearsthatwerenotincludedinthisbox;CPI=consumerpriceindex;TFP=totalfactorproductivity.A.D.Barsaresimpleaveragesofgrowthinoutput,investment,andTFP,aswellasthepercentagepointchangeintheemploymentrate.B.E.BarsaresimpleaverageofthechangeinCPIinpercent,primarybalanceasapercentofGDP,governmentdebtasapercentofGDP,currentaccountbalanceasapercentofGDP,andrealcreditgrowthinpercent.C.F.Barsaresimpleaveragesofgrowthinprivateinvestmentandpublicinvestmentinpercent,andthenetcapital-inflow-to-GDPratioinpercentofGDP.inflowssurgedasPolandintegratedfurtherintotheundercontrol—fallingfrom65percentinthesixyearssupplychainsofWesternEurope(Georgiev,Nagy-beforetheaccelerationtoabout11percentduringtheMohacsi,andPlekhanov2017).acceleration.Bothprivateandpublicinvestmentgrowthsurgedtosimilardegrees,whilecreditgrowthandnetTürkiye(2003-08)capitalinflowsmorethantripled.RapidoutputgrowthallowedTürkiyetoattainupper-middle-incomestatusEconomicperformance.Türkiyeexperiencedanin2004.investmentaccelerationduring2003-08.Averageinvestmentgrowthroseto14.3percentperyearduringPolicydrivers.Policyreformsimplementedintheearlytheacceleration,comparedwith4.6percentinother2000s,accompaniedbyabenignexternalenvironment,years(figureB3.1.2).Outputgrowthreachedmorelaidthefoundationforthe2003acceleration.Priortothan6percentperyearduringthisepisode,upfrom3.7theacceleration,aseriesofmacroeconomicstabilizationpercentperyearinotheryears.Duringthisperiod,thepolicieswereimplementedinresponsetothe2000-01primarybalanceimproved,andinflationwasbroughtGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER3123BOX3.1Sparkinginvestmentaccelerations:Lessonsfromcountrycasestudies(continued)economiccrisis.Fiscaldisciplinewasestablishedwithaassociatedwithfurthertradeliberalization,markedbyprimarysurplustargetof6.5percentofGNP,andthethesigningoftheTreatyofAsunciónthatformedthecentralbankbecameanindependentinstitution(IMFSouthernCommonMarket.2007).Theresultwasavirtuouscycleofdisinflation,lowerinterestrates,andhighereconomicgrowthThe2004accelerationcoincidedwithaseriesof(Macovei2009).Thesemacroeconomicpoliciesweremacroeconomicandstructuralpolicyreforms.Afteracomplementedbystructuralreformsinseveralareas,majorbankingcrisisin2002andseveralexternalshocksincludingenterpriserestructuringandprivatization,between1999and2001,thegovernmentadoptedaimprovementstothebusinessclimate,traderangeofmeasurestoimprovemacroeconomicstabilityliberalization,labormarketliberalization,andanddebtsustainability(delaPlazaandSirtaine2005;comprehensivereformofthebankingsector.Asaresult,MarandinoandOddone2019).Fiscalconsolidationbothaccesstocreditandforeigndirectinvestmentandbetterdebtmanagementwerecombinedwithinflowsimproved(WorldBank2008).monetarypolicymeasuresincludinggreaterexchangerateflexibility,adoptionofaninflationtarget,andLatinAmericaandtheCaribbeanenhancedcentralbankindependence.Bankingregulationswereintroducedin2008tomitigaterisksUruguay(1991-98and2004-14)associatedwithcurrencymismatchesbetweenbankingsectorassetsandliabilities(MarandinoandOddoneEconomicperformance.Uruguayexperiencedtwo2019).investmentaccelerations:1991-98and2004-14.Averageannualinvestmentgrowthreached10.3Thisaccelerationepisodewasalsosupportedbypercent,exceedingthelevelinnon-accelerationyearsbystructuralreformsthatimprovedtheinvestment14.7percentagepoints(figureB3.1.3).Outputgrowthclimate.Theseincludedstrengtheningthenationalroseto5percentperyearduringtheaccelerationinvestmentofficeandimprovingphysicalinfrastructureepisodes(fromnearzeroinnon-accelerationyears)asandthebusinessenvironment(IMF2008,2010).Thebothemploymentandproductivitygrowthsurged.In2004accelerationwasaccompaniedbyelevatedbothepisodes,privateinvestmentgrewmuchfasteragriculturalcommodityprices,favorableglobalfinancialthanpublicinvestment.Eachaccelerationwasconditions,andstrongerregionaltradelinkages.Lateinaccompaniedbyimprovedmacroeconomicconditions,the2000sinvestmentacceleration,Uruguayregainedanincludinglowergovernmentdebt,subduedinflation,investmentgradesovereignrating(Che2021).largerprimarysurpluses,andhighercreditgrowthcomparedwithnon-accelerationyears.UruguayColombia(2001-07)attainedhigh-income-countrystatusin2012.Economicperformance.ColombiaexperiencedanPolicydrivers.Followingaperiodofstagnationinvestmentaccelerationbetween2001and2007.between1983and1990,policiestostabilizetheAnnualinvestmentgrowthreached12.7percentduringeconomyandpromotetradelaidthefoundationforthetheacceleration,exceedingthelevelofnon-acceleration1991acceleration(MarandinoandOddone2019).yearsby10.3percentagepoints(figureB3.1.3).OutputFiscalpolicymeasuresincludedreducingexternaldebtgrowthaveraged4.5percentduringtheinvestmentby5percentagepointsofGDPandrestructuringshort-accelerationcomparedwith3.3percentoutsideofthattermdebtthroughthe1991BradyPlan,aswellasperiod.Duringtheacceleration,privateinvestmentbroaderfiscalconsolidation(RialandVicente2003).grewoversixtimesfasterthanduringnon-accelerationFollowinghighinflationinthe1980s,thesefiscalyears,at13.8percent,whilepublicinvestmentgrowthadjustmentsfedintoapricestabilizationplanwhichincreasedfrom4.2percentto6.1percent.Inflationalsoincludedapreannouncedcrawlingexchangeratedeclinedtosingledigitsintheyearbeforethepeg(Peluffo2013).Thecountry’sfirstCentralBankaccelerationforthefirsttimeinmorethantwodecades.Actwasapprovedin1995tostrengthenmonetaryTheoverallfiscaldeficitwaslessthan1percentofGDPpolicyandestablishlimitsoncentralbankfinancingofby2004,whiletheprimarybalancereachedasurplus.thepublicsector.The1991accelerationwasalsoGovernmentdebtfellfrom48percentofGDPatitspeakin2002to33percentofGDPin2007.124CHAPTER3GLOBALECONOMICPROSPECTSJANUARY2024BOX3.1Sparkinginvestmentaccelerations:Lessonsfromcountrycasestudies(continued)FIGUREB3.1.3InvestmentaccelerationsinColombiaandUruguayUruguayexperiencedtwoinvestmentaccelerations:in1991-98and2004-14.Privateinvestmentgrewmuchfasterthanpublicinvestmentduringthetwoepisodes.Bothaccelerationswereaccompaniedbymorefavorablemacroeconomicconditions,includinglowergovernmentdebt,subduedinflation,largerprimarysurpluses,andhighercreditgrowth.Colombiaexperiencedaninvestmentaccelerationbetween2001and2007.Duringtheacceleration,privateinvestmentgrewmorethansixtimesfasterthanduringnon-accelerationyears,whilepublicinvestmentgrowthincreasedfrom4.2to6.1percent.BothemploymentandTFPgrewstrongly.A.OutputandinvestmentgrowthinB.MacroeconomicconditionsinC.NetcapitalinflowsandpublicandUruguayUruguayprivateinvestmentgrowthinUruguayPercentPercent/PercentagepointsPercent/PercentofGDPPercent/PercentofGDP20Inaccelerationyears20Inaccelerationyears815Innon-accelerationyears20Inaccelerationyears15Innon-accelerationyears61015Innon-accelerationyears104510520500-50-5-2-10-5InflationPrimaryGov'tCurrentCreditOutput(intens)balancedebtaccountgrowth-10Investment(intens)balanceEmploy--15ment(RHS)TFP(RHS)PrivatePublicNetcapitalinvestmentinvestmentinflowD.OutputandinvestmentgrowthinE.MacroeconomicconditionsinF.NetcapitalinflowsandpublicandColombiaColombiaprivateinvestmentgrowthinColombiaPercentPercent/PercentagepointsPercent/PercentofGDPPercent/PercentofGDP20Inaccelerationyears1.620Inaccelerationyears20Inaccelerationyears15Innon-accelerationyears1.215Innon-accelerationyears15Innon-accelerationyears100.8101050.45500.000-5-0.4-5-5Output-10-10InvestmentInflationPrimaryGov'tCurrentCreditEmploy-balancedebtaccountgrowth-15ment(RHS)(intens)balanceTFP(RHS)PrivatePublicNetcapitalinvestmentinvestmentinflowSources:BankforInternationalSettlements;Feenstra,Inklaar,andTimmer(2015);Ha,Kose,andOhnsorge(2021);HaverAnalytics;IMF,InternationalFinancialStatistics;IMF,InvestmentandCapitalStockdataset;WDI(database);WEO(database);WorldBank.Note:Thesampleperiodis1980-2022.Accelerationyearscoverthefulldurationoftheepisode.Non-accelerationyearsexcludeaccelerationyearsthatwerenotincludedinthisbox;CPI=consumerpriceindex;TFP=totalfactorproductivity.A.D.Barsaresimpleaveragesofgrowthinoutput,investment,andTFP,aswellasthepercentagepointchangeintheemploymentrate.B.E.BarsaresimpleaverageofthechangeinCPIinpercent,primarybalanceasapercentofGDP,governmentdebtasapercentofGDP,currentaccountbalanceasapercentofGDP,andrealcreditgrowthinpercent.C.F.Barsaresimpleaveragesofgrowthinprivateinvestmentandpublicinvestmentinpercent,andthenetcapital-inflow-to-GDPratioinpercentofGDP.Policydrivers.The2001accelerationcameafterarestraint,apensionreform,andaseriesofreformstodifficultdecadeandwasprecededbyaseriesofreformspublicspendingmanagement(Clavijo2009;IMFthatsignificantlyimprovedmacroeconomicstability.2006b).RisingoilpricesincreasedfiscalrevenuesFirst,afloatingexchangerateregimewasintroducedinduringthisperiod.Colombia’sexternalpositionwas1999thathelpedreducetheimpactofshocksonalsoboostedbystrongexportgrowthinindustrialinternationalreservebuffers.Second,in2000,inflationgoods.Domesticfinancialmarketsweredeepenedviatargetingwasadopted,accompaniedbyseverallegaltheprivatizationandliquidationofpublicbanksandmeasurestoimprovecentralbankindependenceandimprovedsupervision(IMF2005,2006b).Significanttransparency(IMF2006a).ird,onthefiscalfront,improvementsinadministrativeproceduresalsogovernmentfinanceswereimprovedbythesupportedthebusinessenvironment.introductionoftaxreformsintheearly2000s,spendingGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER3125BOX3.1Sparkinginvestmentaccelerations:Lessonsfromcountrycasestudies(continued)Chile(1986-93)MiddleEastandNorthAfricaEconomicperformance.ChileexperiencedanMorocco(1996-2009)investmentaccelerationbetween1986and1993whichresultedinannualaverageinvestmentgrowthof12.3Economicperformance.Moroccounderwentapercent—8.4percentagepointshigherthaninothersignificanteconomictransformationduringtheyears(figureB3.1.4).Outputgrowthdoubledduringinvestmentaccelerationbetween1996and2009(figurethisepisode,exceeding7.6percentperyear,supportedB3.1.4).Annualinvestmentgrowthrosefrom2.3bybothproductivityandemploymentgrowth.Broadpercentinnon-accelerationyearsto7.5percentduringimprovementsinmacroeconomicindicatorsaccelerationyears,withannualoutputgrowthaccompaniedthisacceleration.eseincludedtheimprovingfrom3.2percentto5percent(despiteabriefprimarybalancemovingfromdeficittosurplus,arecessionin1997duringwhichinvestmentgrowthdidsignificantdeclineininflation(fromalmost20percentnotcontract).Theperiodcoincidedwithimprovementsinthefirstyearoftheaccelerationto12.7percentininthefiscalposition,externalbalance,andproductivity1993),andasubstantialimprovementinthecurrentgrowth,aswellashighercreditgrowth.Bothinflationaccountfrom-6percentofGDPin1986to-0.25andgovernmentdebt(asashareofGDP)declinedpercentofGDPatitspeakin1991.Tradeopennessduringtheperiod.(thesumofexportsplusimportsrelativetoGDP)increasedfromabout50percentofGDPto63percentPolicydrivers.TheaccelerationfollowedandwasofGDPatitspeakin1989,andproportionofexportsaccompaniedbyarangeoffiscalandmonetaryreformsfromsectorsotherthanminingincreasedbyabout5tofostermacroeconomicstability(HarriganandEl-Siadpercentagepoints.Chilebecameanupper-middle-2010;IMF2001,2004).Fiscalrevenuecapacitywasincomecountryin1993.strengthened,includingthroughtheprivatizationofthetelecommunicationssector,taxreformsinthe1980s,Policydrivers.Severalpolicyinterventionsprecededorandthestrategicallocationofprivatizationrevenuesincoincidedwiththeacceleration.Afterthe1982debt2001(IMF2001,2004).Duringthisperiod,improvedcrisisduringwhichoutputcontractedby15percent,fiscalcapacity,exemplifiedbyalargereductioninthemacroeconomicstabilitywasanessentialenabler(Deexternaldebt-to-reservesratio,lessenedmarginalGregorio2005;Corbo,Hernández,andParro2005).borrowingcosts,allowingthegovernmenttofinanceAfterthedebtcrisis,Chiletookstepstoreducemuch-neededsocialdevelopmentinitiatives.governmentborrowing,resultinginseveralconsecutiveyearsoffiscalsurplus.epublicdebt-to-GDPratioTradeintegrationwasstrengthenedbytheAssociationdeclinedtoroughly50percentby1993,from120AccordwiththeEUin1996andafreetradeagreementpercentin1986.eadoptionofaninflationtargetingwiththeUnitedStatesin2004.Morocco’straderegimein1991alsohelpedtobringinflationunderopennesssurgedby31percentagepointsofGDPcontrol.duringtheacceleration.FinancialreformsandpriceliberalizationcreatedamoreconducivebusinessandStructuralreforms—includingtradeliberalization,tradeenvironment(Moreira2019).Strategicpoliciespensionsystemreform,andbankingsectorreforms—supportingvitalandinternationallycompetitivesectorswereessentialtosparkingtheinvestmentaccelerationsuchasagricultureandrenewableenergyhelped(Corbo,Hernández,andParro2005,Gallegoandimproveproduction(Paus2012;AgénorandAynaouiLoayza2002).e1981pensionreformfromapay-as-2015).Othersignificantreformsincludedyou-gosystemtowardacapitalizationschemehelpedimprovementsingovernanceandcompetitiveness,deependomesticfinancialmarketsbycreatinganmeasurestostreamlinepublicinvestmentprocesses,andadditionalsourceofcreditfortheprivatesectorincentivestoincreasetourismrevenues.Thisbroad(Edwards1998).Reformsthatbolsteredtheabilityofsuiteofgrowth-friendlyreformshelpedincreasethenet-bankstoprovidecreditandsetupbankruptcycapital-inflows-to-GDPratioto2percentofGDPproceedingswithwell-definedpropertyrightswereduringtheacceleration,from-2percentpriortothecriticalfactorsinimprovingresourceallocationepisode(WorldBank2001;Achy2011).(Bergoingetal.2002).126CHAPTER3GLOBALECONOMICPROSPECTSJANUARY2024BOX3.1Sparkinginvestmentaccelerations:Lessonsfromcountrycasestudies(continued)FIGUREB3.1.4InvestmentaccelerationsinChileandMoroccoChileexperiencedaninvestmentaccelerationbetween1986and1993.Outputgrowthdoubledduringthisepisode,exceeding7.6percentperyear,supportedbybothproductivityandemploymentgrowth.Moroccounderwentasignificanteconomictransformationduringaninvestmentaccelerationbetween1996and2009.Thisperiodcoincidedwithimprovementsinthefiscalposition,theexternalbalance,andproductivitygrowth,aswellashighercreditgrowth.Bothinflationandgovernmentdebt(asashareofGDP)declined.A.OutputandinvestmentgrowthinB.MacroeconomicconditionsinChileC.NetcapitalinflowsandpublicandChileprivateinvestmentgrowthinChilePercentPercent/PercentagepointsPercent/PercentofGDPPercent/PercentofGDP2015Inaccelerationyears420Inaccelerationyears20Inaccelerationyears10Innon-accelerationyears315Innon-accelerationyears15Innon-accelerationyears5021010-5155000-1-5-5Output-10-10InvestmentInflationPrimaryGov'tCurrentCreditEmploy-balancedebtaccountgrowth-15ment(RHS)(intens)balanceTFP(RHS)PrivatePublicNetcapitalinvestmentinvestmentinflowD.OutputandinvestmentgrowthinE.MacroeconomicconditionsinF.NetcapitalinflowsandpublicandMoroccoMoroccoprivateinvestmentgrowthinMoroccoPercentPercent/PercentagepointsPercent/PercentofGDPPercent/PercentofGDP2015Inaccelerationyears420Inaccelerationyears20Inaccelerationyears10Innon-accelerationyears315Innon-accelerationyears15Innon-accelerationyears5021010-5155000-1-5-5Output-10-10InvestmentInflationPrimaryGov'tCurrentCreditEmploy-balancedebtaccountgrowth-15ment(RHS)(intens)balanceTFP(RHS)PrivatePublicNetcapitalinvestmentinvestmentinflowSources:BankforInternationalSettlements;Feenstra,Inklaar,andTimmer(2015);Ha,Kose,andOhnsorge(2021);HaverAnalytics;IMF,InternationalFinancialStatistics;IMF,InvestmentandCapitalStockdataset;WDI(database);WEO(database);WorldBank.Note:Thesampleperiodis1980-2022.Accelerationyearscoverthefulldurationoftheepisode.Non-accelerationyearsexcludeaccelerationyearsthatwerenotincludedinthisbox;CPI=consumerpriceindex;TFP=totalfactorproductivity.A.D.Barsaresimpleaveragesofgrowthinoutput,investment,andTFP,aswellasthepercentagepointchangeintheemploymentrate.B.E.BarsaresimpleaverageofthechangeinCPIinpercent,primarybalanceasapercentofGDP,governmentdebtasapercentofGDP,currentaccountbalanceasapercentofGDP,andrealcreditgrowthinpercent.C.F.Barsaresimpleaveragesofgrowthinprivateinvestmentandpublicinvestmentinpercent,andthenetcapital-inflow-to-GDPratioinpercentofGDP.SouthAsiadeficitwidenedslightly.NetcapitalinflowstoGDPimprovedslightlyduringtheaccelerationcomparedIndia(1994-99)withthoseintheyearsbeforetheaccelerationwhilecreditgrowthrosetoover7percentcomparedwith4.8Economicperformance.Indiaexperiencedanpercentinnon-accelerationyears.Atthesametime,investmentaccelerationfrom1994to1999(figureTFPgrowthalmostdoubledduringtheacceleration,B3.1.5).Duringthisacceleration,drivenmostlybythefrom1.9percentinnonaccelerationyearsto3.8privatesector,averageannualinvestmentgrowthpercent.reached10percentperyear,about5.9percentagepointshigherthaninotheryears.ThegovernmentdebtPolicydrivers.The1994investmentaccelerationhad-to-GDPratiowasabout6percentagepointsloweritsrootsinreformsthatstartedin1991,addressingfourduringthisepisodethaninnon-accelerationyears,majoreconomicdistortions(Ahluwalia2002).First,whiletheprimaryfiscaldeficitandcurrentaccountGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER3127BOX3.1Sparkinginvestmentaccelerations:Lessonsfromcountrycasestudies(continued)FIGUREB3.1.5InvestmentaccelerationsinIndiaandUgandaIndiahadaninvestmentaccelerationfrom1994to1999.Duringthisepisode,drivenmostlybytheprivatesector,averageannualinvestmentgrowthreached10percentperyear,whilethegovernment-debt-to-GDPratiodeclinedmaterially.Uganda’sinvestmentaccelerationlastedfrom1993to2012.Theepisodewasaccompaniedbyasignificantreductionininflationandanimprovedprimaryfiscalbalance,aswellasanotableincreaseincreditgrowth.Privateinvestmentalsogrew.A.OutputandinvestmentgrowthinB.MacroeconomicconditionsinIndiaC.NetcapitalinflowsandpublicandIndiaprivateinvestmentgrowthinIndiaPercentPercent/PercentagepointsPercent/PercentofGDPPercent/PercentofGDP20Inaccelerationyears420Inaccelerationyears20Inaccelerationyears15Innon-accelerationyears315Innon-accelerationyearsInnon-accelerationyears102101551510000-5-1-55Output-100InvestmentInflationPrimaryGov'tCurrentCreditTFP(RHS)balancedebtaccountgrowthPrivatePublicNetcapital(intens)balanceinvestmentinvestmentinflowD.OutputandinvestmentgrowthinE.MacroeconomicconditionsinUgandaF.NetcapitalinflowsandpublicandUgandaprivateinvestmentgrowthinUgandaPercent/PercentofGDPPercent20InaccelerationyearsPercent/PercentofGDP20Inaccelerationyears15Innon-accelerationyears15Innon-accelerationyears1020Inaccelerationyears105Innon-accelerationyears500-515-5-1010InflationPrimaryGov'tCurrentCredit(intens)balancedebtaccountgrowth5Output(intens)balance0InvestmentPrivatePublicNetcapitalinvestmentinvestmentinflow(intens)Sources:BankforInternationalSettlements;Feenstra,Inklaar,andTimmer(2015);Ha,Kose,andOhnsorge(2021);HaverAnalytics;IMF,InternationalFinancialStatistics;IMF,InvestmentandCapitalStockdataset;WDI(database);WEO(database);WorldBank.Note:Thesampleperiodis1980-2022.Accelerationyearscoverthefulldurationoftheepisode.Non-accelerationyearsexcludeaccelerationyearsthatwerenotincludedinthisbox;CPI=consumerpriceindex;TFP=totalfactorproductivity.A.D.Barsaresimpleaveragesofgrowthinoutput,investment,andTFP,aswellasthepercentagepointchangeintheemploymentrate.B.E.BarsaresimpleaverageofthechangeinCPIinpercent,primarybalanceasapercentofGDP,governmentdebtasapercentofGDP,currentaccountbalanceasapercentofGDP,andrealcreditgrowthinpercent.C.F.Barsaresimpleaveragesofgrowthinprivateinvestmentandpublicinvestmentinpercent,andthenetcapital-inflow-to-GDPratioinpercentofGDP.tariffandnon-tariffbarriersonimportswerelifted,aircraftandwarships).Afurtherreformwasthemakingiteasiertoimportcapitalgoods.Second,capitaltransitiontoamarket-determinedexchangerateinaccountrestrictionswereloosenedtoallowgreater1993.Thesereformspromotedinternationalcapitalinflows.Third,statecontrolofthebankingandinvestmentandtrade,andstrengthenedtheprivateinsurancesectorswasreducedtofacilitategreatersectorgenerally(Ahmadetal.2018;Guptaetal.2018).competitionandefficiency,leadingtoincreaseddomesticallysuppliedcredittotheprivatesector.Sub-SaharanAfricaFinally,mostofthepublicsectormonopolieswereUganda(1993-2012)ended.Sectorsreservedtopublicfirmsshrankfrom18importantindustries(includingironandsteel,Economicperformance.Uganda,alow-incomeelectricity,andtelecommunications)tothree(atomiccountry,hadalongperiodofinvestmentaccelerationenergy,railtransport,andnationaldefense-relatedbetween1993and2012(figureB3.1.5).Annualaverageinvestmentgrowth,estimatedat10.9percent128CHAPTER3GLOBALECONOMICPROSPECTSJANUARY2024BOX3.1Sparkinginvestmentaccelerations:Lessonsfromcountrycasestudies(continued)duringtheaccelerationperiod,was5percentagepointsConclusionhigherthanduringnon-accelerationyears.Outputgrowthwassimilarlyelevatedduringtheacceleration,esecountrystudiesshowhowinitialconditions,buttoalesserextent—averaging7.4percentintogetherwithcomprehensiveeffortstoimprovefiscal,accelerationyears,comparedwith4.2percentmonetary,andstructuralpolicies,cansparkinvestmentotherwise.Theepisodewasaccompaniedbyaaccelerations(tablesB3.1.1,B3.1.2,andB3.1.3).Thesignificantdropininflation,animprovedprimarypolicypackagesdocumentedaboveallowedthe10balance,asizablereductioninthedebt-service-tocountriestoseizefavorableexternalconditionsandturnexportsratio,andanotableincreaseincreditgrowth.themintoaccelerations.ThecasestudiesalsoBothprivateandpublicinvestmentgrewrobustlydemonstratehowsuchaccelerationscanbethesourceofduringtheacceleration.Theproportionofthesizableeconomicanddevelopmentachievements.populationinpovertyfellfrom68percentin1993to35percentin2013(WorldBank2016).Thecomprehensivepolicypackagesoverlappedconsiderably,evenifthesubsequentaccelerationsPolicydrivers.The1993accelerationwassupportedbydifferedinsomeimportantdimensions(suchasthesplitawiderangeofpolicies(WorldBank2007).Priortobetweenprivateandpublicinvestmentgrowth,orlevelstheacceleration,Ugandacommittedtofiscalmeasuresofcreditgrowth).First,ataboutthestartofeachencompassingpublicenterpriseandcivilservicereformsacceleration,improvementsinthecredibilityandwhichhelpedstabilizethemacroeconomy(Kuteesaetindependenceofmonetarypolicyhelpedachieveloweral.2010;MawejjeandOdhiambo2021).Publicandmorestableinflation(forexample,theRepublicofenterprisereforms,especiallytheprivatizationofkeyKoreain1998).Second,allaccelerationswereprecededgovernment-ownedenterprisesandtheintroductionofbyfiscalconsolidation,eitherthroughstricterprivatesectorparticipationinpublicutilities,soughttoexpenditurecontrols,theeliminationofsubsidies,taxreducetheroleofthegovernment(ReinikkaandCollierreforms,orprivatizationofstate-ownedenterprises(for2001;WorldBank2004).Inaddition,acomprehensiveexample,Colombia,India,orUganda).Third,alldebtstrategyformulatedin1991strengtheneddebtaccelerationswereaccompaniedstructuralreforms.management(Kitabire2010).MonetarypolicyreformsTheseencompassedtradeandcapitalaccountfocusedonattainingaflexibleexchangerateandpriceliberalizationefforts,thestrengtheninganddeepeningstability(HenstridgeandKasekende2001).offinancialmarketsandtheirregulation,andimprovementstobusinessclimates,includingpoliciestoAvarietyofstructuralreformswereimplementedinthepromotegreatercompetition(forexample,India,early1990stoimproveefficiencyinthebankingsector,Polandin1992,andTürkiye).liberalizethecapitalaccount,reducetradebarriers,andeliminatetax,legal,andotherregulatoryburdensonInvestmentaccelerationswerecrucialforeconomicandfirms(Kuteesaetal.2010;WorldBank2004).humandevelopment.OutputgrowthwassubstantiallyDebtreliefinitiativesanddevelopmentassistancehigherduringthese13accelerationsthaninnon-programschampionedbytheinternationalcommunityaccelerationyears.Further,formanycountries,alsoplayedasignificantroleinsupportingtheproductivityandemploymentgrowthwasonlypositive,acceleration.Forexample,Ugandawasthefirstcountryonaverage,duringaccelerations.SeveralcountrieseithertoqualifyfortheHeavilyIndebtedPoorCountriesdebtbecamehigh-incomecountriesduringtheaccelerationreliefinitiativein1998andbenefitedfromthe(forexample,theRepublicofKoreain2001,PolandinMultilateralDebtReliefInitiativein2006(Andrewset2009,orUruguayin2012),orsawsizablegainsintheal.1999;Kitabire2010).Uganda’sparticipationinfightagainstextremepoverty(Colombia,India,theseinitiativesreducedthedebt-service-to-exportsMorocco,Uganda).ratiobymorethanhalf,creatingfiscalspacethatallowedmorefiscalresourcestobechanneledintoInsomecases,theinternationalcommunityplayedainvestment(Muwanga-ZakeandNdhaye2001;criticalroleinaddressinglong-standingdebtproblems,Kitabire2010).suchthatinvestmentaccelerationscouldtakehold.Forexample,well-calibrateddebtreliefprecededoraccompaniedaccelerationsinUgandaandUruguay.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER3129BOX3.1Sparkinginvestmentaccelerations:Lessonsfromcountrycasestudies(continued)TABLEB3.1.1InvestmentandoutputgrowthduringandoutsideinvestmentaccelerationsCountryAccelerationInvestmentgrowthPrivateinvestmentPublicinvestmentOutputgrowthepisodegrowthgrowthDuringOutsideDuringOutsideDuringOutsideDuringOutsideChile1986-9312.3(13.2)3.9(5.1)13.2(16.0)4.0(5.9)9.2(20.6)4.8(3.1)7.6(7.1)3.4(3.4)Colombia2001-0712.7(11.8)2.3(3.1)13.8(13.4)2.1(2.8)6.1(5.7)4.2(2.9)4.5(4.7)3.3(3.4)India1994-9910.0(9.0)4.1(4.6)13.2(11.9)3.2(3.4)4.6(5.9)4.8(2.5)6.8(7.1)5.2(6.1)Korea,Rep.1985-9612.2(11.2)1.9(1.2)12.9(12.1)1.5(-0.1)9.4(8.2)4.9(4.5)9.3(9.4)4.0(3.3)Korea,Rep.1999-20071.9(1.2)1.5(-0.1)3.3(2.4)4.9(4.5)6.3(5.3)4.0(3.3)Morocco1996-20095.2(5.1)2.2(2.0)5.7(5.3)3.3(2.8)6.5(4.0)2.0(-0.3)5.0(5.4)3.2(4.0)Malaysia1988-977.5(7.2)-3.0(-1.2)7.8(7.8)-2.9(-2.3)13.4(11.7)-0.2(-10.3)9.2(9.2)3.4(5.4)Poland1992-200017.9(16.3)-3.0(-2.1)19.9(20.1)-3.0(-3.7)8.5(6.4)-1.7(0.3)5.0(4.7)-0.7(1.3)Poland2003-0810.4(8.5)-3.0(-2.1)10.7(10.2)-3.0(-3.7)15.8(17.4)-1.7(0.3)4.9(4.6)-0.7(1.3)Türkiye2003-0810.4(8.9)4.6(2.8)9.3(7.2)4.3(2.3)14.3(17.1)5.5(4.7)6.2(6.4)3.7(4.9)Uganda1993-201214.3(17.1)5.9(2.1)14.3(17.1)4.0(2.5)9.6(11.0)31.0(12.2)7.4(7.1)4.2(4.7)Uruguay1991-9810.9(10.3)-4.4(-4.6)11.4(10.6)-0.1(-4.7)9.5(7.9)-9.3(-6.6)4.5(4.7)0.0(0.8)Uruguay2004-1410.9(9.3)-4.4(-4.6)12.0(7.0)-0.1(-4.7)8.9(9.8)-9.3(-6.6)5.4(5.0)0.0(0.8)9.9(10.7)10.5(13.4)Source:WorldBank.Note:Allnumbersareaveragegrowthratesinpercentwithmediangrowthratesinparenthesesfortherespectiveaccelerationyears,orallnon-accelerationyearsinacountrysince1980.Duringreferstostatisticsfortheaccelerationyearsbetween1980-2022.Outsiderefersstatisticsforallnon-accelerationyearsoverthesameperiod.Fordetailsabouttheaccelerationepisodes,seebox3.1.TABLEB3.1.2EconomicindicatorsduringandoutsideinvestmentaccelerationsCountryAccelerationRealcreditgrowthTFPgrowthChangeinNetcapitalinflowsCumulativeepisodeemploymentrate(percentofGDP)realGDPpercapitaChile1986-93DuringOutsideDuringOutsideDuringOutsideDuringOutsidegrowthColombia2001-077.7(7.4)7.1(8.5)3.4(3.2)-0.3(-0.2)1.1(1.2)0.1(0.2)0.1(1.7)8.4(9.9)(percent)India1994-993.7(2.3)6.9(6.1)1.4(1.1)0.0(0.2)0.3(0.4)-0.2(-0.1)4.4(5.0)4.9(4.8)DuringKorea,Rep.1985-967.1(5.6)4.8(5.4)3.8(4.4)1.9(2.0)3.3(2.6)52Korea,Rep.1999-200714.0(13.7)9.5(7.6)2.3(2.2)1.1(0.8)0.1(0.1)2.8(2.8)3.5(3.6)23Morocco1996-20094.9(4.6)9.5(7.6)2.4(1.9)1.1(0.8)0.4(0.3)-0.2(0.1)2.3(3.0)3.5(3.6)27Malaysia1988-978.3(7.5)5.1(3.5)1.7(1.5)0.2(1.1)0.5(0.5)-0.2(0.1)3.5(3.5)3.9(3.7)140Poland1992-200016.7(17.6)4.1(3.6)0.8(0.6)-0.1(1.6)0.6(0.6)-0.2(0.0)-0.3(-0.2)3.7(3.5)49Poland2003-088.2(11.2)1.6(6.9)3.1(3.1)-1.9(-0.0)-0.5(-1.8)-0.2(-0.1)6.0(5.6)4.3(4.7)50Türkiye2003-0812.4(14.2)1.6(6.9)1.7(2.0)-1.9(-0.0)2.1(1.9)-0.8(-0.5)5.4(5.7)4.3(4.7)74Uganda1993-201223.2(21.7)6.0(6.3)1.0(1.5)-0.7(0.7)0.0(0.1)-0.8(-0.5)8.3(7.5)1.7(1.6)50Uruguay1991-9815.7(11.7)5.7(5.0)-0.2(-0.0)7.4(7.5)3.0(3.0)29Uruguay2004-145.4(7.3)-2.9(-0.4)2.0(2.1)-1.2(-0.7)-0.2(-0.2)4.5(5.6)272.8(8.6)-2.9(-0.4)2.6(2.3)-1.2(-0.7)1.0(0.8)3.3(4.2)4.5(5.6)114-0.1(-0.4)3.4(3.4)30-0.1(-0.4)8.3(7.8)65Source:WorldBank.Note:Allnumbersexceptlastcolumnareaveragegrowthratesinpercentwithmediangrowthratesinparenthesesfortherespectiveaccelerationyears,orallnon-accelerationyearsinacountrysince1980.Duringreferstostatisticsfortheaccelerationyearsbetween1980-2022.Outsiderefersstatisticsforallnon-accelerationyearsoverthesameperiod.Emptycellsreflectmissingdata.Fordetailsabouttheaccelerationepisodes,seebox3.1.GDP=grossdomesticproduct;TFP=totalfactorproductivity.130CHAPTER3GLOBALECONOMICPROSPECTSJANUARY2024BOX3.1Sparkinginvestmentaccelerations:Lessonsfromcountrycasestudies(continued)TABLEB3.1.3PolicychangesandreformsduringinvestmentaccelerationsCountryAccelerationFiscalpolicyMonetarypolicyStructuralpolicyExternalenvironmentChileepisodeColombia1986-93FiscalCentralbankTradeliberalizationRisingcopperpricesinIndiaconsolidationindependence(1989)Financialsectordeepeningthelate1980sMalaysiaAdoptionofinflationBankingreformsMoroccotarget(1990)Poland2001-07FiscalIncreasedexchangeEnhancedtradelinkagesRisingoilpricesPolandconsolidationrateflexibilityFinancialsectordeepeningKorea,Rep.StructuraltaxAdoptionofinflationStrongglobalgrowthandreformstarget(1999)supportiveglobalKorea,Rep.SOEandpublicEnhancedcentralfinancialconditionsinvestmentbankindependencemanagementreforms1994-99FiscalIncreasedexchangeEndedmostpublicsectorSolidglobalgrowthconsolidationrateflexibilitymonopoliesStructuraltaxCapitalaccountandtradereformsliberalizationReducedstatecontrolofbankingandinsurance1988-97StructuraltaxCurrencydevaluationFinancialsectordeepening(betterreforms(revenueaccesstocredit)collectionfocus)1996-2009FiscalReformstobalanceTradeliberalization(tradeStrongglobalgrowthandconsolidationfixedexchangerateagreementswiththeEUandU.S.)supportiveglobalStructuraltaxreformsReductioninpricecontrolsandfinancialconditionssubsidiesFinancialsectordeepening(betteraccesstocredit)1992-2000ReductionofIncreasedexchangePrivatizationofstate-ownedParisClubdebtinefficientrateflexibilityenterprisesforgivenesssubsidiesMonetarytighteningTradeliberalization(joinedGATTSOEmanagement(curbingexcesscreditandsignedmultipletradereformsgrowth)agreements)StructuraltaxandAdoptionofinflationCapitalaccountliberalizationentitlementtargeting(1998)BankingreformsandreformsrecapitalizationCompetitionreforms2003-08TargetedtaxIncreasedexchangeFinancialsectordeepeningAccessiontotheEUinreductionstorateflexibilityAlignmentofmanypoliciesand2004promoteregulationstotheEUStrongglobalgrowthandinvestmentsupportiveglobalfinancialconditions1985-96FiscalEndcentralbankTradeliberalization(reducedconsolidationandfinancingofimportrestrictions)rules(balancedgovernmentReductioninpricecontrolsbudgetprinciple)Competitionreforms(MonopolyInstitutionalfiscalRegulationandFairTradeAct)improvements(establishingabudgetcouncil)1999-2007FiscalEnhancedcentralLiberalizationofcapitalmarketsStrongglobalgrowthandconsolidationbankindependence(reducedFDIrestrictions)supportiveglobal(especiallylowerIncreasedexchangeCorporategovernancereformsfinancialconditionsspendinggrowth)rateflexibilityRestructuringoffinancialAdoptionofinflationcorporationstargeting(1998)GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER3131BOX3.1Sparkinginvestmentaccelerations:Lessonsfromcountrycasestudies(continued)TABLEB3.1.3Policychangesandreformsduringinvestmentaccelerations(continued)CountryAccelerationFiscalpolicyMonetarypolicyStructuralpolicyExternalenvironmentepisodeTürkiye2003-08FiscalconsolidationCentralbankPrivatizationsandcorporateStrongglobalgrowthandandrules(primaryindependence(2001)restructuringsupportiveglobalsurplustarget)BusinessclimatefinancialconditionsimprovementsTradeliberalizationLabormarketliberalizationBankingreformUganda1993-2012PrivatizationsandIncreasedexchangeBankingreformHIPCandMultilateralSOEreformsrateflexibilityTradeliberalizationDebtReliefInstitutionalfiscalBusinessclimateDevelopmentassistanceimprovementsimprovements(establishingUgandaTaxauthority)Uruguay1991-98FiscalconsolidationIncreasedexchangeTradeliberalizationReducedexternaldebtrateflexibility(MERCOSURregionaltradethroughBradyplanLimitcentralbankagreement)financingofgovernmentUruguay2004-14InstitutionalfiscalIncreasedexchangeBankingreformElevatedagriculturalimprovementsrateflexibilityBusinessclimatecommodityprices(improvedpublicEnhancedcentralimprovementsImprovingregionaltradebalancesheetbankindependenceintegrationmanagement)AdoptionofinflationSupportiveglobaltargeting(2005)financialconditionsSource:WorldBank.Note:EU=EuropeanUnion.Fordetailsabouttheaccelerationepisodes,seebox3.1.132CHAPTER3GLOBALECONOMICPROSPECTSJANUARY2024ANNEX3.1Identificationof•Theaveragegrowthrateofinvestmentoversixyearsmustbeatleast2percentagepointsinvestmentaccelerationshigherthanintheprevioussixyears.Definition.Investmentaccelerationsaredefined•Thelevelofthecapitalstockpercapitaattheasepisodesofrapidaccelerationininvestmentperendoftheaccelerationmustexceeditspre-capitathataresustainedforatleastsixyears.episodepeak.Usingpercapitagrowthininvestmenttakesintoaccountthesignificanceofpopulationgrowth,Thefirsttwocriteriaaredesignedtoidentifyrapidwhichhasaveragedmorethan2percentintheaccelerationininvestmentpercapitagrowth.ThetypicalEMDEbetween1950and2022.Percapitafirstcriterionrequiresthatgrowthisrapid,settinggrowthratesalsohaveabetterlinkwithGDPperathresholdofatleast4percentpercapitagrowthcapitagrowth,whichisthefocusoflong-termperyear.Thisratecorrespondstothelong-rungrowthanalyses(Libman,Montecino,andRazmimediangrowthrateofinvestmentforthetopone-2019).thirdofcountriesinthesample.11Thesecondcriterionconfirmsthatinvestmentaccelerates.ItAssuggestedbyBarroandSala-i-Martin(1992)doessobyrequiringaminimumincreaseof2andChristianoandFitzgerald(2003),economicpercentagepoints,whichisthemediandifferenceindicatorstakenmorethanfivecalendaryearsingrowthbetweentwoneighboringsix-yearapartarelessinfluencedbybusinesscycleperiodsforthetopone-thirdofcountriesinthefluctuations.AccordingtoHausmann,Pritchett,sample.Finally,therequirementthatcapitalstockandRodrik(2005),outputgrowthaccelerationspercapitaattheendofanaccelerationmustrequireheightenedoutputgrowthtolastatleastexceeditspre-episodepeakensuresthattheeightyears.Giventhevolatilenatureofepisodesidentifiedareindeedaccelerationsandinvestmentgrowth,theapproachpreferredherenotmerelyperiodsofrecoveries.Threeadditionalusesatimeframeofaminimumofsixyears.Incriteriaareaddedtoidentifymorereasonableaddition,therequirementthatcapitalstockperepisodesandstartingyears(seebelow).capitaattheendofanaccelerationmustexceeditspre-episodepeakisaddedtoensurethattheComparisonwithotheridentificationepisodesidentifiedareindeedaccelerationsandapproaches.Theidentificationapproachadoptednotmerelyperiodsofrecoveries.Thesensitivityherealignswiththeexistingstudiesonoutputandanalysisshowsthatshorter(orlonger)periodsofcapitalstockgrowthaccelerations,butdiffersinaccelerationdonotaffectthemainresultsofthistwokeydimensions:thedurationofheightenedchapter(seeannexes3.3and3.4fordetails).Basedgrowthrequiredandthemaincriteriaforonthelengthofsixyearsandthesample’sendidentifyingaccelerations.First,allexistingstudiesyearof2022,thelatestyearanaccelerationcanonaccelerationstypicallyadoptaneight-yearstartisin2017.ThedistributionofepisodesbyframeworkwithoutadaptingtothevolatilenaturecountrygroupsisshownintableA3.1.1,andtheofinvestmentgrowth(forinstance,Libman,listofepisodesinEMDEsdetailedintableA3.1.2.MontecinoandRazmi,2019;ManzanoandSaboin2022).Second,thevaluesforvariousThechapteraimstoidentifythesametypeofcriteriadetailedabovearetakenfromsamplelarge-scaleinvestmentaccelerationwithtrans-statistics,whileotherapproachesusedad-hocformativedevelopmentimplications.Toavoidvalues(forinstance,Hausmann,Pritchettandpoolingdifferenttypesofaccelerations,thesameRodrik2005;Jong-A-PinanddeHaan2011).Insetofcriteriadetailedbelowisappliedtoperaddition,Libman,MontecinoandRazmi(2019)capitagrowthininvestmentinalleconomiesinstudycapitalstockgrowthaccelerations.Theirthesample:approachdiffersslightlyfromtheoneusedherein•Theaveragegrowthrateofinvestmentover11Inthesensitivityanalyses,alternativethresholdsareused,sixyearsmustbeatleast4percentayear.whichdonotchangethemainresults(seeannex3.3).GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER3133howtheyidentifythecorrectstartingyears(thatbepositiveinatleastfiveoutofthesixyearsofanis,usingabreaktesttosmoothedcapitalstockaccelerationperiod.Second,theinvestmentpergrowthseries)andthefocusoncapitalstockpercapitagrowthrateatthebeginningofthesix-yearcapitagrowth.Theuseofcapitalstockgrowthperiodshouldnotbenegative.Third,percapitamakestheirsetofaccelerationslesslinkedwithinvestmenthastoaccelerateandbehigherinoutputperformance.thesecondyearofanepisodethaninthefirstyear.Finally,ifmorethanoneyearqualifiesasthestartAdditionalrequirements.Afewadditionaloftheinvestmentaccelerationepisode,thefirstrequirementsareaddedtoavoidoveridentifyingyearthatmeetsthecriteriaisidentifiedastheinvestmentaccelerationsandtoidentifymorestart(Jong-A-PinandDeHaan2008).Thereasonableepisodesandstartingyears.Theseunconditionalprobabilityofexperiencinganrequirementsarespecificallyaddedtotailortheinvestmentaccelerationinadecadeiscalculatedfilteringapproachtothevolatilenatureofbydividingthenumberofidentifiedinvestmentinvestmentgrowth.Firstly,toexcludeepisodesaccelerationsbythetotalnumberofcountry-yearsdrivenbyshort-termsurgesininvestment,theinthesample(laterconvertedtodecades)duringapproachmandatesthatinvestmentgrowthmustwhichanaccelerationcouldoccur.TABLEA3.1.1Investmentaccelerations:DistributionovercountrygroupsGroupingNumberofNumberofinvestmentEMDENumberofNumberofinvestmentgrowtheconomieseconomiesaccelerationsaccelerationsgroups5461AEs3577CIM2513EAP10ECA819CEX445LACMNA1117LICs7SARSSA1939FCS7911Smallstates4371922Source:WorldBank.Note:Numberofeconomiesreferstoeconomiesforwhichdataareavailable.Allnon-advancedeconomieshavebeenclassifiedinregionsandEMDEgroupsasusedbytheWorldBankinfiscalyear2024.AEs=advancedeconomies;CIM=commodity-importingEMDEs;CEX=commodity-exportingEMDEs;EAP=EastAsiaandPacific;ECA=EasternEuropeandCentralAsia;EMDEs=emergingmarketanddevelopingeconomies;FCS=fragileandconflict-affectedsituations;LAC=LatinAmericaandtheCaribbean;LICs=low-incomecountries;MNA=MiddleEastandNorthAfrica;SAR=SouthAsia;SSA=Sub-SaharanAfrica.134CHAPTER3GLOBALECONOMICPROSPECTSJANUARY2024TABLEA3.1.2ListofinvestmentaccelerationsinEMDEsEconomyStartingyear(s)ofinvestmentEconomyStartingyear(s)ofinvestmentaccelerationsaccelerations1967,1978,1988,2006Albania1999Malaysia1971,1984,1992,2002,20141972,1983Algeria1973,1999Mali1991,20031976,2005Argentina1967Mauritius1996Armenia1997Mexico2007Bahrain2012Mongolia2005Belarus1999Morocco2014Belize1986Mozambique1961,2010Benin1966Namibia1969Bolivia2005Nepal2006Botswana1996Nicaragua2002Brazil1968,2005Nigeria1965,1990,2005Bulgaria1994NorthMacedonia1971,2005,2016BurkinaFaso1968,2002,2017Oman1961,1969,1992,2002Cambodia2011Panama1973,2012Chile1977,1986,2002Paraguay1983,1992,2003,2017China1977,1991Peru1969,1999,2014Colombia2001Philippines1970,2002CostaRica1973,1983,2004Poland2003DominicanRepublic1970,2005,2014Romania1974,1990,2002Ecuador2007Rwanda2002ElSalvador1970,1984,1991,2017SaudiArabia1958,1976,1987,2001EquatorialGuinea1994SriLanka1974Honduras2003Tanzania1969,2003,2010Hungary1993,2013Thailand1993India1985,1994,2004Togo1974,1991,2004Indonesia1987,2003Türkiye2002,2013Iran,IslamicRep.1963,1999UgandaJamaica1966UruguayKenya2007VietNamKuwait1990,2001,2012Source:WorldBank.EMDEs=emergingmarketanddevelopingeconomies.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER3135ANNEX3.2Methodologicalusinglogitregressions.Thefollowingmodelisestimated:annexPr(Yi,t=1Xi,t)=ɸ(βXi,t),DatawherePrdenotestheprobabilitythatasustainedDataforinvestment,GDP,capitalstock,andinvestmentaccelerationtakesplaceincountryiinpopulationfortheperiod1950-2019aresourcedyeart(Yi,t),conditionedonasetofvariables(Xi,t),fromthePennWorldTable(PWT)10.01becauseandɸdenotesthecumulativedistributionthisdatabasecoversmanymorecountriesthanfunction.Becausethereissomeuncertaintyalternativedatabases.Toupdatetheinvestmentaroundtheprecisestartingdateofanacceleration,dataprovidedbyPWT,investmentgrowthdatatheapproachofHausmann,Pritchett,andRodrikfor2020-22issourcedfromHaverAnalytics,(2005)andLibman,Montecino,andRazmiWorldBankDevelopmentIndicators(WDI),and(2019)isfollowed:thedependentvariabletakesGlobalEconomicProspects(GEP).Tocomputeperthevalue1intheyearimmediatelybeforeandthecapitaseriesofGDPandinvestmentafter2019,yearimmediatelyafterthebeginningofthepopulationdataaretakenfromtheUnitedepisode,and0otherwise.Also,theyearsanNationspopulationprospectsdatabase.Thefinalepisodecannottakeplace(thatis,yeartwountilsampleofeconomiesincludes35advancedtheendofanepisode,aswellasthefirstandlasteconomiesand69EMDEs(tableA3.1.1).Thesefiveyearsofthesample)areexcluded.Becauseofeconomiesrepresentabout97percentofglobaldatalimitations,theregressionscovertheperiodGDPsincethemid-2000s(WorldBank2023a).1985-2017.Furthermore,topreventasmallnumberofcountriesfromhavingalargeinfluenceDataontheexplanatoryvariablesaretakenfromaontheresults,estimatesareunweighted.varietyofsources.Institutionalqualityisproxiedbythe“lawandorder”subcomponentofthePRSTheanalysisfocusesontheeffectofinstitutionalGroup’sInternationalCountryRiskGuide(ICRG).quality(IQ)andeconomicpolicyreforms(EPR)TheundervaluationindexisconstructedfollowingonthelikelihoodthataninvestmentaccelerationRodrik(2008)usingdatafromPWT.Globaloccurs.Inthemodel,thelevelofinstitutionalGDPgrowthiscomputedusingGDPweightsatquality,theeconomicpolicyreformindicator,andaverage2010-19pricesandmarketexchangerates.theirinteractionareincluded.PrimarybalanceasashareofGDPistakenfromtheIMF’sWorldEconomicOutlook.InflationdataThemodelis:aretakenfromHa,Kose,andOhnsorge(2021).TraderestrictionsandinflationtargetingindicesPr(Yi,t=1Xi,t)=ɸ(β0+β1IQi,t-1+β2EPRi,taretakenfromtheIMFstructuralreformdatabase+β3[IQi,t-1EPRi,t]+β4CVi,t-1+µi,t),(Alesinaetal.2020)andIMFAREAERdatabase.ThecapitalaccountrestrictionsindexistakenwhereCVrepresentsthecontrolvariablescaptur-from(ChinnandIto2008).Additionalcovariatesingthecountry’sdevelopmentstatusanddomesticfortherobustnesschecksincludenaturalresourceandexternalcontrols,suchastheglobalGDPrentasashareofGDPfromWDI;globalgrowthrate.InstitutionalqualityismeasuredbyrecessionyearsdefinedbyKose,Sugawara,andthelawandordersubindexfromICRG.Econom-Terrones(2020);andglobalfinancialcyclefactor,icpolicyreformsarecalculatedastheannualretrievedfromMiranda-AgrippinoandReychangeinthetraderestrictionindexandthe(2020).Chin-Itocapitalopennessindex(measuredinpercent),percentagepointsofGDPfortheMethodologyprimarybalance,oradummyvariableindicatingwhetheracountryhasadoptedaninflationtargetThecorrelatesandprobabilityofaninvestmentortightenedaninflationtargetsincetheprecedingaccelerationstartinginagivenyearareestimatedyear.136CHAPTER3GLOBALECONOMICPROSPECTSJANUARY2024EmpiricalresultsTableA3.2.2presentstheimpactofpolicychangesontheprobabilityofaninvestmentTableA3.2.1showstheresultsfortheimpactofaccelerationusingthesetofcontrolsincolumn(2)institutionalqualityandcontrolvariablesontheoftableA3.2.1.Tosimplifytheinterpretationofprobabilityofaninvestmentaccelerationstartingtheresults,theinstitutionalqualityvariableandinthefollowingyear.Column(1)showsthemainthepolicychangevariablesaredemeaned.Theinstitutionalqualityvariable,andcontrolsforresultsmirrorthoseintableA3.2.1,showingthatcountry-specificconditionsthatcapturethehigherinstitutionalquality,aswellasthefourdevelopmentstatus(GDPpercapita),levelofpolicychangespresentedintableA3.2.2,increasecapital(capital-to-outputratio),andtheunderval-thelikelihoodofaninvestmentacceleration.uationindexfollowingRodrik(2008).ColumnsFurthermore,theimpactofapolicyisdependent(2)through(6)addadditionalcontrolvariablesonthelevelofinstitutionalquality.Fortwopolicyforglobaleconomicconditions(globalGDPchanges,theinteractiontermbetweenthelaggedgrowth),economicstability(inflationrate),andinstitutionalqualityvariableandthepolicychangetheleveloffiscalandexternalpoliciesofthisaresignificant.Column(5)includesallfourpolicychapter.Basedontheseresultsandthelimitsthatreformsconcurrentlybutdoesnotincludeantheleveloffiscalandexternalpolicyplaceontheinteractiontermwithinstitutionalquality.samplesize,column(2)isthepreferredbaselinespecificationfortheanalysisofpolicyimpactsontheprobabilityofaninvestmentacceleration.TABLEA3.2.1Institutionalqualityandinitialconditionsasdriversofthelikelihoodofinvestmentaccelerations(1)(2)(3)(4)(5)(6)Dependentvariable0.2070.204Investmentpercapitagrowthacceleration0.2760.222Laggedinstitutional(3.49)(3.45)(4.50)(2.91)quality(IQ)-0.016-0.0060.2070.219-0.089-0.206LaggedGDPpercapita(-0.25)(-0.09)(-1.18)(-1.97)(3.48)(2.96)Laggedcapital-to-outputratio-0.521-0.525-0.376-0.638(-3.84)(-3.87)-0.022-0.192(-2.58)(-3.46)Laggedundervaluationindex0.7520.7661.0731.634(4.74)(4.82)(-0.35)(-2.33)(5.89)(8.17)LaggedglobalGDPgrowth0.1090.260-1.610(2.14)-0.504-0.748-0.009(4.09)Laggedinflationrate(-3.47)(-3.50)-0.012Laggedgovernmentexpenditure2,200-1.965(-3.71)(-4.43)-1.296(-1.85)toGDP0.027(-3.95)(-2.11)0.038LaggednetcapitalinflowstoGDP1172,2000.7501.4321,936(3.71)Constant960.0290.043117(4.75)(7.23)107-0.010Numberofobservations9695(-2.78)PseudoR2-0.000-1.384Numberofepisodes(-0.09)(-1.71)Numberofeconomies1,5900.0370.079(4.31)8895-1.571-0.877(-3.39)(-1.57)2,1891,7670.0260.056117969396Source:WorldBank.Note:Thistableshowstheestimatedcoefficientsforthechangeinlog-odds.Robuststandarderrorsinparentheses.,,andindicatesignificanceatthe1,5,and10percentlevels,respectively.Investmentpercapitagrowthaccelerationsareidentifiedasdescribedinannex3.1.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER3137TABLEA3.2.2Institutionalqualityandpoliciesasdriversofthelikelihoodofinvestmentaccelerations(1)(2)(3)(4)(5)Dependentvariable0.227Investmentpercapitagrowthacceleration0.472Laggedinstitutional(3.60)(5.06)quality(IQ)-0.0160.2240.2490.289-0.021LaggedGDPpercapita(-0.23)(-0.17)(3.66)(3.27)(3.71)-0.311Laggedcapital-to-outputratio-0.556(-1.24)(-3.61)-0.018-0.0160.095Laggedundervaluationindex0.9632.078(5.81)(-0.28)(-0.22)(1.00)(6.96)LaggedglobalGDPgrowth0.1620.125(2.99)-0.533-0.593-0.420(1.90)Changeincapitalaccountopenness0.0050.004(2.98)(-3.86)(-3.47)(-2.18)(2.01)InteractionoflaggedIQandchangeincapitalaccount0.001openness(percent)(0.88)0.7641.2591.3921.463(4.13)Adoptionorloweringofinflationtarget(dummy)-1.125(4.74)(6.25)(5.18)(-1.83)0.124InteractionoflaggedIQandadoptionorloweringof1,9510.1160.1520.062(2.72)inflationtarget(dummy)0.037(2.28)(2.59)(1.13)0.018Changeinprimarybalance(percentofGDP)106(2.96)941.1330.0320.010InteractionoflaggedIQandchangeinprimarybalance(3.75)(2.20)(2.41)-1.242(percentofGDP)-0.0580.0270.014(-1.22)(-0.31)(3.58)(2.88)1,006Changeintraderestrictionindex(percent)-1.9070.108-1.094-1.136(-2.28)InteractionoflaggedIQandchangeintraderestriction(-1.85)(-1.71)1,39360index(percent)2,2001,6830.051710.0360.051Constant83Numberofobservations1178774PseudoR29695NumberofepisodesNumberofeconomiesSource:WorldBank.Note:Thistableshowstheestimatedcoefficientsforthechangeinlog-odds.Robuststandarderrorsinparentheses.,,andindicatesignificanceatthe1,5,and10percentlevels,respectively.Investmentpercapitagrowthaccelerationsareidentifiedasdescribedinannex3.1.138CHAPTER3GLOBALECONOMICPROSPECTSJANUARY2024ANNEX3.3Investmentsettinglowerthresholdsforgrowthratesduringaccelerationsorusingshorteraccelerationaccelerationsusingdurationsresultinalargernumberofidentifiedepisodes.Despitevariationsinthenumberofdifferentfilteringalgorithmsepisodesidentifiedunderdifferentparametercombinations,includingthosebasedonaggregateTableA3.3.1displaystherobustnessoftheratherthanper-capitainvestmentgrowth,theidentificationapproachwhenalternativefindingsshowsustainedandheightenedparametervaluesoftheminimumaverageinvestmentandoutputgrowth,whichsupportsinvestmentgrowthrateandminimumlengthoftheuseofthebaselineapproach.investmentaccelerationareapplied.Overall,TABLEA3.3.1Investmentaccelerationsusingdifferentfilteringalgorithms(1)(2)(3)(4)(5)(6)(7)(8)(9)CountriesFilteringmethodNumberofInvestmentInvestmentt-testOutputperOutputpert-testepisodes(pvalue)capitagrowthcapitagrowth(pvalue)withoutBenchmarkpercapitapercapitaaccelerations6years,4%not1920.00BeforeDuring0.00percapitagrowthBeforegrowthDuring115years,4%2260.001.744.500.007years,4%1.569.87116years,3%2430.000.006years,5%1423.3410.730.001.974.130.0082100.000.00231651.7210.000.001.884.410.0010160.209.961.644.601.469.281.744.261.7710.741.814.78Source:WorldBank.Note:Thistabledisplaysthenumberofinvestmentaccelerationepisodesidentifiedusingdifferentthresholdsforthealgorithmaswellasinvestmentgrowthmeasuredinaggregateratherthanpercapitaterms.Incolumn(1)yearsreferstotheminimumdurationoftheacceleration,andthepercentgrowthratereferstotheminimumaveragegrowthrateof(percapita)invest-mentgrowth.Thebaselineasdescribedinannex3.1usesaminimum4percentaveragegrowthandminimumdurationof6yearsasparameters.Column(2)showsthenumberofidentifiedaccelerations.Columns(3)and(4)showthemeaninvestmentpercapitagrowthrateduringthesixyearsbeforeandduringanacceleration.Forthealgorithmthatdoesnotusepercapitainvestmentgrowthinthesecondrow,columns(3)and(4)showmeaninvestmentgrowthnotinpercapitaterms.Column(5)showsthep-valuefromatwo-sidedtestcomparinginvestmentgrowthratesbeforeandduringanacceleration.Columns(6),(7),and(8)showthepercapitaoutputgrowthratesbeforeandduringaninvestmentaccelerationalongwiththep-valueofthetwo-sidedtestassessingifthemeansareequal.Column(9)showsthenumberofcountrieswithoutidentifiedinvestmentaccelerationsforthegivencombinationofparameters.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER3139ANNEX3.4Robustnessgrowththresholds.IntableA3.4.3,thefollowingadditionalcontrolvariablesareincludedintheexercisesbaselineregression:laggedpercapitainvestmentgrowth,theglobalrecessionyeardummiesdefinedTheempiricalresultspresentedinannex3.2areinKose,Sugawara,andTerrones(2020),theglob-robusttotheuseofalternativesetsofepisodesalfinancialcyclefactorprovidedbyMiranda-identifiedusingdifferentalgorithmthresholdsandAgrippinoandRey(2020),andnaturalresourcedurationparametersaswellascontrollingforad-rentsasashareofGDP(takenfromtheWorldditionalvariables.TableA3.4.1rerunsthemainDevelopmentIndicators).TableA3.4.4repeatsregressionshownintableA3.2.2usinginvestmentthebaselineregressionusinginvestmentaccelera-accelerationsidentifiedwhenalternativeminimumtionsidentifiedusingthebaselineparametersap-durationlengthisrequiredwhileholdingthemin-pliedtoaggregateinvestmentgrowth(thatis,notimumrequiredgrowthrateof4percentconstant.inpercapitaterms).Acrossallrobustnesstests,theTableA3.4.2showsthattheresultsarealsorobustbaselineresultspresentedintableA3.2.2donottoalternativeminimumaverageinvestmentchangeinameaningfulway.TABLEA3.4.1Investmentaccelerationsusingdifferentdurationparameters(1)(2)(3)(4)ChangeintradePolicyvariableChangeinAdoptionorreductionofChangeinrestrictivenessindexprimarybalanceLaggedinstitutionalquality(IQ)capitalaccountopennessinflationtarget0.435(5.59)PolicyModel1:minimumduration5years,averagegrowthrate4percent0.009Interactionofpolicywithlagged(2.21)IQ0.3590.3600.4400.013Numberofobservations(2.54)Numberofepisodes(6.01)(6.21)(5.82)1,40292LaggedIQ0.0030.7690.0330.486Policy(1.98)(2.64)(2.25)(5.78)Interactionofpolicywithlagged0.009IQ0.0000.0110.029(1.66)NumberofobservationsNumberofepisodes(0.21)(0.06)(3.78)0.023(3.86)2,0232,2761,7641,4476712213898Model2:minimumduration7years,averagegrowthrate4percent0.3250.3320.508(4.30)(4.53)(5.72)0.0030.7650.029(2.05)(2.27)(1.67)0.0020.0250.030(2.00)(0.10)(3.45)1,9562,1981,661798962Source:WorldBank.Note:Thistableshowstheestimatedcoefficientsforthechangeinlog-odds.Robuststandarderrorsinparentheses.,,andindicatesignificanceatthe1,5,and10percentlevels,respectively.Theinstitutionalqualityvariableandpolicychangevariableshavebeendemeanedforeasierinterpretationoftheinteractionterm.Allregressionsusethebaselinecontrolvariablesincolumn(2)oftableA3.2.1.Thetwomodelspresentedhereusethebaselineparameterof4percentminimuminvestmentper-capitagrowthbutadurationoffiveyears(model1),sevenyears(model2)comparedwithsixyearsinthebaseline.SeeannexA3.3onalternativealgorithmspecifications.140CHAPTER3GLOBALECONOMICPROSPECTSJANUARY2024TABLEA3.4.2Investmentaccelerationsusingdifferentdurationandgrowthparameters(1)(2)(3)(4)ChangeintradePolicyvariableChangeincapitalaccountAdoptionorreductionChangeinrestrictivenessindexprimarybalanceLaggedinstitutionalquality(IQ)opennessofinflationtarget0.343(4.51)PolicyModel1:minimumduration6years,averagegrowthrate3percent0.009InteractionofpolicywithlaggedIQ(2.10)Numberofobservations0.2710.2680.288Numberofepisodes0.013(4.40)(4.44)(3.98)(2.65)LaggedIQ1,334Policy0.0041.2770.02991InteractionofpolicywithlaggedIQNumberofobservations(2.62)(4.32)(2.10)0.235Numberofepisodes(2.95)0.001-0.0040.0250.006(1.36)(0.58)(-0.02)(3.47)0.009(2.46)1,8872,1301,6231,4936811512697Model2:minimumduration6years,averagegrowthrate5percent0.1820.1770.266(2.63)(2.62)(3.13)0.0051.2060.038(3.03)(3.92)(2.25)0.0010.0440.032(0.99)(0.24)(3.80)2,0832,3321,791859669Source:WorldBank.Note:Thistableshowstheestimatedcoefficientsforthechangeinlog-odds.Robuststandarderrorsinparentheses.,,andindicatesignificanceatthe1,5,and10percentlevels,respectively.Theinstitutionalqualityvariableandpolicychangevariableshavebeendemeanedforeasierinterpretationoftheinteractionterm.Allregressionsusethebaselinecontrolvariablesincolumn(2)oftableA3.2.1.Thetwomodelspresentedhereusevaryingminimumaveragegrowthandaminimumdurationofsixyearstoidentifyinvestmentaccelerations,aroundthebaselineparametersof4percentand6years.Model1requiresaminimumdurationof6yearsandaminimumgrowthrateof3percent.Model2requiresaminimumdurationof6yearsbutgrowthrateof5percent.Seeannex3.3foralternativealgorithmspecifications.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER3141TABLEA3.4.3Baselineregressionswithadditionalcontrols(1)(2)(3)(4)ChangeintradePolicyvariableChangeinAdoptionorreductionChangeinrestrictivenesscapitalaccountofprimarybalanceLaggedinstitutionalquality(IQ)indexopennessinflationtargetPolicy0.293InteractionofpolicywithlaggedIQModel1:Addlaggedinvestmentgrowthtothebaselinemodel(3.75)Laggedinvestmentgrowth0.009Numberofobservations0.2350.2320.253(2.21)Numberofepisodes(3.71)(3.76)(3.31)0.013LaggedIQ(2.84)Policy0.0051.1150.030InteractionofpolicywithlaggedIQ-0.015Dummyforglobalrecessions(2.97)(3.74)(2.03)(-2.65)Numberofobservations1,393Numberofepisodes0.001-0.0690.02683LaggedIQ(0.94)(-0.37)(3.51)0.287Policy(3.69)InteractionofpolicywithlaggedIQ-0.013-0.012-0.0140.010Globalfinancialcyclefactor(2.42)Numberofobservations(-2.94)(-3.01)(-2.85)Numberofepisodes0.0141,9512,2001,683(2.87)LaggedIQ-0.170Policy10611787(-0.51)InteractionofpolicywithlaggedIQ1,393Naturalresourcerents(shareofGDP)Model2:Addglobalrecessiondummytothebaselinemodel83NumberofobservationsNumberofepisodes0.2230.2220.2450.296(3.80)(3.55)(3.63)(3.23)0.009(2.16)0.0051.1240.0300.013(2.95)(3.73)(1.97)(2.83)-0.1920.001-0.0550.026(-1.82)1,393(0.89)(-0.29)(3.53)83-0.284-0.192-0.2680.315(4.00)(-0.84)(-0.65)(-0.70)0.010(2.49)1,9512,2001,6830.01410611783(2.87)-0.036Model3:Addglobalfinancialcyclefactortothebaselinemodel(-1.59)1,3840.2380.2300.24782(3.76)(3.71)(3.27)0.0051.1440.033(2.94)(3.78)(2.27)0.001-0.0690.027(0.85)(-0.37)(3.62)-0.154-0.080-0.075(-1.74)(-0.94)(-0.69)1,9512,2001,68310611787Model4:Addnaturalresourcerentstothebaselinemodel0.2360.2330.254(3.73)(3.74)(3.38)0.0051.1050.038(2.85)(3.63)(2.23)0.001-0.0610.030(0.84)(-0.33)(3.42)-0.017-0.010-0.024(-1.93)(-1.24)(-2.42)1,9422,1741,67710511687Source:WorldBank.Note:Thistableshowstheestimatedcoefficientsforthechangeinlog-odds.Robuststandarderrorsinparentheses.,,andindicatesignificanceatthe1,5,and10percentlevels,respectively.Theinstitutionalqualityvariableandpolicychangevariableshavebeendemeanedforeasierinterpretationoftheinteractionterm.Allregressionsusethebaselinecontrolvariablesincolumn(2)oftableA3.2.1.Thefourmodelspresentedhereuseadditionalcontrolvariablesinthebaselineregression.Model1controlsforlaggedpercapitainvestmentgrowth,Model2controlsforglobalrecessionyears,Model3controlsforglobalfinancialcycles,andModel4controlsfornaturalresourcerentsasashareofGDP.Seeannex3.2forvariablesourcesanddefinitions.142CHAPTER3GLOBALECONOMICPROSPECTSJANUARY2024TABLEA3.4.4Baselineregressionsbasedoninvestmentgrowth(notinpercapitaterms)Policyvariable(1)(2)(3)(4)Laggedinstitutionalquality(IQ)ChangeinAdoptionorreductionChangeintradecapitalaccountChangeinrestrictivenessPolicyopennessofprimarybalanceInteractionofpolicywithlaggedIQinflationtargetindexNumberofobservations0.1920.2150.271Numberofepisodes(3.16)0.201(3.00)(3.45)0.030(3.64)0.004(2.48)0.010(2.65)1.1020.013(2.23)0.001(3.80)(1.82)0.015(1.03)-0.0741,613(2.82)1,861(-0.40)841,3441012,09311280Source:WorldBank.Note:Thistableshowstheestimatedcoefficientsforthechangeinlog-odds.Robuststandarderrorsinparentheses.,,andindicatesignificanceatthe1,5,and10percentlevels,respectively.Theinstitutionalqualityvariableandpolicychangevariableshavebeendemeanedforeasierinterpretationoftheinteractionterm.Allregressionsusethebaselinecontrolvariablesincolumn(2)oftableA3.2.1.Thedependentvariableisadummyforthestartyearsofinvestmentaccelerationsidentifiedusingthebaselineparametersappliedtoinvestmentgrowthnotinpercapitaterms.Seeannex3.3foralgorithmparameters.ReferencesBahia,K.,P.Castells,G.Cruz,T.Masaki,X.Pedros,T.Pfutze,C.Rodriguez-Castelan,andH.Winkler.Achy,L.2011.“TheADCR2011:PovertyintheArab2020.“TheWelfareEffectsofMobileBroadband.WorldSuccessesandLimitsofMorocco’sEvidencefromNigeria.”PolicyResearchWorkingExperience.”ArabDevelopmentChallengesReportPaper9230,WorldBank,Washington,DC.BackgroundPaper2011/9,UnitedNationsDevelopmentProgramme,NewYork.Barro,R.,andX.Sara-i-Martin.1992.“Convergence.”JournalofPoliticalEconomy100(2):223-51.Ahluwalia,M.2002.“EconomicReformsinIndiaSince1991:HasGradualismWorked.”JournalofBerg,A.,andO.J.Blanchard.1994.“StabilizationandEconomicPerspectives16(3):67-88.Transition:Poland,1990-91.”InTheTransitioninEasternEurope,1(CountryStudies),51-92.Chicago:Ahmad,J.,F.Blum,P.Gupta,andD.Jain.2018.UniversityofChicagoPress.“India’sGrowthStory.”PolicyRese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ility.Byadoptingaverageadvanced-economypoliciesregardingexchangerateregimes,restrictionsoncross-borderfinancialflows,andtheuseoffiscalrules,commodity-exportingEMDEscanincreasetheirGDPpercapitagrowthbyabout1percentagepointeveryfourtofiveyearsthroughthereductioninfiscalpolicyvolatility.Suchpoliciesshouldbesupportedbysustainable,well-designed,andstability-orientedfiscalinstitutionsthatcanhelpbuildbuffersduringcommoditypriceboomstoprepareforanysubsequentslumpinprices.Astrongcommitmenttofiscaldisciplineiscriticalfortheseinstitutionstobeeffectiveinachievingtheirobjectives.Introductionslumps,onaverage,lastedsomewhatlonger(39months)thanbooms(30months),withpricesCommodity-exportingemergingmarketandfallingandrisingby1to4percentpermonthoverdevelopingeconomies(EMDEs)facesignificantthecourseoftheaveragecycle,respectivelyfiscalchallenges:Governmentdebtinthese(WorldBank2022).countrieshasgrownrapidlyoverthepastdecade—fromabout33percentofGDPin2010Commoditydependencemakesitharderfortoabout58percentin2022,onaverage.Overthepolicymakerstoformulateappropriatefiscalsameperiod,theirprimaryfiscaldeficit(whichresponsestocommoditypricefluctuations.Thedoesnotincludeinterestpayments)averagedboomsandbustsingovernmentrevenuesaboutthreetimesthatofcommodityimporters.attributabletocommoditiestendtomakefiscalIncreasedspendingduringthepandemicamplifiedpolicybothmoreprocyclicalandmorevolatilethechallengesconfrontingcommodity-exportingincommodity-exportingEMDEs,amplifyingEMDEs.Thehighercostofservicingelevatedbusinesscyclesandharminggrowth.debtlevels,coupledwithweakergrowthprospects,isincreasingtheriskofdebtdistressamongsome•Fiscalpolicytendstobemoreprocyclical—thatoftheseeconomies(WorldBank2023).Alongis,expansionaryingoodtimesandcontrac-withthewideswingsincommoditypricesintionaryinbadtimes—incommodity-recentyears,thesedevelopmentshavebroughttoexportingEMDEsthaninotherEMDEs.1Intheforethecomplextaskofformulatingfiscalcommodity-exportingEMDEs,risingcom-policyintheseeconomies(figure4.1.A).moditypricescanleadtoprocyclicalincreasesinpublicspendingandtaxcuts.Conversely,Themainchallengefacedbypolicymakersindeclinesincommoditypricescantriggercommodity-exportingcountriesiscopingwiththeprocyclicaltaxincreasesandcutsinpublicswingsincommodityprices;commoditiesareexpendituresasaresultofreducedrevenuesimportantsourcesofexportandfiscalrevenuesforfromcommodityproductionandexports.almosttwo-thirdsofEMDEs,includingthree-Moreover,becausetaxcutsandincreasesinfourthsoflow-incomecountries(LICs)(figurespublicspendingaregenerallyeasierto4.1.Band4.1.C;WorldBank2022).Shockstoimplementandmoredifficulttoreverse,commoditypricesareoftenlargeandpersistent.politically,thantaxincreasesandreductionsCommoditypriceshaveundergonefrequentcyclesinpublicspending,governmentdeficitsandoverthepastfivedecades,withtheaveragecyclelastingalmostsixyears(figure4.1.D).Price1SeeKaminsky,Reinhart,andVégh(2004)andTalviandVégh(2005)forearlycontributionstoempiricalresearchontheNote:ThischapterwaspreparedbyFranciscoArroyoMarioliandprocyclicalityoffiscalpolicy.MorerecentcontributionsincludeGarimaVasishtha.ItisbasedonbackgroundstudiesbyArroyoCarneiroandGarrido(2016),Frankel,Végh,andVuletin(2013),MarioliandVégh(2023)andArroyoMarioli,Fatás,andVasishthaandRichaudetal.(2019),aswellasstudiesdocumentingevidence(2023).forselectgroupsofcommodity-exportingcountries,includingBova,Medas,andPoghosyan(2016)andCéspedesandVelasco(2014).152CHAPTER4GLOBALECONOMICPROSPECTSJANUARY2024FIGURE4.1Commodities:Pricevolatilityandmentservices,andintroduceabiastowardaimportanceforexportsandrevenuesdeteriorationinfiscalpositions.Commoditypriceshavefluctuatedwidelyinrecentyears.Commoditiesare•Fiscalpolicytendstobemorevolatileincriticalsourcesofexportandfiscalrevenuesforalmosttwo-thirdsofcommodity-exportingEMDEsthaninotherEMDEsandthree-quartersofLICs.EnergyexportersaremorereliantonEMDEs.Swingsincommoditypricesoftentheircommodityexportsthanareagriculture-andmetal-reliantEMDEsonresultinhighlyvolatilecommodity-relatedtheirs.Resourcerevenuesareanimportantsourceoffiscalrevenuesforfiscalrevenuesinthesecountries,leadingtocommodityexporters,particularlyenergyexporters.Commoditypricesmorevolatilebusinesscycles,whichhistorical-haveundergonefrequentcyclesoverthepastfivedecades,withthelymoveintandemwithcommoditypriceaveragecyclelastingalmostsixyears.cycles.2Overthepastthreedecades,outputvolatilityincommodity-exportingEMDEsA.CommoditypricemovementssinceB.ShareofEMDEexportsforkeywasmorethandoublethatincommodity-2020commoditiesimportingones.RevenuesderivedfromthecommoditysectorarealsopronetopoliciesPercentPercentofexportsassociatedwithrent-seekingbehavior.In1570addition,fiscalpolicyvolatilitycanactasa10transmissionmechanismforthe“resource60curse”—thetermcoinedtodescribehow5commodityabundance,ifnotmanaged050properly,candamageoverallgrowth.3-5Moreover,country-specificevidencesuggests-1040thatlargeswingsincommoditypricescanbesociallyharmful,asshowninsuchindicators30aspovertyindices,highlightingtheneedforpoliciesthatmitigatetheadverseeffectsof20suchpriceshocks(Álvarez,García-Marin,andIlabaca2021;EstradesandTerra2012).Oil10NaturalgasIntheyearsahead,thechallengesassociatedwith0volatileandprocyclicalfiscalpoliciesarelikelytoCoffeebecompoundedbysharpfluctuationsincom-RiceOilCopperCoffeeNaturalmoditypricesastheimpactofclimatechangeongascommoditymarketsbecomesmorepronounced.4WheatThecontinuationofprocyclicalandvolatilefiscalCottonpolicieswouldbedetrimentaltogrowthandAluminumimpedeprogressinachievingclimateandotherCopperbroaderdevelopmentgoals.AstheexperienceofNickelZincC.ResourcerevenuesasshareofD.DurationofcommodityboomsandtotalfiscalrevenuesslumpsPercentoffiscalrevenuesMonthsBoomsSlumps80706060504040302020010EnergyAgriculture0MetalAgricultureEnergyexportersexportersMetalsexportersSources:UNU-Wider;UNComtrade(database);WITS(database);WorldBank.Note:EMDEs=emergingmarketanddevelopingeconomies;LICs=low-incomecountries.A.Barsshowtheaveragemonth-on-monthchangeincommoditypricesfromJanuary2020toNovember2023.Whiskersshowtheinterquartileranges.Thecommoditiesused(fromtheWorldBank’sPinkSheetdatabase)arecrudeoil(averageofWestTexasIntermediate,Brent,andDubai);naturalgasindex;coffee,Arabica;rice,Thai5percent;wheat,U.S.hardredwinter;cotton,AIndex;aluminum;copper;nickel;andzinc.B.Paneldisplaysthemedianexportshareofoil,copper,coffee,andnaturalgasforcommodity-exportingEMDEs.Thenumberofcountriesis20foroil,6forcopper,4forcoffee,and5fornaturalgas.Barsrepresentmedians,whilewhiskersindicateinterquartileranges.C.UnweightedaverageofresourcerevenuesasapercentageoffiscalrevenuesforEMDEcommodityexporters:30forenergy,14formetals,and10foragriculturalcommodities.Whiskersshowtheinterquartilerange.D.Durationmeasurestheaveragelength(inmonths)ofaphase(boomorslump).Whiskersindicateminimumandmaximumranges.debtpositionstendtoratchetup,deteriorat-2SeeIMF(2015a);Jacks,O’Rourke,andWilliamson(2011);ingfromcycletocycle.Thisseculardeteriora-Richaudetal.(2019);andWorldBank(2009,2020,and2022).tion,inturn,willmakeitmoredifficulttoimplementcountercyclicalfiscalpolicyinbad3Onthedetrimentaleffectsoffiscalpolicyvolatilityongrowthtimes.Insum,theprocyclicaltendencyofsee,forexample,AfonsoandFurceri(2008);FatásandMihov(2003,fiscalpolicyincommodityexporterscan2007,and2013);andMedina(2010).Onthe“resourcecurse,”seemagnifytheimpactofcommoditypriceBleaneyandHalland(2009)andSachsandWarner(1995)formovementsoneconomicactivity,leadtodetaileddiscussions.inefficientstops-and-startsingovernmentinvestmentandintheprovisionofgovern-4Climatechangehassignificantimplicationsforcommoditymarketsasitleadstoseverealterationsinweatherpatterns,affectingclimate-sensitiveindustriessuchasagricultureandfishing.Droughtscanreduceharvests,whilefloodscanaffectbothharvestsandtransportation.Policiesthataddressclimatechangecanalsogenerategainsforothercommodities,suchasmetalsthatareusedheavilyinlow-carbontechnologies.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER4153recentdecadesshows,governmentshavedifficul-growth.echapterquantifieshowprocyclicaltiesinestablishingmacroeconomicpolicyfiscalpolicyresponseshaveamplifiedbusinessframeworksthatareeffectiveinhelpingmaintaincyclesincommodity-exportingEMDEssteadygrowthinthefaceofcommoditypriceduringperiodsofelevatedcommodityprices,swings(IMF2015b;UNCTAD2021;Worldtakingacloselookatthe2003-08commodityBank2022).priceboom.Italsoquantifiestheimpactofhigheroutputvolatilityoneconomicgrowth.Thischapterpresentsacomprehensivestudyoftheroleoffiscalpolicyincommodity-exporting•Presentsalargemenuofpolicies.echapterEMDEs.Specifically,itaddressesthefollowingpresentsacomprehensiveanalysisofpoliciesthreequestions:toreducefiscalpolicyprocyclicalityandvolatility.Itusesseveralempiricalapproaches•Howdifferenthasfiscalpolicybeen,intermstoexaminetherolesofcyclicalandstructuralofitscyclicalityandvolatility,incommodity-factorsinimprovingthedesignoffiscalexportingEMDEsrelativetootherEMDEs?policy.Inaddition,thechapterillustratestheuseofsovereignwealthfunds(SWFs)and•Howhavefiscalprocyclicalityandvolatilityfiscalrulesincopingwithfiscalprocyclicalityaffectedeconomicgrowthincommodity-andvolatilitybyexaminingtheexperiencesofexportingEMDEs?asetofcommodity-exportingcountries.Insightsfromthesecasescomplementthe•Whichpolicyinterventionscanhelpimprovefindingsofthebroaderquantitativeanalysisthequalityoffiscalpolicybyreducingandhelpidentifybestpracticesintheprocyclicalityandvolatility?implementationofthesefiscalframeworksandinstitutions.Contributionstotheliterature.ischaptermakesseveralcontributionstotheliterature,Mainndings.ischapteroffersfivemainincluding:findings.•Providesathoroughanalysisoffiscalprocyclicali-Fiscalpolicyhastendedtobebothmoretyandvolatility.isisthefirststudythatexaminestheimplicationsoffiscalpolicyprocyclicalandmorevolatileinEMDEsthaninprocyclicalityandvolatilitytogether.eempiricalliteraturetreatstheconceptsoffiscaladvancedeconomies,andmoresoinEMDEcyclicalityandvolatilityasdistinct.Whilecloselyfollowingtheliteratureintermsofthecommodityexportersthancommodityimport-methodologyforanalyzingthetwoconcepts,ers.eaveragecorrelationbetweenthecyclicalthischaptergoesbeyondtheliteratureincomponentsofrealGDPandrealgovernmentexaminingthelinkagesbetweencyclicalityspending—themeasureoffiscalcyclicality—isandvolatility.Itprovidesfreshcomprehensive0.40forEMDEsandnearzeroforadvancedevidenceonfiscalprocyclicalityandvolatilityeconomies.WithinEMDEs,thecorrelationisforalargersampleofcommodityexporters0.46forcommodityexportersand0.36for(agricultural,metals,andenergyexporters)commodityimporters.Fiscalpolicyvolatility,andcommodityimportersthanpreviouslymeasuredbythevolatilityofrealgovernmentexamined.Italsodocumentshowfiscalpolicyexpenditure,isabout40percenthigherinEMDEchallengeshavemanifestedthemselvesincommodityexportersthaninotherEMDEs.differentEMDEregions;previousstudiesMoreover,amongEMDEs,thelargerthehavecoveredeitherageographicallylimitedcommoditysector,themorevolatilefiscalpolicysetofcountriesormainlyoilexporters.hastendedtobe.Bothfiscalprocyclicalityandvolatilityhavegenerallytrendeddownwardin•DeepenstheunderstandingoftheimplicationsofEMDEsinrecentdecades.However,procyclicalityfiscalprocyclicalityandvolatilityforeconomichasfallenlessamongcommodity-exportingEMDEsthaninotherEMDEs.FiscalvolatilityhasdeclinedbynearlyhalfinEMDEsoverthe154CHAPTER4GLOBALECONOMICPROSPECTSJANUARY2024pastthreedecades,butitremainsmuchhigherStructuralpoliciescanhelpreducefiscalamongcommodityexportersthaninotherprocyclicalityandvolatility.Inparticular,moreEMDEs.stablegovernments,astrongerruleoflaw,greatercapitalaccountopenness,fiscalrulestoconstrainFiscalprocyclicalityhasamplifiedthebusinessgovernmentspending,andSWFshaveallbeencycleincommodity-exportingEMDEs.Becauseassociatedwithlowerfiscalprocyclicality.Fiscalofitsprocyclicalnature,fiscalpolicyintheaveragerulesandSWFs,essentiallystate-ownedinvest-EMDEcommodityexporterhasincreasedthementcompanies,havebeenmosteffectivewhenimpactofcommoditypriceshocksonoutputbysurroundedbyrobustinstitutionalframeworks.morethanone-fifth,relativetothecounterfactualStrongerinstitutionsandstricterconstraintsoninwhichfiscalpolicydoesnotrespondtothefiscalpolicyhavealsobeenassociatedwithlesspriceshock(box4.1).Incontrast,fiscalpolicyinfiscalvolatility.Specifically,thepresenceoffiscaladvanced-economycommodityexportershas,onrules,lessconstraintsoninternationalfinancialaverage,offsettheoutputeffectofacommoditytransactions,andflexibleexchangeratesareallpriceshockbyreactingcountercyclically.Whenassociatedwithlowerfiscalpolicyvolatility.hitbyacommoditypriceshockofthesameMedium-termexpenditureframeworkscanalsomagnitude,thechangeinoutputintheaveragehelplowertheprocyclicalityandvolatilityoffiscalcommodity-exportingEMDEhastendedtobepoliciesbyimprovingfiscaldiscipline.morethanthreetimeslargerthanthatinitsaverageadvanced-economycounterpart,becauseFiscalpolicyprocyclicalityoftheoppositeresponsesoffiscalpolicyinthetwocountrygroups.ConceptualdefinitionsFiscalpolicyvolatilityhasoftenamplifiedtheBecausetheconceptoffiscalpolicycyclicalityisbusinesscycleandreducedgrowth.Fiscalpolicyimportanttoguidingactualpolicy,itiscriticaltovolatilityhastendedtobeassociatedwithmoredefinepolicycyclicalityintermsofpolicyvolatilebusinesscyclesandlowereconomicinstruments(suchas,governmentexpenditure)growth.Resultsfromacounterfactualexerciseratherthanoutcomes(suchas,thefiscalbalance).showthatiftheaveragecommodity-exportingThischapterfollowstheliteratureandmeasuresEMDEweretoadoptthepoliciesofanaveragefiscalcyclicalityasthecorrelationbetweenannualadvancedeconomyinthreeareas—exchangerates,percentagechangesinreal(primary)governmentcapitalflowrestrictions,andtheuseoffiscalexpenditureandrealGDP:apositivecorrelationrules—itcouldhaveaddedabout1percentageindicatesprocyclicalitywhileanegativecorrelationpointinpercapitagrowtheveryfourtofiveyearsindicatescountercyclicality.5Thesecorrelationsarebyreducingfiscalpolicyvolatility.calculatedfor182countriesusingannualdatafor1980-2020.Fiscalprocyclicalityandvolatilityareinter-twined.ProcyclicalityandvolatilityhavebeenEconomiesareplacedintotwogroups—stronglyinterlinkedinEMDEs,especially“commodityexporters”and“commoditycommodityexporters,anddrivenbysimilarimporters”—byapplyingtheclassificationcriteriafactors.EMDEswithmoreprocyclicalfiscalusedinWorldBank(2022).Aneconomyispolicieshavetendedalsotodisplaymorevolatileclassifiedasacommodityexporterif,onaverageinfiscalpolicies.Procyclicalfiscalpolicyamplifies2017-19,eitheritscombinedexportsofallthebusinesscycle,whichinturnexacerbatesthevolatilityofoutput.Thatis,givenashockto5Fordetailsaboutthismeasure,seeFrankel,Végh,andVuletinoutput,aprocyclicalfiscalresponsefurther(2013)andKaminsky,Reinhart,andVégh(2004).Thestylizedfactsexacerbatesthebusinesscycle.Hence,theinitialreportedinthissectionarebasedonthecorrelationsbetweentheshocktooutputhaslargeroveralleconomiccyclicalcomponentsofreal(primary)governmentexpenditureandimpactswhentherealsoisprocyclicality,therebyrealGDP,usingtheHodrick-Prescottfiltertodetrendthetimeamplifyingvolatility.series.Theresultsarerobusttotheuseofalternativefilters,suchastheBaxter-Kingfilter.Resultsarealsorobusttotheuseofnonparametricfilters,asdocumentedbyCarneiroandGarrido(2016)andKaminsky,Reinhart,andVégh(2004).GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER4155commoditiesaccountedfor30percentormoreofFIGURE4.2Procyclicalityofgovernmentexpendituresitstotalexportsoritsexportsofanysinglecommodityaccountedfor20percentormoreofOverthepastfourdecades,fiscalpolicyinEMDEshasbeenstronglyitstotalexports.Economiesareexcludediftheyprocyclical,whilethatinadvancedeconomieshasbeenacyclical,onreachedeitherthresholdonlybecauseofre-exportsaverage.Commodity-exportingEMDEstendtodisplaysignificantlyhigher(importsthatwereexportedwithoutbeingprocyclicalitythanotherEMDEs.Procyclicalitytendstobemorechanged).Basedonthesecriteria,92economiespronouncedinlow-incomecountriesthaninlower-andupper-middle-areclassifiedascommodityexportersofwhich87incomecommodityexporters.Onaverage,fiscalprocyclicalityhasbeenareEMDEsandfiveareadvancedeconomies.decliningincommodityexportersoverthepastdecadeandahalf.Commodityimportersareeconomiesnotclassifiedascommodityexporters(tableA4.3.1).A.Fiscalprocyclicality:EMDEsB.Fiscalprocyclicality:EMDEThepanelisunbalancedbecausesomecountriesversusadvancedeconomiescommodityexportersversusdonothavedataforthewholesampleperiod.importersBasicfeaturesofprocyclicalityCorrelationCorrelationCommodityimporters1.00.6Theanalysisofcorrelationsproducesfourstylizedfacts.•Intheperiod1980-2020,fiscalpolicyin0.8EMDEshasbeenprocyclicalwhilethatinadvancedeconomieshasbeenacyclical(figure0.6EMDEs0.44.2.A).Thecorrelationbetweenthecyclicalcomponents(derivedusingtheHodrick-0.40.2Prescottfilter)ofrealgovernmentexpenditureandrealGDPforEMDEsis0.40,whilethat0.2foradvancedeconomiesisslightlynegative.0.00.0•Althoughfiscalpolicyinbothcommodityexportersandcommodityimportershasbeen-0.2CommodityprocyclicalamongallEMDEsinthesample,exporterscommodityexportersare30percentmore-0.4AgricultureprocyclicalthancommodityimportersonAdvancedeconomiesexportersaverage(figure4.2.B).ThecorrelationbetweenthecyclicalcomponentsofrealMetalgovernmentspendingandrealGDPforexporterscommodityexportersis0.46comparedwith0.36forcommodityimporters,withbothEnergycoefficientsaswellasthedifferencebetweenexportersthembeingstatisticallysignificant.ThisprocyclicalbehaviorhasbeenwidespreadC.FiscalprocyclicalityincommodityD.FiscalprocyclicalityincommodityacrossallEMDEregions(figure4.2.C).exporters,byregionsexporters,bycountry-incomegroups•ThedegreeandnatureoffiscalprocyclicalityCorrelationCorrelationhavevariedacrosscountry-incomegroups.0.30.3FiscalprocyclicalityinLICsandfragileandconflict-affectedsituations(FCSs)washigher0.20.2thaninlower-andupper-middleincomecountries,whileinhigh-incomecountries0.10.1fiscalpolicywascountercyclical(figure4.2.D).0.00.0-0.1-0.1LICsFCSLMCsUMCsHICs-0.2-0.3SARSSALACEAPECAMNAAEsE.Shiftsinfiscalprocyclicality,F.Shareofcountrieswithprocyclical1980-2020fiscalpolicyCorrelation1980-20062007-2020PercentCommodityimporters100Commodityexporters0.80.6800.40.2600.0-0.240-0.4-0.620Commodity0exportersCommodityimportersLICsFCS1994199720002003200620092012201520182021Sources:ArroyoMarioliandVégh(2023);InternationalMonetaryFund;WorldBank.Note:AEs=advancedeconomies;EAP=EastAsiaandPacific;ECA=EuropeandCentralAsia;EMDEs=emergingmarketanddevelopingeconomies;FCS=fragileandconflict-affectedsituations;HIC=high-incomecountry;LAC=LatinAmericaandtheCaribbean;LIC=low-incomecountry;LMC=lower-middle-incomecountry;MNA=MiddleEastandNorthAfrica;SAR=SouthAsia;SSA=Sub-SaharanAfrica;UMC=upper-middle-incomecountry.A.-E.Barsshowaveragecorrelationbetweenthe(Hodrick-Prescott-filtered)cyclicalcomponentsofrealGDPandrealgovernmentspendingwithingroups.Thesampleperiodis1980-2020.A.B.E.Whiskersshowthe25thand75thpercentiles.Blackasteriskindicatesastatisticallysignificantdifferenceinmeans.A.Sampleincludes36advancedeconomiesand146EMDEs.indicatesthatthedifferencebetweentheaveragecorrelationforthetwocountrygroupsisstatisticallysignificantatthe10percentlevelorbetter.B.SampleofEMDEsincludes87commodityexporters(38agricultural,31energy,and21metals)and59commodityimporters.indicatesthatthedifferencebetweentheaveragecorrelationfortheparticularcountrygroupandthatforcommodityimportersisstatisticallysignificantatthe10percentlevelorbetter.C.D.Panelsshowtheaverageoftheprocyclicalitymeasureforthevariouscountrygroups.E.For1980-2006,thesampleincludes90commodityexporters,91commodityimporters,22LICs,and31FCS.For2007-20,itincludes95commodityexporters,95commodityimporters,21LICs,and31FCS.F.Shareofcountrieswithprocyclicalpoliciesbasedonfive-yearrollingwindows.Samplehas184countries.156CHAPTER4GLOBALECONOMICPROSPECTSJANUARY2024FIGURE4.3FiscalprocyclicalityandmacroeconomicDeterminantsoffiscalprocyclicalityfactorsincommodityexportersToassesshowfiscalcyclicalityhasvariedwithAmongcommodityexporters,morecapitalaccountrestrictionsandthemacroeconomicandinstitutionalfeaturesofpresenceoffixedexchangerateregimesareassociatedwithmorecountries,thissectionfirstcomparesfiscalprocyclicalpolicy,onaverage.cyclicalityacrossdifferentgroupsofcountries.Itthenpresentsacross-countryregressionanalysistoA.Procyclicalityincommodity-B.Procyclicalityincommodity-disentangletherolesofkeyfactorsindrivingexporters,bydegreeofcapitalexporters,byexchangerateregimeprocyclicality.controlstypeThecountygroupingsarebasedoncertainCorrelationCorrelationmacroeconomiccharacteristics,includingthe1.01.0degreeofcapitalaccountopenness,theexchangerateregime,andthelevelofexternaldebt.In0.80.8additiontothesemacroeconomiccharacteristics,thedegreeoffiscalprocyclicalitycanalsodepend0.60.6onpoliticaleconomyconsiderationsandinstitu-tionalfeatures.Thechoiceofthesevariablesis0.4Highguidedbytheliteratureonfiscalprocyclicality.0.20.4Restrictionsoninternationalfinancialtransac-tions.Countrieswithmorerestrictionsonthe0.00.2capitalaccounttendtohavemorelimitedaccesstointernationalfinancialmarkets,whichmakesthe-0.2Low0.0costofborrowingmoreexpensive.ThismayFixedincreasetheprocyclicalityoffiscalpolicybyFloatingmakingthegovernment’saccesstofundsparticu-larlylimitedduringrecessions,forcinggovern-CapitalcontrolsExchangeratementexpenditurestoshrink,thusamplifyingtheeconomicdownturnandthecycle.6AndthedataSources:ArroyoMarioliandVégh(2023);ChinnandIto(2006);Ilzetzki,Reinhart,andRogoff(2022);indeedshowthatfiscalpolicyincommodity-WorldBank.exportingcountrieswithmorecapitalaccountrestrictionshastendedtobemoreprocyclicalthanNote:BarsshowaveragecorrelationbetweenthecyclicalcomponentsofrealGDPandrealinthosewithfewerrestrictions(figure4.3.A).7Ongovernmentspendingwithingroups.ThecyclicalcomponentsarederivedusingtheHodrick-Prescottaverage,thecorrelationbetweencyclicalcompo-filter.Verticallinesshow25thand75thpercentiles.nentsofrealgovernmentspendingandrealGDPforcountrieswithmorecapitalcontrolsis0.51A.BasedonChinn-Itoindexoffinancialopenness.Acountryisclassifiedashavinghigh(low)capitalcomparedwith0.33forcountrieswithfeweraccountrestrictionsifitsChinn-Itoindexscoreisbelow(above)themedian.Samplehas36countriescapitalcontrols;thedifferencebetweenthewithlowcapitalcontrolsand54countrieswithhighcapitalcontrols.indicatesthatthedifferencecorrelationsisstatisticallysignificant.betweenthemeansforthetwocountrygroupsisstatisticallysignificantatthe10percentlevelorbetter.Exchangerateregime.FlexibleexchangeratesareoftenassociatedwithgreaterfiscaldisciplineB.Samplehas63countrieswithfixedexchangeratesand29withfloatingrates,basedontheclassificationinIlzetzki,Reinhart,andRogoff(2022).Thedifferencebetweenthemeansforthetwo6Fordetailsofthisargument,seeKoseetal.(2010).Thisresultcountrygroupsisnotstatisticallysignificant.isinlinewithinsightsfromrealbusinesscyclemodels,whereasteeperupward-slopingsupplyoffunds(whichmakesborrowing•Fiscalprocyclicalityhasdeclinedoverthepastfromtherestoftheworldmorecostly)impliesamoreprocyclicalfourdecades.Toexaminetheevolutionoffiscalpolicy,asexemplifiedinFernándezetal.(2021).fiscalprocyclicality,thesampleissplitintotwosubperiods:beforeandafter2006.This7Theresultsshowninfigures4.3and4.4arebroadlysimilardivisionreflectstheobservedincreaseinthewhenanalternativethreshold(thelowerandupperone-thirdofwillingnessandabilityofcountriestopursueobservations)isusedtoclassifycountriesinto“low”and“high”countercyclicalfiscalpoliciesfollowingthegroupsforcapitalaccountopenness,politicalrisk,controlof2007-09globalfinancialcrisis(Alvarezandcorruption,andlawandorder.DeGregorio2014;VéghandVuletin2014).Fiscalprocyclicalityincommodityexportershasbeenfallingoverthepastdecade-and-a-half.Nevertheless,procyclicalityincommodi-tyexportersstillprevailsandhasfallenmuchlessthanincommodity-importingcountries(whichare,onaverage,acyclicalsince2006)(figure4.2.E).Thefractionofcountriesrunningprocyclicalfiscalpolicieshasdeclinedoverthepastfewdecades.Thisdeclinewasmorepronouncedforcommodityimporters(from33percentinthemid-1990sto24percentin2021)comparedwithcommodityexporters(from40percentinthemid-1990sto36percentin2021)(figure4.2.F).GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER4157becauseoftheimmediacyoftherepercussionsofbegreaterthanthewindfallgainsinrevenues,imprudentfiscalpolicies(TornellandVelascoresultinginprocyclicalfiscalexpansion.Themore2000).Itislikely,then,thatthedegreeoffiscalclaimantsthereare(thatis,themoredispersedtheprocyclicalityishigherincountrieswithfixedpower),thehighergovernmentspendingmayexchangerateregimes.Indeed,thecorrelationtendtobeingoodtimes.betweenthecyclicalcomponentsofgovernmentspendingandGDPishigher(0.46)underfixedQualityofinstitutions.Thequalityofinstitu-exchangerateregimesthanunderflexibletionsplaysanimportantroleintheabilityofexchangerates(0.36)—althoughthedifferencecountriestoconductcountercyclicalfiscalpolicy.9betweenthetwoisnotstatisticallysignificantIndeed,institutionalfactors,suchaslawand(figure4.3.B).order,havebeenfoundtoplayalargerrolethanfinancialvariables,suchasfinancialopennessExternaldebt.Fiscalcyclicalityisfoundnottoanddomesticcredittotheprivatesector,inhavevariedsignificantlywiththelevelofexternalexplainingdifferencesinfiscalcyclicalitybetweendebtoverthesampleperiod.Thecorrelationadvancedanddevelopingeconomies(CalderónbetweencyclicalcomponentsofrealGDPandrealandSchmidt-Hebbel2008).Governmentstabilitygovernmentspendingisessentiallythesameforandlawandorderareespeciallyimportantfactorscountrieswithlowandhighexternaldebt.8inreducingfiscalprocyclicality.TheycanhelpdosobyshrinkinggovernmentdiscretionandPoliticaleconomyfactors.Extensiveresearchhasextendingthehorizonofpolicydecision-making.documentedtheroleofpoliticalvariablesindrivingfiscalprocyclicality.PoliticalpressuresinToanalyzethelinkagesbetweenfiscalcyclicalitygoodtimestendtopromptpolicymakerstoandinstitutionalquality,fivecountry-specificreduceprimarysurpluses,byreducingtaxesorindicatorsofinstitutionalqualityfromthePRSincreasingspending.GiventhatmorevolatileGroupdatabaseareused:politicalrisk,qualityofprimarysurplusesoffermorechancesoffiscalbureaucracy,controlofcorruption,governmentappropriation,themorevolatileoutputandstability,andlawandorder(tableA4.3.2).Thethereforethetaxbaseare,themoreprocyclicalwillassociationbetweenprocyclicalityandthefiscalpolicytendtobe(TalviandVégh2005).presenceoffiscalrulesisalsoexaminedherebecausetheserulesareasignificantpartoftheThedispersionofpoliticalpower—theso-calledfiscalinstitutionsinmanycommodity-exportingvoracityeffect,inwhichvariousfiscalclaimantscountries(box4.2).(includinggovernmentministries,provinces,andunions)attempttoappropriateresourcesingoodTheresultsindicatethathigherpoliticalriskistimeswithoutconsideringtheeffectsoftheirassociatedwithmoreprocyclicalfiscalpolicies.actionsonotherclaimants—isanotherchannelThecorrelationbetweenthecyclicalcomponentthroughwhichpoliticaleconomyfactorscanaffectofrealGDPandrealgovernmentspendinginfiscalprocyclicality(TornellandLane1999).Ascountriesthatrankhigheronpoliticalriskis0.49,theintensityofsuchfiscalcompetitionincreasesincomparedwithacorrelationof0.28forcountriesgoodtimes,theriseingovernmentspendingcouldthatrankloweronpoliticalrisk;thedifferencebetweentheaveragecorrelationsforthetwo8Thedegreeoffiscalprocyclicalitycanalsopotentiallyvarywithcountrygroupsisstatisticallysignificant(figurethestanceofthebusinesscycle.Insomecountries,thelackofaccess4.4.A).Partoftheexplanationmaybethattointernationalcreditmarketsduringrecessionsintroducesangovernmentsincountrieswithhigherpoliticalriskasymmetryintheirfiscalpolicyreactioninbadtimesversusgoodmaybemorefocusedonshort-termoutcomestotimes.Thiscouldalsobebecausethesizeoffiscalmultipliershasstayinpower.beenfoundtodependonthestanceofthebusinesscycle,withmultipliersinbadtimesbeinglargerthanthoseingoodtimes9See,forexample,Calderón,Duncan,andSchmidt-Hebbel(AuerbachandGorodnichenko2012,2013).Thisnotion,however,(2016);CarneiroandGarrido(2016);CéspedesandVelasco(2014);isnotsupportedbyacomparisonofprocyclicalityinexpansionsandFrankel,Végh,andVuletin(2013);andJallesetal.(2023).recessionsoverthesampleperiodunderconsideration.Thedifferenceinthemeasureoffiscalprocyclicalityinexpansions(0.29)andrecessions(0.23)isnotstatisticallysignificant.158CHAPTER4GLOBALECONOMICPROSPECTSJANUARY2024FIGURE4.4Fiscalprocyclicality,fiscalrules,andLikewise,commodity-exportingcountrieswithinstitutionalfactorslower-qualitybureaucracyhaveoftenimplementedmoreprocyclicalfiscalpoliciesthanthosewithThedegreeoffiscalprocyclicalitytendstobehigher,onaverage,amonghigher-qualitybureaucracies,althoughthecommodityexporterswithhigherpoliticalrisk.Countrieswithbetter-qualitydifferencebetweenthetwocountrygroupsisnotbureaucraciesandmorecorruptioncontroldisplaylessprocyclicalstatisticallysignificant(figure4.4.B).Betterbehavior.Governmentstabilityandbetterruleoflawarealsoassociatedbureaucracymaybeexpectedtoallowforbetter,withlowerprocyclicality.Thepresenceoffiscalruleshasadam-rules-based,policymanagementandtolimitpeningeffectonprocyclicalityfortheentiresample,butlesssoamongunproductivediscretionaryspending.commodity-exportingcountries.CommodityexporterswithbettercontrolofA.ProcyclicalityandpoliticalriskB.Procyclicalityandqualityofcorruptionhavedemonstratedlowerfiscalbureaucracyprocyclicalitythanthosewithweakercorruptioncontrol,andthedifferencebetweentheprocycli-CorrelationCorrelationcalitymeasuresforthetwocountrygroupsis0.80.8statisticallysignificant(figure4.4.C).Weaker0.6controlofcorruptionmakesiteasiertocapture0.40.6rents.Likewise,countrieswithmoregovernment0.2stabilityhavetendedtodemonstratelessfiscal0.00.4procyclicalitythanthosewithlessgovernment-0.2stability—althoughthedifferenceincyclicality0.2measuresisnotstatisticallysignificant(figure4.4.D).Amorestablegovernmentallowsforthe0.0formulationoffiscalpolicywithalongerhorizon,weakeningtheincentiveforprocyclicalpolicy.LowHigh-0.2HighBetterlawandorderhasbeenassociatedwithlessLowprocyclicalfiscalpolicy(figure4.4.E).ThedifferencebetweentheprocyclicalitymeasuresforPoliticalriskBureaucracyqualitycountriesrankedlowerinthelaw-and-orderindexandcountriesrankedhigherisstatisticallyC.ProcyclicalityandcorruptionD.Procyclicalityandgovernmentsignificant.controlstabilityManycommodityexportershaveenactedfiscalCorrelationCorrelationrules,ofteninconjunctionwithstabilization0.8funds—whichessentiallyputasiderevenuein0.8goodtimesthatcanbetappedinbadtimes.Fiscalrulesmaysignaltheintentofthegovernmenttodampen,ifnoteliminate,fiscalprocyclicalityaswellastosafeguardlong-termfiscalsustainability.0.60.6Overthepastfourdecades,thepresenceoffiscalruleshasbeenassociatedwithlowerprocyclicality0.4acrossthefullsampleofcountries,althoughresultsarelessclearforcommodityexporters(figure0.44.4.F).IncreaseduseoffiscalruleshasnotshieldedEMDEsorcommodityexportersfrom0.2fiscalprocyclicality,asevidencedbythecontinuedprocyclicalityoffiscalpoliciesinthesecountries0.00.2aftertheyadoptedsuchrules.Nevertheless,thereisevidencethatsomefeaturesofasecond-0.20.0generationoffiscalrules—suchastheuseofLowHighHighLowControlofcorruptionGovernmentstabilityE.ProcyclicalityandlawandorderF.ProcyclicalityandfiscalrulesCorrelationCorrelation0.81.00.60.8Without0.40.6Withrulesrules0.20.40.0Withrules-0.20.20.0LowHigh-0.2-0.4WithoutrulesLawandorderCommodityexportersFullsampleSources:ArroyoMarioliandVégh(2023);InternationalMonetaryFund;PRSGroup(database).Note:Barsshowaveragecorrelationbetweenthe(HodrickPrescott-filtered)cyclicalcomponentsofrealGDPandrealgovernmentspendingwithingroups.Verticallinesshow25thand75thpercentiles.A.Countrieswithhigh(low)politicalriskaredefinedasthosewithpoliticalriskabove(below)thesamplemedian.Samplehas49countrieswithhighpoliticalriskand24countrieswithlowpoliticalrisk.indicatesthatthedifferencebetweenthemeansforthetwocountrygroupsisstatisticallysignificantatthe10percentlevelorbetter.B.Samplehas48countrieswithlowbureaucracyqualityand25withhighbureaucracyquality.Thedifferencebetweenthemeansforthetwocountrygroupsisnotstatisticallysignificant.C.Samplehas45countrieswithlowcontrolofcorruptionand28withhighcontrolofcorruption.indicatesthatthedifferencebetweenthemeansforthetwocountrygroupsisstatisticallysignificantatthe10percentlevelorbetter.D.Samplehas32countrieswithhighgovernmentstabilityandfourwithlowgovernmentstability.Thedifferencebetweenthemeansforthetwocountrygroupsisnotstatisticallysignificant.E.Samplehas24countrieswithhighscores(abovesamplemedian)forthelaw-and-orderindexand49countrieswithlow(belowsamplemedian)scores.indicatesthatthedifferencebetweenthemeansforthetwocountrygroupsisstatisticallysignificantatthe10percentlevelorbetter.F.Forcommodityexporters,thesampleincludes28countrieswithfiscalrulesand20countrieswithoutfiscalrules.Theentiresampleincludes58countrieswithfiscalrulesand47countrieswithoutfiscalrules.Thedifferencebetweenthemeansforthetwocountrygroups(withandwithoutfiscalrules)isstatisticallysignificant(indicatedby)fortheentiresamplebutnotforthesampleofcommodityexporters.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER4159BOX4.1Howdoesprocyclicalfiscalpolicyaffectoutputgrowth?Fiscalresponsestocommoditypriceshockshavedifferedconsiderablybetweenemergingmarketanddevelopingeconomies(EMDEs)andadvancedeconomies.Commodity-exportingEMDEshavetendedtoreactinaprocyclicalmanner,increasinggovernmentexpenditureswhenpricesofexportedcommoditiesrise.Advanced-economycommodityexporters,bycontrast,havetendedtoreactcountercyclically,reducingspendingwhenpricesrise.FiscalpolicyprocyclicalityintheaverageEMDEcommodityexporterhasincreasedtheeffectsofacommoditypriceshockonthebusinesscyclebymorethanone-fifth.Introduction•Howdoestheimpactofthisfiscalreactiononoutputgrowthdifferbetweencommodity-Procyclicalfiscalpolicyamplifiestheeffectonoutputofexporting-EMDEsandadvancedeconomies?ashocktoeconomicactivity—thatis,“whenitrains,itpours,”usingtheanalogyofKaminsky,Reinhart,andMethodologyVégh(2004).Suchshockscouldoriginatefromvarioussources—fromthefinancialsectororfromsupplyorToestimatetheeffectoffiscalpolicyonoutput,thedemandshocksassociatedwithexternalordomesticanalysisproceedsinfoursteps.First,toquantifythedevelopments.Kaminsky,Reinhart,andVégh(2004)effectsofchangesincommoditypricesonoutput,panelfocusedonnetcapitalinflows,findingthatsuchflowsregressionsareusedtoobtaintheresponseofrealGDPwereassociatedwithanincreaseingovernmentexpen-tochangesincountry-specificcommoditypriceditureinemergingmarketanddevelopingeconomiesindexes.aTheresultsshowthata10percentincreasein(EMDEs),whilenetcapitaloutflowswereassociatedcommodityexportpricesincreasesoutputby0.63-0.85withadeclineingovernmentexpenditure.AvarietyofpercentinEMDEcommodityexportersand0.18-0.26otherdriverscouldleadtoprocyclicalfiscalbehavior.percentinadvanced-economycommodityexporters(tableA4.1.3).bThisboxexamineshowincreasesincommoditypriceshaveaffectedthebehavioroffiscalpolicyand,inturn,Second,panelregressionsareusedtoestimateafiscaloutputgrowth.Thetotalimpactofthechangesinpolicyreactionfunction(thatis,theresponseofcommoditypricesonoutputcanbedecomposedintogovernmentspendingtochangesincommodityprices).twocomponents.First,the“rains”component:inResultsshowthatEMDEsincreasegovernmentresponsetoanincreaseincommodityprices,produc-spendingwhencommodityexportpricesrise,indicatingtionrisesinthecommoditysectorandotherrelatedaprocyclicalfiscalpolicy(tableA4.1.4).Specifically,asectors,andtheassociatedincreasesinincomegenerate10percentincreaseincommodityexportpricesleadstofurtherincreasesinprivatespendingandoutput.Theanincreaseingovernmentspendingofabout0.6increasesinoutputandspending,inturn,boostfiscalpercentto0.8percent.Incontrast,advancedeconomiesrevenue,reducingtheprimaryfiscaldeficit.Thesecondrespondcountercyclically:a10percentincreaseincomponentdependsontheresponseoffiscalpolicy.Ifcommodityexportpriceselicitsareductioningovern-thereductioninthefiscaldeficitisconserved,fiscalmentspendingofabout0.7percentto1.2percent.policywillplayacountercyclicalrole,dampeningtheThird,anaveragefiscalmultiplierisestimatedforincreaseindemandandactivity.Butifthereductioninthefiscaldeficitleadsthegovernmenttoincreasea.Twocontrolvariablesareused:overalltermsoftrade(whichspendingorlowertaxes,fiscalpolicywillincreasetheincludetermsoftradeforalltradedgoodsandservices,notjusteffectoftheshockonoutput.Therewillthenbeacommodities,usingdatafromtheIMF)tocontrolfortradeeffects,and“pours”component,withprocyclicalfiscalpolicythelaggeddependentvariabletocaptureunderlyinggrowthunrelatedtoamplifyingthebusinesscycle.commodityprices.ecountry-specificcommodityexportpriceindexisanindexthatweightscommoditiespricesbytheirrelevanceinaThisboxaddressesthefollowingquestions:country’sexports.isindexisabettermeasureofacommoditypriceshockforaparticularcountrythanglobalcommoditypriceindexesthat•Howdoesfiscalpolicyincommodity-exportingmightincludegoodsnotexportedbytheparticularcountry.countriesreacttochangesinpricesofcommodityexports?b.IntableA4.1.3,thecoefficientforEMDEs(0.085)incolumn(1)isabout3.5timesasmuchasthecoefficientforadvancedeconomies(0.024)incolumn(4).160CHAPTER4GLOBALECONOMICPROSPECTSJANUARY2024BOX4.1Howdoesprocyclicalfiscalpolicyaffectoutputgrowth?(continued)FIGUREB4.1.1TheamplificationeffectofprocyclicalfiscalpolicyonoutputFiscalpolicyincommodity-exportingEMDEshastendedtoamplifytheeffectsofcommoditypriceshocksonoutput,whileinadvancedeconomiesithastendedtodampentheeffects.Morethanthree-fourthsofthedifferenceingrowthbetweenmajorcommodity-exportingEMDEsandadvancedeconomiesduringthe2003–08commoditypriceboomcanbeexplainedbythedifferenceinthecyclicalityoffiscalpolicybetweenthetwogroupsofcountries.A.“Pours”asafractionof“rains”inB.“Pours”versus“rains”:2003-08C.CumulativefiscalresponsecommodityexporterscommoditycyclePercentPercent0.6Percent0.480.3EMDEsAdvancedeconomies0.260.040.2-0.22-0.400.1-0.6-2-0.8-40.0-1.0GDPreaction-0.1PoursRain-0.2GDPreaction-0.3PoursRainEMDEsAdvancedeconomiesEMDEsAdvancedeconomies-10Years12Sources:ArroyoMarioliandVégh(2023);InternationalMonetaryFund;WorldBank.Note:EMDEs=emergingmarketanddevelopingeconomies.A.B.Thesamplehas4advancedeconomies(Australia,Canada,NewZealand,andNorway)and11EMDEs(Argentina,Brazil,Chile,Colombia,CostaRica,Ecuador,Honduras,Indonesia,RussianFederation,SouthAfrica,andUkraine).A.PanelshowsthechangeinGDP(inresponsetoacommoditypriceshock)explainedbythereactionoffiscalpolicy(the“pours”component)asashareofthedirecteffectofthecommoditypriceshockonoutput(the“rain”component).Theaverageofthesesharesforcommodity-exportingEMDEsandadvancedeconomiesisshownbythebluebars.Whiskersshowstheminimumandmaximumrange.B.TheorangebarsrepresentthefractionofthechangeinGDP,inresponsetoacommoditypriceshock,explainedbythereactionoffiscalpolicytotheshock,averagedattheaggregatelevel.TheredbarsshowthedirecteffectofacommoditypriceshockonGDP.C.Panelshowsthecumulativereactionoffiscalexpendituretoa1percentincreaseincommodityexportspricesint=0,usingpanelregressions.Theregressionincludestwoleadsandlagsofcommodityexportprices.commodityexportersusingapanelstructuralvectorwhereCEPisthecommodityexportprice,fiscalautoregression(SVAR)model.creactionelasticityistheestimatedcoefficientinthefiscalregressionandgistheratioofgovernmentFinally,the“amplification”effect(the“pours”compo-spendingtoGDP(comyputedastheaverageoverthenent)offiscalpolicyonoutputisobtainedbycombin-sampleperiodforeachcountry).Intuitively,changesiningthefiscalresponseinthesecondstepwiththefiscalcommodityexportprice(CEP)triggerafiscalreactionmultiplierobtainedfromthethirdstep.Thepours(elasticity),whichinturnaffectGDPviathefiscalcomponentrepresentschangesinoutputgrowththatmultiplier.Thefiscalreactionisadjustedbythesizeofareduesolelytochangesingovernmentexpenditureinthegovernmenttomeasurethefinalimpactinpercent-responsetotheinitialshock.The“pourscomponent”isagepointsofGDP.dthenformallymeasuredby:d.efiscalreactionelasticityisestimatedusingapanelof15Pours=∆CEPFiscalreactionelasticityfiscalcommodityexporters(4advancedeconomiesand11EMDEs).efiscalmultiplierisestimatedforthesamepanelfollowingBlanchardandmultiplierg(B4.1.1)Perotti(2002).GovernmentsizeisrepresentedbytheaveragegovernmentexpenditureasashareofGDPforeachcountry.eyavailabilityofquarterlydataiscriticalfortheBlanchardandPerotti(2002)identificationmethod.ismethodassumesthatoutputrespondsc.emodelisbasedontheBlanchard-Perotti(2002)identificationtogovernmentspendingwithintheperiod,butthatgovernmentmethod,employingquarterlydataforGDPandgovernmentexpenditurespendingdoesnotrespondtoGDP.Inotherwords,allcontemporaneousfromtheIMF’sInternationalFinancialStatisticsdatabasefortheperiodcorrelationisattributedtofiscalpolicyaffectingGDP.SeeIlzetzki,1990-2019.Incomputingthe“pours”component,thevalueoftheMendoza,andVégh(2013)foradetaileddiscussion.multiplierafterfourquartersisused(givenby0.88).GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER4161BOX4.1Howdoesprocyclicalfiscalpolicyaffectoutputgrowth?(continued)ImpactofprocyclicalfiscalpolicyonoutputresponseoffiscalpolicyinEMDEs(“pours”compo-nent)inanother1.1percentagepointstogrowth,Theresultsindicatethat,ifanincreaseinthepriceofbringingEMDEgrowthto6.5percentoverthisperiod.theexportedcommodityboostsoutputby1.0percent-agepoint(the“rains”effect),procyclicalfiscalpolicyinIncontrast,fiscalpolicyinadvancedeconomiesreactedcommodity-exportingEMDEsincreasesGDPbyinacountercyclicalfashion,subtractingabout3another0.21percentagepoint(the“pours”effect),percentagepointsfromgrowth,bringingadvanced-boostingthetotalchangeinGDPto1.21percenteconomygrowthto1.6percent.Inotherwords,ofthe(figureB4.1.A).Incontrast,fiscalpolicyincommodity-4.9percentagepointsdifferencebetweentotalEMDEexportingadvancedeconomiescompensatesfortheandadvanced-economygrowthinthesample,4.1cyclicaleffectbyreactingintheoppositedirection,percentagepoints(or84percent)canbeexplainedbyreducingGDPby0.65percentagepoint.Thisleavestheresponsesoffiscalpolicy—procyclicalinEMDEsthenetincreaseinGDPof0.35percentagepointforandcountercyclicalinadvancedeconomies.Alternativeadvancedeconomies.Theseestimatessuggestthat,estimatesalsoindicatethatfiscalexpenditureinwhenfacedwithacommoditypriceshockofthesameEMDEsreactsinaprocyclicalmannerwhilethatinmagnitude,theoverallchangeinGDPcanbemoreadvancedeconomiesreactsinacountercyclicalonethanthreetimesbiggerinEMDEsthaninadvanced(figureB4.1.1.C).economiessolelybecauseofthefiscalpolicyreaction.TheaboveapproachisappliedtothecommoditypriceConclusionboomof2003-08toillustratetheroleoffiscalpolicy.Duringthisperiod,commodityexportpricesincreasedFiscalprocyclicalityamplifiestheeffectofcommodityabout76percentfortheEMDEsand66percentforthepriceshocksonthebusinesscycleinEMDEs.Intheadvancedeconomiesinthesample.Theanalysissampleperiodexamined,fiscalpolicyintheaverageestimatesthedirecteffectofthecommoditypriceshockEMDEcommodityexporterisestimatedtohaveonoutput(the“rain”component)byapplyingtheincreasedtheeffectofacommoditypriceshockon2003-08cumulativepriceshocktotheestimatedoutputbymorethanone-fifth.Theresultsindicatethatparameters.TheresultsindicatethatthetotaleffectoninEMDEcommodityexportersfiscalpolicyhastendedoutputtobe5.4percentforEMDEsand4.6percenttoamplifythebusinesscycle,whereasinadvanced-foradvancedeconomies—thatis,adifferenceof0.8economycommodityexportersfiscalpolicyhastendedpercentagepoint(figureB4.1.1.B).Theprocyclicaltodampenit.cyclicallyadjustedtargetsandwell-definedescapeexporters.10Thedependentvariablehereistheclauses,combinedwithstronglegalandenforce-correlationbetweentheannualpercentagechangesmentarrangements—havebeenassociatedwithofrealgovernmentspendingandrealGDP.Thereducedprocyclicality(Bova,Carcenac,andexplanatoryvariablesareintendedtocapturetheGuerguil2014).Thecountrycasesexaminedinfourexplanationsfortheexistenceofprocyclicalbox4.2suggestthatfiscalrulesorSWFsaremostfiscalpolicydescribedintheprevioussection:effectiveinachievingtheirstatedobjectiveswhencapitalaccountopenness(measuredbyanindexoftheyarewell-designed,closelylinkedtobroaderpolicyobjectives,andsupportedbystrong10Foranempiricalanalysisofthedriversoffiscalprocyclicalityininstitutionsandpoliticalcommitment.OECDcountries,seeLane(2003).Forananalysisoftheroleoffinancialandinstitutionalvariables,seeCalderónandSchmidt-ArmedwiththeinsightsfromthecorrelatesofHebbel(2008)andCalderón,Duncan,andSchmidt-Hebbel(2010).fiscalprocyclicalityestablishedabove,theanalysisIlzetzki(2011)providesanovelpoliticaleconomyexplanationbasedusescross-countryregressionstoidentifythemainonsuccessivegovernmentsdisagreeingonthedesireddistributionofdriversoffiscalprocyclicalityincommoditypublicspendingandexaminesdifferenttheoriesofprocyclicalitybyrunningnumericalsimulationsincalibratedmodels.162CHAPTER4GLOBALECONOMICPROSPECTSJANUARY2024financialopenness);politicaleconomyfactorsmosteffectiveinmeetingtheirgoalswhen(measuredbyanindexofpoliticalconstraints,supportedbystronginstitutions.whichreflectstheextenttowhichpolicychangesareinhibitedbyinstitutionalandpoliticalfactors);Fiscalpolicyvolatilitymacroeconomicstability(measuredbythestandarddeviationofoutput);andinstitutionalConceptualdefinitionsquality(measuredbyanindexofcontrolofcorruption).Country-specificmeasuresoffiscalpolicyvolatilityareconstructedbasedonthevarianceofexoge-Thecoefficientsofeachofthesefourvariablesarenouschangesinfiscalpolicystance.Thesearestatisticallysignificantandthreeofthefourhavesimplyderivedfromfiscalpolicyreactiontheexpectedsign(annex4.1;tableA4.1.1).Morefunctions,followingtheapproachinFatásandopencapitalaccountsandbettercontrolofMihov(2013)(annex4.2providesdetails).Thecorruptionareestimatedtohavehelpedreduceanalysisisbasedonfouralternativemeasuresoffiscalprocyclicalitywhilegreateroutputvolatilityfiscalpolicy:primaryexpenditures(whichexcludewasassociatedwithhigherprocyclicality.Howev-netinterestpayments),revenues,governmenter,thecoefficientofthepoliticalconstraintsindexconsumption,andtheprimarybudgetbalancedoesnothavetheexpectedsign,suggestingeither(whichexcludesnetinterest).Thefirstthreethatthe“voracityeffect”didnotholdorthatthevariablesareexpressedinreal(inflation-adjusted)politicalconstraintsindexfailstocaptureit.Thetermsandmeasuredaslogdifferences.Thevariablesarejointlysignificantwhencombinedprimarybudgetbalanceisexpressedastheannualandexplainabout18percentofprocyclicalchangeofitsratiotoGDP.Annualdataareusedbehavioracrosscountries.11forthe1990-2021periodfor184countries,including148EMDEsand36advancedecono-Cross-countryregressionsarealsousedtoanalyzemies.Thechoiceofthesampleperiodisbasedontheroleofinstitutionalvariablesindrivingfiscaldataavailability.Ofthese184countries,94arecyclicality,ashighlightedbythecorrelationscommodityexportersandtheremainderasreportedintheprevioussection.Therolesofcommodityimporters.AmongcommoditySWFsandfiscalrulesarealsoexplored.SWFscanexporters,onlyfiveareadvancedeconomies.playanimportantroleinreducingprocyclicalityAmongcommodityimporters,31areadvancedbypromotingtheaccumulationofgovernmenteconomiesand59areEMDEs.savingsduringcommoditypricebooms,tobedrawndowntosomeextentduringpriceslumpsBasicfeaturesoffiscalpolicyvolatility(Asik2017).Theresultsshowthatgreatergovernmentstability,betterlawandorder,andtheThefollowingstylizedfactsemergefromapresenceofSWFsandfiscalruleshavealltendedcomparisonofthemeasuresoffiscalpolicytoreducefiscalprocyclicality(tableA4.1.2).volatilitybetweendifferentcountrygroups.Overall,theanalysisthereforeprovidesempiricalevidencethatbetterinstitutionsareassociatedFirst,overthepastthreedecades,thevolatilitiesofwithlowerfiscalprocyclicality.Theseresultsareprimaryexpenditures,governmentconsumption,andalsocorroboratedbythecountrycasestudies(boxrevenueswereallsignificantlyhigherinEMDEs4.2)whichshowthatSWFsandfiscalrulesarethaninadvancedeconomies(figure4.5.A).Thedifferencebetweentheaveragevolatilityforthese11InlinewithLane(2003),andtochecktherobustnessofourtwogroupsofcountriesisstatisticallysignificant.results,GDPpercapita,sizeofthepublicsectorrelativetoGDP,andNotably,thedifferenceinthevolatilityofopenness(thesumofexportsandimportsasashareofGDP)weregovernmentconsumptionislargerthanthatofaddedascontrols,oneatatime.WhileGDPpercapitawasprimaryexpenditures,highlightingtheroleofsignificantatthe5percentlevel,thetwoothercontrolvariablesweregovernmentconsumptioninfiscalpolicyvolatilitynot.Inallthreecases,theF-testforthejointsignificanceofthethreeinEMDEs.Theestimatedvolatilityoftherelevantexplanatoryvariableswassignificantlydifferentfromzeroatprimarybalance(asapercentageofGDP)isleastatthe10percentlevel.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER4163relativelysmallerandcloserbetweenthetwoFIGURE4.5Fiscalpolicyvolatilitycountrygroupsthanwiththeotherfiscalpolicyindicators.12Overthepastthreedecades,primaryexpenditure,governmentconsumption,andrevenuesinEMDEshavebeenmorevolatilethanthoseSecond,EMDEcommodityexportersexhibitedmoreinadvancedeconomies,onaverage.WithinEMDEs,fiscalpolicyinvolatilityinfiscalpolicythancommodityimporterscommodityexportershasbeenmorevolatilethanthatincommodity(figure4.5.B).ThedifferenceintheaverageimportersandinLICscomparedwithnon-LICs,onaverage.FiscalpolicyvolatilityforcommodityexportersandcommodityvolatilitydeclinedsomewhatinEMDEsoverthepastthreedecadeswhileimportersisstatisticallysignificant.Governmenttheevolutionoffiscalvolatilityinadvancedeconomieshasvariedacrossrevenuesdemonstratedgreatervolatilitythanthedifferentfiscalindicators.Expenditurevolatilityoverthepastthreedecadesotherindicators,althoughonlybyaslightmargin.hasbeenhighestamongcommodityexportersinSub-SaharanAfrica,theMiddleEastandNorthAfrica,andEastAsiaandPacific.Third,fiscalpolicyvolatilitydeclinedsomewhatinEMDEsoverthepastthreedecades.VolatilityofA.Fiscalvolatility:AdvancedB.Fiscalvolatility:EMDEcommoditygovernmentexpenditure,consumption,revenue,economiesversusEMDEsexportersversusimportersandprimarybalancewereallloweronaverageduring2007-20thanin1980-2006(figure4.5.C).PercentAdvancedeconomiesPercentCommodityimportersThisreductioninfiscalpolicyvolatilityinEMDEs10EMDEs16Commodityexportersmirrorstheincreasinguseoffiscalrulesinthese14countries(ArroyoMarioli,Fatás,andVasishtha8122023).Inadvancedeconomies,however,overthe610sameperiod,revenuevolatilitydeclinedwhile4volatilityofexpendituresandprimarybalance28increased(figure4.5.D).064Fourth,governmentexpenditures,consumption,and2revenuetendtobemorevolatileinLICsthanin0otherEMDEs.Overthepastthreedecades,governmentexpenditure,consumptionandPrimaryrevenuewereroughlytwiceasvolatileinLICsasexpendituresinotherEMDEs(figure4.5.E).ThedegreeofGovernmentfiscalvolatilityhasalsovariedacrossemergingconsumptionmarketregions.Onaverage,expenditurevolatilityinLICs,particularlyFCSeconomies,overthepastRevenuesthreedecadeswashigherthanthatinlower-andPrimaryupper-middleincomecountries.FiscalvolatilitybalancewasthehighestamongcommodityexportersinPrimarySub-SaharanAfrica(SSA),theMiddleEastandNorthAfrica(MNA),andEastAsiaandPacificexpenditures(EAP)thaninotheremergingmarketregionsGovernment(figure4.5.F).consumption12However,whencomparingthevolatilityoftheprimarybalanceRevenueswiththeotherfiscalvariables,theaveragesizeofthegovernmentinPrimaryEMDEsneedstobeconsidered.Forinstance,a1percentincreaseinbalancegovernmentspendingwillhaveadifferentimpactonGDPinacountrywithasmallergovernmentthaninonewithalargerC.EvolutionoffiscalvolatilityinD.Evolutionoffiscalvolatilityingovernment.GiventhattheaveragegovernmentsizeisaboutEMDEsadvancedeconomies30percent,a1percentexogenouschangeingovernmentexpendituresonlyleadstoachangeintheprimarybalanceofPercent1980-20062007-2020Percent1980-20062007-2020approximately0.3percentofGDPintheaverageEMDE.614512410328160420GovernmentexpenditureGovernmentconsumptionGovernmentrevenuePrimarybalanceGovernmentexpenditureGovernmentconsumptionGovernmentrevenuePrimarybalanceE.Fiscalvolatility:LICsversusF.Expenditurevolatilityinnon-LICscommodityexporters,byregionsPercentLICsNon-LICsPercent3016252012151085400GovernmentSSAMNAEAPLACSARECAAEsexpenditureGovernmentconsumptionGovernmentrevenuePrimarybalanceSources:ArroyoMarioli,Fatás,andVasishtha(2023);IMFWEOdatabase;WorldBank.Note:AEs=advancedeconomies;EAP=EastAsiaandPacific;ECA=EuropeandCentralAsia;EMDEs=emergingmarketanddevelopingeconomies;LAC=LatinAmericaandtheCaribbean;LIC=low-incomecountry;MNA=MiddleEastandNorthAfrica;PPP=purchasingpowerparity;SAR=SouthAsia;SSA=Sub-SaharanAfrica.A.B.Panelsshowweightedaverages(A)andsimpleaverages(B),bycountrygroup,ofthestandarddeviationsoftheresidualsobtainedfromregressingfourdependentvariables—logdifferencesofrealprimaryexpenditures,realgovernmentconsumption,realrevenues,andthechangeinprimarybalance(percentofGDP)—onrealGDPgrowth.WeightsusedarethePPPGDPsharesintherespectivegroup’stotalGDP.Annualdatafor36advancedeconomiesand148EMDEsover1990-2021.C.D.E.Panelsshowtheweightedaveragesofthestandarddeviationsoftheresidualsobtainedfromregressingfourvariables—logdifferencesofrealprimaryexpenditures,realgovernmentconsumption,realrevenues,andthechangeinprimarybalance(percentofGDP)—onrealGDPgrowth.WeightsusedarethePPPGDPsharesintherespectivegroup’stotalGDP.Annualdatafor35advancedeconomiesand142EMDEsover1980-2006,and36advancedeconomiesand144EMDEsover2007-20.Annualdatafor22LICsand156non-LICs.F.Panelshowstheaverage(unweighted)volatilityincommodityexportersineachcountrygroup.164CHAPTER4GLOBALECONOMICPROSPECTSJANUARY2024Determinantsoffiscalvolatilitycommoditydependence.ResourcerentsarehighlycorrelatedwithresourcerevenuesasashareofCross-sectionalregressionsareusedtoinvestigateGDP(ArroyoMarioli,Fatás,andVasishthatheroleofcountry-specificfactors—suchas2023).institutions,policyvariables,theextentandnatureofcommoditydependence,andGDPpercapita—eresultsindicatethatthelowerGDPpercapitaindrivingfiscalpolicyvolatility.LiketheanalysisinEMDEsdoesnotbyitselfexplainthediffer-ofprocyclicality,theexercisefocusesontheencesinfiscalpolicyvolatilityacrosscountriesspendingsideofthebudget.Whileeachofthebecausethepresenceoflargercommoditysectorsfourfiscalpolicyindicatorsusedabovecontainscontributestogreatervolatilityinfiscalpolicy.informationaboutfiscalpolicy,thevariationinOverall,thesefindingssuggestthatboththelevelprimaryexpendituresprovidesamoreaccurateofdevelopmentandthedegreeofcommodityperspectiveonthevolatilityoffiscalpolicy.Sincedependencecontributetoexplainingfiscaltheautomaticstabilizercomponentofexpendi-volatility.turestendstobesmall,changesinprimaryexpenditurestendtobedrivenbydiscretionaryEnergyexportersdisplayhigherfiscalpolicymeasuresandchangesinnondiscretionaryvolatilitythanexportersofmetalsandagriculturalspendingthatareunrelatedtothebusinesscycle.commodities.Controllingforresourcerents,Itisthesechangesinprimaryexpenditurenetofhowever,theresultsindicatethatcommoditycyclicalcomponents(suchasunemploymentdependenceisamoreimportantdeterminantofbenefits)thatarecapturedinthevolatilitymeasurefiscalvolatilitythanthetypeofcommodityusedintheanalysis.exported(tableA4.2.2).efindingsindicatethatcommoditydependenceAstableinstitutionalenvironmentandtheuseofcanbeasourceoffiscalpolicyvolatilitybyitself.soundfiscalrulescanreducefiscalpolicyvolatility.BeingbothanEMDEandacommodityexporterexplainsupto22percentofthevariationinfiscaleroleofinstitutionalfactorsindrivingfiscalpolicyvolatilityacrosscountries(tableA4.2.1).13policyvolatilityisanalyzedbyincludingtwoadditionalvariablesoftenusedintheliterature:atcommodityexportersexhibithigherfiscalpoliticalconstraintsandcontrolofcorruption.policyvolatilityevenaftertheirEMDEstatusistakenintoaccountsuggeststhatrelianceonesetwovariablesarefoundtobesignificantandcommoditiesinitselfcontributestofiscalpolicytogetherhelpexplainupto40percentofcross-volatility.countryvariationinfiscalpolicyvolatility.PolicyframeworkscanalsoplayanimportantroleinEMDEsandcommodityexportersarehetero-drivingfiscalpolicyvolatility.erolesofthreegenousgroupsofcountriesthatdisplaysubstantialspecificpolicyvariablesareexamined:thecapitalvariationintheirlevelofdevelopmentaswellasaccountopenness,exchangerateregime(floatingdegreeofcommoditydependence.Toaccountforversusfixed),andthepresenceoffiscalrules.thesedifferencesacrosscountries,twoadditionalvariablesareintroducedintotheanalysis.First,epresenceofamoreopencapitalaccount,GDPpercapitaisincludedtorepresentthelevelmoreflexibleexchangerates,andfiscalrulesareallofdevelopmentineachcountry.Second,aassociatedwithlowerfiscalpolicyvolatility.Takenvariablemeasuringresourcerents—specifically,together,theseexplanatoryvariablescanexplainincomefromnaturalresourcesasapercentageofupto71percentofthecross-countryvariationinGDP—isintroducedtocapturethedegreeoffiscalpolicyvolatility.eestimatessuggestthatmovingfromafixedexchangerateregimetoa13Forbrevity,tableA4.2.1onlyshowstheregressionresultswhenflexibleonecanlowerexpenditurevolatilityby3primaryexpenditureisusedasthedependentvariable.eregressionpercentagepoints(tableA4.2.1).Althougharesultswithgovernmentconsumptionasthedependentvariableareflexibleexchangerateregimeisnotfeasibleorverysimilar.appropriateforallEMDEs,countrieswiththoseregimesmayhavemoreroomfortheexchangeGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER4165rateadjustmentneededtocounteracttheFIGURE4.6Exchangerateregimesandcapitalaccountdestabilizingeffectsofcommoditypricesonopennessoutput.Amoreflexibleexchangerateregime,inprinciple,facilitatesasmoothercyclicaladjust-FixedexchangeratesremainthedominantregimeinEMDEs.Althoughmenttoaterms-of-tradeshock.Forexample,capitalaccountopennesshasincreasedincommodityexportersovertheduringthe2014-16fallincommoditypricespastfewdecades,itremainslowerthanthatincommodityimporters,and(mainlycrudeoilandnaturalgas),commodity-thegapbetweenthetwohaswidened.exportingcountriessuchasChileandPeru(twocountrieswithflexibleexchangerateregimes)wereA.ExchangerateregimeflexibilityinB.CapitalaccountopennessabletoincreasespendingthroughcountercyclicalEMDEsfiscalpolicyastheywereequippedwithsufficientfiscalspaceandthenecessarymedium-termfiscalPercentHardpegSoftpegFloatingIndexCommodityimportersframeworkstosafeguardfiscalsustainability(Al-1001.0CommodityexportersSadiq,Bejar,andOtker2021).14Incontrast,0.8countrieswithpeggedregimesexperiencedalarger800.6deteriorationintheirfiscalbalance,onaverage,0.4relativetothosewithflexibleexchangerate600.2regimes.Peggedexchangeratesremainthe0.0dominantexchangerateregimeamongEMDEs40(figure4.6.A).Whilegreaterexchangerateflexibilitycanhelpbuildresiliencetocommodity20priceshocks,itsmacroeconomicimplicationsneedtobetakenintoaccount,particularlyincases0wherepricesofafewkeyexportsaregloballydetermined,andexchangeratefluctuationsmay1990haveadverseimpactsonthebalancesheetsof2019publicandprivateinstitutions.19902019eresultsalsosuggestthatiftheaveragedegree1971ofcapitalaccountopennessinEMDEsweretobe1974sameasintheaverageadvancedeconomy,1977expenditurevolatilityinEMDEswouldbe1980reducedby1.7percentagepoints.Inprinciple,1983economieswithgreateraccesstointernational1986capitalmarketsshouldbebetterabletosmooth1989theimpactofcommoditypricefluctuationson1992outputvolatility,althoughmarketsmayrespond1995inaprocyclicalmannerforsomecountries(with1998capitalflowsincreasingduringcommodityprice2001boomsanddecliningduringslumps)(IMF20042012a).Capitalaccountopennessincommodity2007exportershasincreasedoverthepastfewdecades,2010butitremainslowerthanincommodityimporters2013(figure4.6.B).Measurestoincreasecapital2016201914AlthoughacountercyclicalfiscalpolicyresponsetoatemporaryCommodityexportersCommodityimporterscommoditypriceshockisdesirableunderbothfixedandflexibleexchangerateregimes,thesepoliciesaremoreeffectiveunderaSources:ChinnandIto(2006);Ilzetzki,Reinhart,andRogoff(2022);WorldBank.flexibleexchangerateregimecombinedwithinflationtargetingwhenA.PanelshowstheshareofEMDEswithhardpeg,softpeg,andfloatingexchangerateregimes,monetarypolicycomplementsfiscalpolicybyreducinginflationbasedontheclassificationinIlzetzki,Reinhart,andRogoff(2022).volatility(IMF2012a).B.BasedonChinn-Itoindexoffinancialopenness.Thelinesrepresenttheaverageoftheindexintherepresentedyear.Sampleincludes98commodityimportersand98commodityexporters.accountopennessalwayshavetobeconsideredwithcaution,incombinationwithconsiderationoftheprudentialandothermeasuresthatmaybeneededtoavoidinstabilityinthedomesticfinancialsystem.Inaddition,establishingafiscalrulecanreduceexpenditurevolatilityinEMDEsby0.7percent-agepoint(from10.8to10.1percent).esignificanceofthesethreevariables—thatisexchangerateregime,capitalaccountopenness,andfiscalrules—indrivingfiscalpolicyvolatilityremainsevenafteraccountingforthelevelofdevelopmentandtheextentofcommoditydependence.AlthoughthepresenceofanSWFisalsoassociatedwithlowerfiscalvolatility,theresultisnotstatisticallysignificant.15ImplicationsoffiscalpolicyvolatilityforgrowthFiscalpolicyvolatilityreducesoutputgrowthbyexacerbatingmacroeconomicvolatility.Expendi-turevolatilityisfoundtohavesignificantlyhurt15Itispossiblethattheeffectofestablishingasovereignwealthfundiscapturedbytheotherpolicyvariablesincludedintheanalysis.Forexample,thedecisiontoestablishonemaybecorrelatedwithvolatilityitself.166CHAPTER4GLOBALECONOMICPROSPECTSJANUARY2024FIGURE4.7Fiscalpolicyvolatilityandprocyclicalityopenness,exchangerateflexibility,anduseoffiscalrules—fiscalvolatilitywouldbereducedbyThecorrelationbetweenfiscalvolatilityandprocyclicalityamongEMDEsroughly3.1percentagepoints—from12.3percentandcommodityexportersismostlyduetotheprocyclicalbehavior.Whileto9.2percent.ThatwouldresultinanincreaseinthecorrelationbetweenfiscalprocyclicalityandvolatilityinadvancedtheaveragepercapitaGDPgrowthrateforeconomiesdeclinedbetween1980-2006and2007-20,itremainedcommodity-exportingEMDEsfromabout1.4tounchangedinEMDEsandcommodityexporters.High-andupper-middle-1.7percentperyear.Inotherwords,byadoptingincomecountrieshavehadthehighestcorrelationsamongcountry-incomethesepoliciestheaveragecommodity-exportinggroups.EuropeandCentralAsiaandMiddleEastandNorthAfricahaveEMDEcouldhaveaddedabout1percentagehadthehighestcorrelationsamongEMDEregions.pointinpercapitagrowtheveryfourtofiveyears(figure4.8.A).Overthe30-yearsampleperiodofA.CorrelationbetweenfiscalvolatilityB.Correlationbetweenfiscalvolatilitytheanalysis,anoverall7.6percentagepointsandprocyclicalityandprocyclicalityovertimewouldhavebeenaddedtoaveragegrowthinGDPpercapitainEMDEs.CorrelationCorrelation1980-20062007-20200.50.5Linksbetweenprocyclicalityandvolatility0.40.40.30.3Fiscalprocyclicalityandvolatilityareintimately0.20.2relatedconceptsandoftendrivenbysimilar0.10.1factors,ashighlightedbytheprecedinganalysis.0.00.0Intuitively,amoreprocyclicalfiscalpolicywouldbeexpectedtoresultinamorevolatilefiscalWorldpolicytotheextentthatitamplifiesthebusinessAEscycle,thusexacerbatingtheeffectoftheinitialsourceofvolatility.16ThemeasuresofvolatilityEMDEsandprocyclicalityarepositivelycorrelated,aCommodityfindinginlinewithsomepreviousstudies(figureexporters4.7.A;IMF2004).However,whenEMDEsandCommodityadvancedeconomiesareconsideredseparately,theimporterscorrelationissignificantonlyforEMDEs.ThecorrelationissignificantforbothcommodityWorldexportersandcommodityimporters.ThissuggestsAEsthatfiscalprocyclicalityisassociatedwithmorefiscalpolicyvolatilityonlyinEMDEs(whichalsoEMDEstendtobeprocyclical).Inadvancedeconomies,Commoditybecausefiscalpolicyiscountercyclicaloracyclicalexportersonaverage,thevolatilityoffiscalpolicyislikelyCommodityfromotherfactors.Thecorrelationbetweenfiscalimportersprocyclicalityandvolatilityhasdeclinedforadvancedeconomiesfromthe1980-2006periodC.CorrelationbetweenfiscalvolatilityD.Correlationbetweenfiscalvolatilityandprocyclicality,bycountry-incomeandprocyclicality,byregions16Itisalsopossiblethatiffiscalpolicyisprocyclicalrelativetothegroupscommoditycycle,itmayendupbeingthemaintransmissionchannelCorrelationfromthecommoditycycleitself.IncountrieswherethecommodityCorrelation0.6exportsectorisweaklylinkedwiththerestoftheeconomy,governmentexpenditurescouldbethemainlinkbetweentheoverall0.4cycleandprices.However,intheanalysisusedhere(whichfollowstheempiricalliterature)fiscalvolatilityisdefinedasthevolatilityofchangesinpublicexpenditurethatarenotrelatedtothebusinesscycle(FatásandMilhov2013).Underthisdefinition,therelation0.3betweenthetwoislessobvious.0.30.20.10.00.0HICsLICsLMCsUMCs-0.3ECAMNAEAPAEsLACSSASARSources:InternationalMonetaryFund;WorldBank.Note:AEs=advancedeconomies;EAP=EastAsiaandPacific;ECA=EuropeandCentralAsia;EMDEs=emergingmarketanddevelopingeconomies;HIC=high-incomecountry;LAC=LatinAmericaandtheCaribbean;LIC=low-incomecountry;LMC=lower-middle-incomecountry;MNA=MiddleEastandNorthAfrica;SAR=SouthAsia;SSA=Sub-SaharanAfrica;UMC=upper-middle-incomecountry.A.B.C.D.Barsrepresentthecorrelationbetweenfiscalprocyclicalityandthemeasureofvolatilitythatdoesnotexcludetheeffectofthebusinesscycleonfiscalpolicychanges.A.C.D.Bluediamondsandasterisksrepresentstatisticalsignificance.percapitaoutputgrowth(annex4.2andtableA4.2.3),whichsupportsearlierresearchshowinganegativeassociationbetweenmacroeconomicvolatilityandeconomicgrowth(Kose,Prasad,andTerrones2005;RameyandRamey1995).Theestimatedimpactoffiscalvolatilityonpercapitagrowthisinlinewithotherrecentestimates(forexample,FatásandMihov2013).Applyingtheaboveestimatesinacounterfactualscenario,iftheaveragecommodity-exportingEMDEweretoadoptthepoliciesofanaverageadvancedeconomyinthreeareas—capitalaccountGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER4167tothepost-2007period,whileithasremainedFIGURE4.8Fiscalvolatility,growth,andfiscalunchangedforEMDEsandcommodityexportersframeworks(figure4.7.B).High-andupper-middle-incomecountriespresentthehighestcorrelationamongIftheaveragecommodity-exportingEMDEweretoadoptthepoliciesofancountry-incomegroups(figure4.7.C).Finally,theaverageadvancedeconomyregardingexchangerates,capitalaccountEuropeandCentralAsia(ECA)andMiddleEastopenness,anduseoffiscalrules,itcouldhaveaddedabout1percentageandNorthAfrica(MNA)regionsshowhigherpointinpercapitagrowtheveryfourtofiveyearsbyreducingfiscalpolicycorrelationthanotherEMDEregions(figurevolatility.Sincetheearly1990s,fiscalruleshavebeenadoptedand4.7.D).sovereignwealthfunds(SWFs)introducedbyagrowingnumberofEMDEs,particularlycommodityexporters,tostrengthentheirfiscalFiscalinstitutionsandframeworks.Fiscalrulesaremoreprevalentinagricultureandenergyexportersthaninmetalexporters.Amongthemajoremergingmarketframeworksregions,theMiddleEastandNorthAfricaranksthehighestintermsoftotalassetsundermanagementbySWFs—morethantwicethatinadvanced-Theresultsoftheempiricalanalysishighlighttheeconomycommodityexporters.roleofpoliticalpressuresindrivingfiscalpolicyprocyclicalityandvolatilityincommodity-A.EMDEannualpercapitagrowthB.FiscalrulesandSWFsexportingEMDEs.Thissectiondiscusseshowwell-designedandcredibleinstitutionalmecha-PercentagepointsNumberCommodityimportersnisms—fiscalrules,sovereignwealthfunds,and2.080Commodityexportersmedium-termexpenditureframeworks—canhelp70fosterfiscaldisciplineandcounteracttendencies1.5602010202019902010towardprocyclicality.Italsohighlightstheroleof50stronggovernancemoregenerallyinfacilitating1.040countercyclicalfiscalpoliciesintheseeconomies.300.520Fiscalrules100.0WithAETotal2020FiscalrulescanhelpreducethevolatilityoffiscalEMDEgrowthpolicies0policyanddeliverbetterfiscaloutcomes.Fiscal1990rulesleavelessspacefordiscretionaryspending,whichtendstobeprocyclicalandtoexacerbateFiscalrulesSWFsthebusinesscycle(therebyaddingmorefiscalvolatility).FiscalrulescanalsoprovideastrongC.Sharesoffiscalrules,bytypeofD.Assetsundermanagementbysignalofprudenceinfiscalpolicy(DebrunandcommodityexporterSWFsincommodityexporters,byKumar2008).Well-designedfiscalruleshavebeenregion,2022foundtohelplowerfiscaldeficitsandreducebothPercentEnergyMetalfiscalprocyclicalityandvolatility.1745exportersexportersUS$,billions403,500Untiltheearly1990sonlyahandfulofEMDEs353,000hadfiscalrulesandvirtuallynoLICsdid.Since302,500then,agrowingnumberofEMDEshaveadopted252,000201,50015101,000500500MNAAEsECAEAPSSALACAgriculturalexportersSources:Davoodietal.(2022);InternationalMonetaryFund;SovereignWealthFundInstitute;WorldBank.Note:AEs=advancedeconomies;EAP=EastAsiaandPacific;ECA=EuropeandCentralAsia;EMDEs=emergingmarketanddevelopingeconomies;LAC=LatinAmericaandtheCaribbean;MNA=MiddleEastandNorthAfrica;SSA=Sub-SaharanAfrica;SWF=sovereignwealthfund.A.Themiddlecolumninthepanelillustrateshowapplyingtheaverageadvanced-economypoliciesalongthreedimensions(exchangerateregimes,capitalaccountopenness,andfiscalrules)impactsGDPpercapitagrowthintheaveragecommodity-exportingEMDE.Thelastcolumnshowsthetotalcommodity-exportingEMDEgrowthwiththeseadvanced-economypolicies.B.NumberofEMDEswithfiscalrulesandSWFs(sovereignwealthfunds).C.PanelshowstheshareofEMDEswithfiscalrulesaccordingtocommodityexportertype,asof2021.D.PanelshowstheamountofSWFassetsundermanagementincommodity-exportingcountries,asof2022.17Forempiricalevidenceontheimportanceofwell-designedsuchrules—includingcommodityexporters,suchfiscalrulestodeliverlowerfiscaldeficits,seeCaselliandReynaudasChileandIndonesia(Davoodietal.2022;box(2020),DahanandStrawczynski(2013),Debrunetal.(2008),and4.2).Bytheendof2020,43of96commodity-FabrizioandMody(2006).BadingerandReuter(2017),CaselliandexportingEMDEshadatleastonefiscalruleinReynaud(2020),CéspedesandVelasco(2014),andMartoranoplace(figure4.8.B).Theadoptionoffiscalrules(2018)provideevidenceontheassociationbetweenfiscalrulesandhasbeenmostprevalentinenergyandagriculturallowerprocyclicalitywhileBadingerandReuter(2017)showthatfiscalrulesalsohelplowerfiscalpolicyvolatility.168CHAPTER4GLOBALECONOMICPROSPECTSJANUARY2024exportersfollowedbymetalexporters(figuregovernancehashamperedthesuccessfulimple-4.8.C).Theuseoffiscalruleshasbeenassociatedmentationofsovereignstabilizationfundsinmanywithmorefiscaldiscipline.18However,onlywell-EMDEs,theoverallexperiencehasbeenpositivedesignedfiscalrulespromotemorefiscaldisciplineforsmoothingthepathofgovernmentspending(CaselliandReynaud2020).Additionally,(Sugawara2014).ThereisevidencethatSWFsalthoughwhilefiscalrulesareassociatedwithcanbeeffectiveinreducingfiscalprocyclicalityinimprovedfiscalpolicymanagement,theirsuccesssomecountries(Coutinhoetal.2022).Inoil-cruciallydependsoneffectiveinstitutionsandexportingcountries,stabilizationfundshavebeengovernanceunderpinnedbytheruleoflawandassociatedwithreducedmacroeconomicvariabilitystrongaccountabilitymechanisms(Ardanaz,andlowerinflation(ShabsighandIlahi2007).Cavallo,andIzquierdo2023;BergmanandHutchison2015).Anappropriateinstitutionalframeworkandstronglong-termpoliticalcommitment,includingTheadoptionoffiscalrulesisassociatedwithlesstransparentgovernanceofthestabilizationfundprocyclicalityinfiscalpolicy.Atthesametime,andprudentconstraintsonthediscretionoffundfiscalrulescanactasaconstraintontheabilityofmanagers,arecriticalfortheeffectivenessoftheseincumbentpoliticianstogeneratepoliticalfunds(Asik2017;Bagattini2011;Ossowskietal.businesscyclesusingfiscalandmonetaryexpan-2008).Stronginstitutionshelptoshieldthesesions.Fiscalframeworksthatdonothaveformalfundsfrompoliticalinfluences(Koh2017;rulesbutfocusontransparentandcredibleMohaddesandRaissi2017).Inthiscontext,strategiesbackedbyproperfiscalinstitutionssovereignwealthandstabilizationfundsworkwellcouldalsoprovideaviableapproachtosupporttoreducegovernmentexpenditurevolatilityinfiscaldiscipline(WorldBank2023b).countrieswherefiscalrulesareimplemented(Sugawara2014),buttheireffectivenessisSovereignwealthfundshamperedwherethereareinadequatecontrolsandintegrationwiththebudgetislimited(LeBorgneOverthepastfewdecades,thenumberofSWFsandMedas2007).Morebroadly,cross-countryestablishedhasincreasedrapidly,particularlybyevidenceshowsastrongcausallinkrunningfromcommodity-exportingcountries.Manycommodi-betterinstitutionstolessprocyclicalormoretyexportershaveestablishedSWFsasastabiliza-countercyclicalfiscalpolicyinEMDEs(Frankel,tionfundtochannelwindfallgainsduringVégh,andVuletin2013).Theseresultsarealsocommoditypriceboomstoaccumulateassavingscorroboratedbythecountrycasestudiespresentedthatcanbewithdrawnduringcommoditypriceinbox4.2,whichsuggestthattheefficacyofslumpstolimittheimpactonfiscalbalances.SWFsispositivelycorrelatedwiththepresenceofAmongthemajoremergingmarketregions,thestronginstitutions.MNAregionranksthehighestintermsoftotalassetsundermanagementofSWFs—morethanMedium-termexpenditureframeworkstwicethatinadvanced-economycommodityexporters(figure4.8.D).Medium-termexpenditureframeworks(MTEFs)areintendedtoestablishorenhancecredibilityinInpractice,theeffectivenessofsuchstabilizationthebudgetaryprocessandtosetoutspendingfundsinmoderatingfluctuationsingovernmentplansconsistentwithprevailingeconomicspending,andhenceoutput,hasvariedacrossconditionsandmedium-termpolicyobjectivescountries(Gilletal.2014).Althoughpoorfiscal(Raudla,Douglas,andMacCarthaigh2022).Suchframeworkscanenhanceclarityonthe18See,forexample,Apeti,Basdevant,andSalins(2023);purposesofexpendituresandhelpensureaBergman,Hutchison,andJensen(2016);andTapsoba(2012).Itistransparentbudgetaryprocess,wheregovernmentimportanttonotethatestablishingcausalityfromfiscalrulestofiscalagenciesallocatepublicresourcesbasedondisciplineisnotstraightforwardbecauseofendogeneityissues(morestrategicpriorities.MTEFsfostergreaterfiscaldisciplinedandprudentgovernmentsaremorelikelytoadoptfiscaltransparencyandaccountabilitybyprovidingarules)andreversecausalityissues(manyfiscalrulesareadoptedafteracrisis).GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER4169clearbasisformonitoringgovernmentperfor-forecasts.MoreadvancedMTEFscanalsobemanceagainstapprovedplans,makingiteasiertoassociatedwithlowerspendingvolatilityandholdgovernmentsaccountablefortheirfiscalhigherspendingefficiency.Nevertheless,MTEFspolicies.mayfailtomeettheirobjectiveswhereinstitutionsareweakandwherekeygovernmentfunctionsareThenumberofcountrieswithMTEFshashinderedbycapacityconstraintsincriticalincreasednotablyoverthepastthreedecades.technicalandadministrativeareas.Forinstance,Initiallyadoptedbyafewadvancedeconomiesintheimprovementsinfiscaldisciplinefollowingthetheearly1980stoaddresspublicoverspending,adoptionofMTEFstendtobetransientinnature,MTEFsbecamewidelyacceptedasintegralespeciallyinthecaseofframeworkslackingcomponentsoffiscalgovernancethroughoutthecomprehensivemetricsformonitoringand1990sand2000s.AmongEMDEs,MTEFswereevaluatingfiscalperformance.Inaddition,lackofintroducedtostrengthenpublicfinancemanage-fiscaltransparencycanimpairbudgetcredibilitymentandtorealignexpendituresconsistentwithandincreaseuncertaintyaboutfiscalpolicyandlong-termdevelopmentneeds(WorldBankoutturnsinEMDEs.201998).TheadoptionofMTEFsacceleratedintheaftermathoffinancialcrises,withtheobjectiveofInstitutionalqualityandgovernancereconcilingshort-termpressureswithlonger-termpriorities(Raudla,Douglas,andMacCarthaighResourceabundancecanbeadvantageoustoa2022).19countryifthegovernmenthasasoundlong-termplanforextractingtheresourcesandarobustEvidencesuggeststhatcredibleMTEFscanmechanismforusingresourcerevenuestomeetsignificantlyimprovefiscaldiscipline(Vlaicuetal.economicandsocialneedstoachievesustained2014;WorldBank2013).Robustimplementationeconomicgrowth.However,resourcewealthcanoftheseframeworksiscloselyrelatedtolinkagesundermineinstitutionsandlonger-termgrowthbywithbroadereconomicandsocialpolicyobjec-promotingrent-seeking,corruption,andthetives,tothereliabilityoftherelevantdata,andtosquanderingofresourcesthroughunproductivetheforecastingcapabilityoftheauthorities(Allenspending,poor-qualityinvestment,andtheetal.2017).Thesuccessoftheseframeworksdepletionofgovernmentsavings.Formineralrichcruciallydependsonstronggovernmentowner-countries,thereisalsoevidencethatmineralshipandsupport(Schiavo-Campo2009).Forwealthcanprovokeorfuelinternalconflictsexample,SouthAfrica,acommodityexporter,(CollierandHoeffler2004).Ingeneral,resource-introducedanMTEFwhengovernmentdebtwasrichcountrieswithstrongereconomicandhigh,thecentralgovernmentwasunderspending,politicalinstitutionstendtohavebettermacroeco-andprovincialgovernmentswereoverspending.nomicandgrowthoutcomes(ArezkiandWithwidespreadsupportatthetoplevelsofBruckner2010;Arezki,Hamilton,andKazimovgovernment,theunderspendingandoverspending2011;vanderPloeg2011).werebothreducedfollowingtheintroductionoftheMTEF(WorldBank2013).Higherqualitypoliticalinstitutionshelplimitprocyclicalityoffiscalexpenditures(OssowskietMTEFsneedclearlydefinedlegalframeworksandal.2008;Sugawara2014).Theobserveddeclineinstrongsupportinginstitutionstobeeffective.TheyfiscalprocyclicalityinEMDEsoverthepastcanalsocomplementotherfiscalframeworkstodecadeandahalfhasbeenmainlyattributedtoachievedesiredfiscalpolicyobjectives.Fortheimprovedqualityofinstitutions,asmeasuredexample,combinedwithfiscalrules,MTEFscanbyindicatorsonlawandorder,bureaucracyimprovefiscalbalancesandthequalityofbudget20Ontheroleofinstitutions,seeFilcandScartascini(2010)and19Vlaicuetal.(2014)estimatedthatthenumberofcountriesSchiavo-Campo(2009).Ontheroleoffiscalrules,seeHansenwithMTEFsincreasedfrom11in1990to132attheendof2008.(2020)andvonHagen(2010).ForevidenceontheimpactofThelackofdatamakesitdifficulttoestimatethecurrentnumberofMTEFsonspendingvolatilityandefficiency,seeVlaicuetal.(2014)countrieswithMTEFs.andWorldBank(2013).ElberryandGoeminne(2021)provideevidenceonhowlackoffiscaltransparencyaffectsfiscaloutcomes.170CHAPTER4GLOBALECONOMICPROSPECTSJANUARY2024quality,andcorruption(Frankel,Végh,andtothisincreasedcommoditypricevolatilityisVuletin2013).InLICs,thequalityofbudgetlikelytoimpedegrowth.institutions—measuredthroughthequalityofthevariousstagesonthebudgetprocessandtheThischapterhasfocusedontwofeaturesofnumberofchecksandbalancesinplace—tendstofiscalpolicyincommodity-exportingEMDEs,bepositivelyassociatedwiththeabilityoftheseprocyclicalityandvolatility.Fiscalpolicytendstocountriestoconductcountercyclicalpoliciesbebothmoreprocyclicalandmorevolatilein(Dabla-Norrisetal.2010).EMDEsthaninadvancedeconomies,andmoresoincommodityexportersthanincommodityThecasestudiesofNorway,Chile,andBotswanaimporters.Fiscalprocyclicalityandvolatilityshowthatthequalityoftheirinstitutions—whichamplifytheeffectofcommoditypriceshocksonishigherthanthatoftheirpeers—helpedlimitthethebusinesscycleinEMDEs,withdetrimentalnegativeimpactofcommoditypricevolatility(boxeffectsoneconomicgrowth.4.2;Bova,Medas,andPoghosyan2016).ThesecountrycasesalsodemonstratethatfiscalrulesorThechapteroffersinsightsforpolicymakersinSWFsworkbestwhentheyarewell-designed,commodity-exportingEMDEsaboutthecloselylinkedtobroaderpolicyobjectives,andappropriatedesignoffiscalpoliciesandinstitu-supportedbystronginstitutionsandpoliticaltionalframeworks.Bothinstitutionalandpolicycommitment.Intheabsenceofstronginstitutionsfactorsplayimportantrolesinexplainingtheandpoliticalcommitment,fiscalrulesandSWFscross-countryvariationinfiscalpolicyvolatility.tendnottobefollowedclosely,whichreducesGreatergovernmentstability,astrongerruleoftheireffectiveness.law,easieraccesstointernationalfinancialmarkets,greaterexchangerateflexibility,andtheConclusionspresenceoffiscalrulesandSWFshaveallbeenassociatedwithlowerfiscalpolicyvolatilityandManyEMDEsarecommodity-dependent—inprocyclicality.termsoffiscalandexportrevenuesaswellaseconomicactivity.ThechallengesposedbythisThebroadermacroeconomiceffectsofcommoditycommoditydependencehaveagainbeenapparentpricefluctuationsalsodependonthepolicymix,inrecentyearsbecauseofgyrationsincommodityparticularlytheinteractionoffiscalpolicywiththeprices,resultingpartlyfromgeopoliticaltensions.monetaryandexchangeratepolicies(IMF2012b;ThesechallengesarelikelytobeexacerbatedinWorldBank2022).Additionally,therolethatcomingyearsascommoditypricesbecomemorecommodityrevenuesplayinthebudgetsofvolatileduringthetransitionfromfossilfuelstocommodity-exportingEMDEsandtheirimpactmoreclimate-friendlysourcesofenergy.Ifnotonfiscalpolicyvolatilitysuggestspotentialadequatelymanaged,theresponseoffiscalpolicybenefitsfromdiversificationoftheireconomies,awayfromproductionofcommodities.2121Foradetaileddiscussion,seeBleaneyandGreenaway(2001);GhoshandOstry(1994);Gilletal.(2014);Hesse(2008);Joya(2015);andWorldBank(2022).GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER4171BOX4.2Dofiscalrulesandsovereignwealthfundsmakeadifference?LessonsfromcountrycasestudiesCommoditypricemovementsofteninducemoreprocyclicalandvolatilefiscalpolicy,whichleadstoboom-bustcyclesandhindersgrowthincommodity-exportingemergingmarketanddevelopingeconomies(EMDEs).Inrecentdecades,manycommodityexportershaveadoptedfiscalrulesandestablishedsovereignwealthfunds(SWFs)topartlyaddressthesechallenges.Theadoptionoftheseinstitutionalarrangements,aswellastheireffectivenessinreducingfiscalprocyclicalityandfiscalvolatility,hasnotbeenuniformacrosscountries.Overall,fiscalrulesandSWFsarefoundtohavebeenmosteffectiveinaddressingprocyclicalityandvolatilitywhenwell-designedandsupportedbystronginstitutions.ChileandNorway,inparticular,havemanagedtheircommodityexposurerelativelysuccessfullyowingtotheirrigorousfiscalframeworksandstronginstitutions,offeringlessonsforotherresource-dependentcountries.Introductionaredesignedtoexpandnationalwealthandstabilizebusinesscycles.SWFshold,manage,oradministerCommoditydependencepresentssubstantialchallengesassetstoachievefinancialobjectivesandemployasetofformanyemergingmarketanddevelopingeconomiesinvestmentstrategies.eobjectivesofSWFsdepend(EMDEs).Commoditypricevolatilitygenerallyresultsoncountry-specificcircumstances,whichmayevolveinunpredictableswingsincommodity-relatedexportovertime.SWFsinclude:aandfiscalrevenues,particularlyincountrieswherecommoditiesaccountforalargeshareoffiscalrevenue,•Stabilizationfunds.esefundsareestablishedtowhichleadstovolatileandprocyclicalpublicinsulatetheeconomyfromcommoditypriceexpenditure—thatis,expenditurethatreinforcesrathervolatility—forexample,theEconomicandSocialthanmoderatesabusinesscycle.TomanagetheimpactStabilizationFundinChile.Revenueflowsintotheofcommoditypricevolatilityonfiscalpolicy,fundswhengovernmentreceiptsareaboveacommodity-exportingcountrieshaveadoptedavarietybenchmarkandmoneycanbewithdrawnfromtheofpolicyframeworks,suchasfiscalrulesandsovereignfundwhengovernmentrevenueisbelowthewealthfunds(SWFs).Overthepasttwodecades,benchmarklevel.severalcountrieshavealsosetuppubliclyfundedindependentfiscalinstitutions,suchas“fiscalcouncils,”•Savingsfunds.eprimaryobjectiveofasavingstomonitorfiscalpolicy.eindependentfiscalfundistobuildwealthforfuturegenerationsandmonitoringinstitutionsaresupposedtoactasensureintergenerationalequityincountriesthatwatchdogsbyhighlightingfiscalrisks.However,theserelyonnonrenewablenaturalresources,suchasoil.policyframeworksandinstitutionsarefarfromExamplesincludethePetroleumFundinTimor-homogenousandoftentakedifferentformsindifferentLesteandthePulaFundinBotswana.esefundscountries.arecharacterizedbyfixedinflowsofgovernmentrevenueanddiscretionaryoutflows—reflectingaisboxassessestheeffectivenessoffiscalrulesandhighertoleranceforshort-termvolatilityandaSWFsinmanagingcommoditypriceshocksinselectedfocusonlonger-termreturns.Savingsfundsarecommodity-exportingcountries.Itaddressestheestablishedwhenagovernmentcanputasidefundsfollowingquestions:forthefutureandbereasonablyconfidentthattheassetsinthefundwillnotneedtobeliquidatedin•HowdofiscalrulesandSWFsdifferamongtheshort-andmedium-run(Al-Hassanetal.commodity-exportingcountries?2018).•HowhavefiscalrulesandSWFshelpedinreducing•Financingfunds.Afinancingfundcombinesthefiscalprocyclicalityandvolatility?characteristicsofastabilizationfundandasavingsfund,suchastheSWFofNorway.ItisfullySovereignwealthfundsandfiscalrulesintegratedintothegovernmentbudgetprocess.Sovereignwealthfundsa.OthertypesofSWFsarereserveinvestmentcorporationsanddevelopmentwealthfunds.esetypesoffundsarenotincludedinthisSWFsarespecialpurposeinvestmentfundsoranalysis.arrangementsthatareownedbythegovernmentand172CHAPTER4GLOBALECONOMICPROSPECTSJANUARY2024BOX4.2Dofiscalrulesandsovereignwealthfundsmakeadifference?Lessonsfromcountrycasestudies(continued)FIGUREB4.2.1Fiscalrules,fiscalexpenditures,andSWFsincommodityexportersSincethe1990s,theadoptionoffiscalrulesbycommodityexportershasincreased,withbudgetbalanceanddebtrulesbeingthemostprevalenttypeofrules.SovereignwealthfundsinAustraliaandNorwayhaveconsistentlyaccumulatedresourcesinlinewiththeirlong-termobjectives.A.TypesoffiscalrulesincommodityB.AustraliaC.NorwayexportersNumberRevenuerulesPercentFiscalexpenditureIndexPercentFiscalexpenditure$/bbl100ExpenditurerulesSWFSWF120Debtrules50Commodityexportprice(RHS)140300Oilprice(RHS)10080Budgetbalancerules4012025080301002006060208015040106010020404000205020000198519881991199419972000200320062009201220152018202120082009201020112012201320142015201620172018201920202021199920012003200520072009201120132015201720192021Sources:Davoodietal.(2022);FutureFund(website);InternationalMonetaryFund;NorgesBank;WorldBank.Note:bbl=billionbarrels;SWF=sovereignwealthfund.A.Panelshowstypesoffiscalrulesforcommodity-exportingcountries.Thesampleconsistsoffouradvancedeconomiesand44emergingmarketanddevelopingeconomies.B.C.FiscalexpenditureandassetsundermanagementofSWFsareexpressedaspercentagesofGDP.Typically,inflowstothefundcomefromtheTherearefourmaintypesoffiscalrules,basedontheresourcerevenuesofthegovernmentandthebudgetaryaggregatetheyaimtoconstrain(Davoodietreturnsonthefund’sinvestments.eoutflowsareal.2022):transferstocoveranynonresourcebudgetdeficit.Asaresult,thefundreceivespositivenettransfers•Budgetbalancerules.Theobjectiveofabudgetif,andonlyif,thegovernmentrunsabudgetbalanceruleistoconstrainthesizeofthedeficitsurpluswhenresourcerevenuesareincluded.isandtherebycontroltheevolutionofthedebtratioisnotnecessarilythecaseforstabilizationand(forexample,Indonesia,Mexico,andNigeria).savingsfunds(forexample,thatofNewZealand)Becausesuchrulesdonotsetnumericallimitsonbecausethesefundsarenotlinkedtogovernmentbudgetaryaggregates,theyaretypicallyconsideredbudgetdeficitsorsurpluses(Al-Hassanetal.2018).proceduralratherthannumericalfiscalrules.IfAkeyfeatureofthefinancingfundmodelisthefollowedproperly,theycanhelppreventdebtfiscalpolicyguideline(orrule)whichspecifiesthesustainabilityissues.However,insomecases,desiredtrajectoryofthenonresourcebudgetdeficitbudgetbalancerulescanalsoinduceprocyclicalitythatistobefinancedbytransfersfromthefund.byforcingexpenditurestofollowrevenues,whichareusuallyprocyclical.Fiscalrules•Revenuerules.TheserulessetceilingsandfloorsonSincethe1990s,rules-basedfiscalframeworkshaverevenuesandareaimedatboostingrevenuebecomeincreasinglyprevalentacrosstheworld.collectionand/orpreventinganexcessivetaxAlthoughfiscalrulesweredesignedtoberigidtoburden.Mostoftheserulesarenotlinkeddirectlyconstraingovernmentactionsandpromotecompliance,tothecontrolofpublicdebtbecausetheydonottheseruleshavebeenevolving,especiallyinresponsetoconstrainspending.Furthermore,settingceilings/economiccrises(Budinaetal.2013).floorsonrevenuescanbechallengingbecauseGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER4173BOX4.2Dofiscalrulesandsovereignwealthfundsmakeadifference?Lessonsfromcountrycasestudies(continued)revenuesoftenhavealargecyclicalcomponent—percentoffiscalrulesfollowedbydebtruleswhichwerefluctuatinginlinewiththebusinesscycle.Revenueabout33percentoftotalfiscalrules(figureB4.2.1.A).rulesalonecouldresultinprocyclicalfiscalpolicyExpenditurerules(15percent)andrevenuerules(11becausefloorsgenerallydonotaccountforpercent)accountedfortherest.automaticstabilizers(suchasunemploymentbenefits)inadownturnandceilingsdon’taccountCountrycasestudiesfortheminanupturn.Revenuerulescan,however,directlytargetthesizeofthegovernment.ThisboxanalyzestheuseofSWFsandfiscalrulesinsevendiversecommodity-exportingcountries:•Expenditurerules.ExpenditurerulessetlimitsonArgentina,Australia,Botswana,Chile,Indonesia,total,primary,orcurrentgovernmentexpendituresNorway,andTimor-Leste.Theanalysisaimstoincludetolimittheprocyclicalityoffiscalpolicy(foradiversesetofcommodityexportersbothintermsofexample,Botswana,Chad,andEcuador).Suchthetypesofcommodityexports(agriculture,energy,limitsaretypicallyseteitherinabsoluteterms,orandminerals)aswellastheconcentrationofgrowthrates,andoccasionally,asapercentageofcommodityexports(thatis,single-commodityexportersGDP.Thetimehorizonoftenrangesbetweenthreeaswellascountrieswithamorediverseexportandfiveyears.Expenditurerulescanconstrainportfolio).Todrawusefulinsightsforresource-richspendingduringbooms,whenwindfallrevenuecountriesconsideringadoptingfiscalrulesandSWFstoreceiptsaretemporarilyhighanddeficitlimitsaremitigatefiscalprocyclicalityandvolatility,theboxeasytocomplywith.Suchrules,however,arenotanalyzescountrieswithwell-functioningfiscalrulesanddirectlylinkedtotheobjectiveofdebtSWFs,countrieswithmixedexperiences,andcountriessustainabilitybecausetheydonotconstrainthewithoutfiscalrulesandSWFs.Finally,thesamplerevenueside.Moreover,expenditurerulesdonotincludesbothadvancedeconomiesandEMDEsinallowmuchscopefordiscretionaryfiscalstimulusdifferentgeographicalregions.duringbadeconomictimes.Australia,Chile,andNorway•Debtrules.Theserulesfocusonlong-termsustainabilitybysettinganexplicitanchororThesecountrieshavedesignedtheirSWFstohelpceilingforpublicdebt(oftenasapercentageofmanagethefiscaleffectsoffluctuationsincommodityGDP).Adebtruleisrelativelyeasytoexportpricesandrevenues.AustraliaandNorwayhavecommunicateand,bydefinition,mosteffectivelydesignedtheirfundsforlong-termpurposes,whileensuresconvergencetoadebttarget.However,Chilehasdesigneditsfundforshort-termpurposes.debtrulesdonotprovideclearshort-termguidanceThesecountrieshavealsoestablishedfiscalrulesandaforpolicymakersbecauseittakestimeforstronginstitutionalframeworkthatallowsthemtobudgetarymeasurestoaffectdebtlevels.bMoreover,reduceoravoidfiscalprocyclicality(Arezkietal.2012;fiscalpolicymaybecomeprocyclicaliftheeconomyBauer2014;Frankel2011).Thecombinationofgoodishitbyshocksandthedebttarget,definedasainstitutions,SWFs,andfiscalruleshasenabledthesepercentageofGDP,isbinding.Conversely,whencountriestomanagetheircommodity-basedrevenuesdebtiswellbelowitsceiling,sucharuledoesnotandcreatesustainableframeworks.Australiacombinesprovidebindingguidance(Budinaetal.2013).well-developedfiscalframeworkswithbroadprinciples(forexample,ondebtsustainability)withmoreflexibleAsof2021,budgetbalanceanddebtruleswerethenumericalrulesorguidelines.ChileandNorwayalsomostprevalenttypeofrulesincommodity-exportingrelyonmoreflexibleguidelinesandrulessupportedbycountries.Budgetbalancerulesaccountedforabout41stronginstitutionsandtransparencyonfiscalplans,andareoftenregardedascountrieswiththemostsuccessfulb.Debtlevelscanalsobeaffectedbydevelopmentsoutsidethefiscalframeworksandinstitutionstomanagenaturalcontrolofthegovernment,suchaschangesininterestratesandtheresourcewealth(Lametal.2023).exchangerate,aswellas“below-the-line”financingoperations(suchasfinancialsectorsupportmeasures),whichcouldresultinlargefiscalAustralia.Australia’scommodityexportscompriseironadjustments.ore,coal,gold,liquifiednaturalgas,andanimalmeat.174CHAPTER4GLOBALECONOMICPROSPECTSJANUARY2024BOX4.2Dofiscalrulesandsovereignwealthfundsmakeadifference?Lessonsfromcountrycasestudies(continued)FIGUREB4.2.2FiscalexpendituresandSWFsinChile,Botswana,andTimor-LesteChileuseditsstabilizationfundasneededduringits2019socialcrisisandthepandemic.BotswanaandTimor-Lestehavedemonstratedmoreprocyclicalfiscalpolicy,althoughfiscalruleshavesupportedtheaccumulationofsizablefinancialassets.Thequalityofinstitutionsseemstoplayanimportantroleininfluencinghowthesecountriesmanageresourceabundance.A.ChileB.BotswanaC.Timor-LestePercentFiscalexpenditure$/mtPercentFiscalexpenditureprice(RHS)IndexIndex,100=2008Fiscalexpenditure$/bblSWF10,000SWF200SWF12040Copperprice(RHS)8,00080Commodityexport140160Oilprice(RHS)100356,0007012012080304,0006010060252,000508080402004060402015304001020200100500200720092011201320152017201920212006200920122015201820212008201120132015201720192021Sources:BankofBotswana;FondodeEstabilizaciónEconómicaySocial(website);InternationalMonetaryFund;Timor-LestePetroleumFund(website);WorldBank.Note:bbl=billionbarrels;mt=metricton;SWF=sovereignwealthfund.A.B.FiscalexpenditureandassetsundermanagementofSWFsareexpressedaspercentagesofGDP.C.AnindexforfiscalexpenditureandSWFassetsundermanagementwasconstructedstartingin2008.Thecountry’sfiscalframeworkisbasedontheCharterNorway.CommodityexportsofNorwayareofBudgetHonestyAct1998(Commonwealthofconcentratedincrudeoilandpetroleumgas.TheAustralia2014),whichprovidesfor“constrainedcountryhasaSWFcomprisingtwoseparateinvestmentdiscretion,”thatadvocatesaprinciples-basedapproachfunds.ratherthananumericallyoriented,rules-basedapproach.Itaddstransparencyanddisciplinetothe•TheGovernmentPensionFund-Global(GPFG),budgetformationandexecutionprocess(BhattacharyyaformerlythePetroleumFund,wasestablishedinandWilliamson2011;Chohan2017).TheCharter1990tocollectrevenuefromoil-relatedincomedefinestheprinciplesofsoundfiscalmanagementassourcestosupportgovernmentsavingandtocomprisingseveralcomponents,includinganpromoteanintergenerationaltransferofresourcesexpectationthatfiscalpolicycontributestoadequate(Velculescu2008).Inthisway,thegovernment’snationalsavingandtomoderatingcyclicalfluctuationsrevenuefrompetroleumproductiondoesnotenterineconomicactivity,asappropriate(Chohan2017).thegovernmentbudgetdirectly.Norway’sGFPGisThecountry’sSWF,theFutureFund,wasestablishedthelargestnatural-resource-basedSWFinthein2006andaccumulatesrevenuefrombudgetsurplusesworldwithitslatestannualholdingsatmorethanforlong-termpurposes,suchaspensions(figureUS$1.2trillion,equivalentto256percentofGDPB4.2.1.B).cTheministeroffinancemaymakecertainattheendof2022(figureB4.2.1.C).discretionarytransfersfromtimetotime.•TheGovernmentPensionFundNorway(GPFN)c.eFutureFundhasalsoreceivedcontributionsfromtheproceedssavessurplusesofthenationalinsuranceschemeofthesaleofthegovernment’sstakeinTelstrainlate2006andtheandheldassetsofUS$32.7billion,or6percentofapproximately2billionsharesinTelstrathatremainedafterthissale2022GDP(Lametal.2023).process.Also,itreceivedcontributionsfromacombinationofbudgetsurpluses,proceedsfromthesaleofthegovernment’sholdingofTelstra,PoliticalwilltoturnnonrenewableresourcesintoandthetransferofremainingTelstrashares(Al-Hassanetal.2018).wealthforfuturegenerationspavedtheroadforNorway’sfund.TheGPFGisfullyintegratedwiththeGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER4175BOX4.2Dofiscalrulesandsovereignwealthfundsmakeadifference?Lessonsfromcountrycasestudies(continued)statebudgetandbuildsonexistinginstitutionstogovernmentutilizedthestabilizationfundtostrengthenthebudgetprocess.Itfinancesthenon-oilprovidefiscalsupport.budgetwithoutconstraintsfromanyinfloworoutflowrulesbetweenthefundandthebudget.Norwayhas•ThePensionReserveFund(PRF)aimstoconsistentlysustainedbudgetsurplusesoverthepastaccumulateresourcesonalonger-termhorizon.twodecades(exceptfor2020),withnetinflowstotheThePRFwascreatedtosupportthestateguaranteeGPFGaccumulatingovertime.Thecentralofpensionanddisabilitybenefits.Thefunds’governmentinNorwayhastheso-called“bird-in-handgovernanceandassetsmanagementstrategymatchrule”or“spendingrule”(establishedin2001),whichinternationalbestpractices(Lametal.2023).stipulatesthatthenon-oilstructuraldeficit,andthuswithdrawalsfromthefundovertime,shouldChile’sfiscalrule,inplacesince2001,limitsthegrowthcorrespondtotheestimatedannualrealreturnoftheofbudgetedcentralgovernmentspendingtoanestimatefund,whichhasbeen3percentsince2017.ofstructuralrevenuegrowth.Therule’soperationissupportedbytwoexpertpanelsthatestimatelong-termNorway’sspendingruleimpliesthatthenon-oilbudget,copperpricesandtheoutputgap.Accordingtotherule,andhencetheeconomy,areisolatedfromboththelargetheauthoritiescanrunadeficitlargerthanthetargetif:variationsinoilrevenuesthatresultfromoilprice(1)inarecession,outputfallsshortofitslong-runfluctuationsaswellasthevolatilityinthevalueofthetrend,or(2)thepriceofcopperisbelowitsmedium-fundduetovariationsinstockprices.This,inturn,term(10-year)equilibrium(Frankel2011).TheESSFishelpstodampenthecyclicalswingsintheeconomy.closelylinkedtothestructuralbudgetbalanceruleandThelinkingofthestructural,andnottheactual,non-hasfollowedinternationalbestpracticestohaveaoilfiscaldeficittotheexpectedrealreturnontheassetsflexibleinflowandoutflowmechanism,afeaturesimilarofthewealthfundallowsautomaticstabilizerstowork.tothearrangementinNorway(Lametal.2023).InNorway(unlikeitsNordicpeers)doesnothaveaadditiontothefiscalrule,inJanuary2018ChilepubliclyfundedindependentbodytomonitorfiscalorcreatedtheAutonomousFiscalCounciltoreplacetheothereconomicpolicy.Instead,itestablishedaModelAdvisoryFiscalCouncilestablishedin2013.ThenewandMethodCommissionin2011,whichadvisesthefiscalcouncilalsocontinuestohavelegalindependence,MinistryofFinance.itsownresources,andhasabroadermandate.Chile.Chileistheworld’sbiggestcopperexporter—theepresenceofcrediblefiscalrules;thestrongmetalaccountsforabouthalfofthecountry’stotalgovernancestructuresthatprovidethespacefortheirexports.Chile’sfiscalpolicymanagementhasbeenimplementation;andtherecentcreationofcompetent,anchoredonthesuccessfulimplementationofSWFs,independent,andadequatelyresourcedfiscalcouncilsfiscalrules,andtherecentcreationofafiscalcouncil.haveenabledChiletodevelopsomeofthebestfiscalChile’sSWFscomprisetwotypesoffunds.managementinstitutionsamongcommodity-exportingEMDEs(IADB2008).Forexample,intheaftermathof•TheEconomicandSocialStabilizationFundthe2009globalrecession,Chilewasabletoconducta(ESSF)wasestablishedwiththeFiscalcountercyclicalfiscalpolicyandmaintainalowriskofResponsibilityLawof2006.TheESSFhasbeendebtdistress.Governmentexpendituresgrewfromdesignedforshort-termpurposes,withthemainabout23percentofGDPin2012-14toabout25objectiveofstabilizingfiscalspendingandpercentofGDPin2015-17(figureB4.2.2.A).isinsulatingthebudgetfromeconomicdownturnshelpedmitigateoutputvolatility,withGDPgrowthandvolatilecopperprices,thusreducingtheneeddecliningby2percentagepointsbetween2012-14andtoissuedebt.Provisionsforcontributionstoand2015-17,comparedwithanaveragedeclineof2.6withdrawalfromtheESSFarewellestablishedinpercentamongothermetalexporters(Richaudetal.thelawandcloselytiedtothefiscalrules.The2019).Chile’sfiscalsustainabilitywasmaintainedonESSFhasfolloweditsmandatesuccessfullyandaccountofitsfiscalrule,whichallowedthecountrytohelpedChilefinancecountercyclicalfiscalpolicysaveasubstantialproportionofcommodityrevenueswhenneeded.Duringthepandemic,theintoitsSWFduringthecommoditysupercycle(World176CHAPTER4GLOBALECONOMICPROSPECTSJANUARY2024BOX4.2Dofiscalrulesandsovereignwealthfundsmakeadifference?Lessonsfromcountrycasestudies(continued)FIGUREB4.2.3InstitutionalqualityandfiscalprocyclicalityIndonesia’suseoffiscalruleshasenabledittofollowaprudentfiscalbalancepathdespiteincreasesinitsexportprices.Argentina’sfiscalbalancehasbeendeterioratingsincethemid-2000sdespitegenerallyincreasingexportprices.Australia,Chile,andNorwayhavefollowedprudentfiscalpaths,witharelativelylowcorrelationbetweengovernmentspendingandcommodityexportprices.Establishingsovereignwealthfundsandfiscalrulessupportedbystronginstitutionalframeworkshaveallowedthesecountriestoreduceoravoidfiscalprocyclicality.A.IndonesiaB.ArgentinaC.InstitutionalqualityandfiscalprocyclicalityPercentFiscalbalanceIndexPercentFiscalbalanceIndexIndexCorrelationCommodityexportprice(RHS)Commodityexportprice(RHS)LawandorderCorruptioncontrol201406120Correlation(RHS)0.51512041007Bureaucracyquality1010028060.48006050.3560-24040.2040-42030.1-520-6020-100-81-0.1-100-0.21982-0.31985AustraliaNorway-0.41988ChileEMDEs199119941997200020032006200920122015201820211995199820012004200720102013201620192021Sources:ArroyoMarioliandVégh(2023);InternationalMonetaryFund;PRSGroup(database);WorldBank.Note:EMDEs=emergingmarketanddevelopingeconomies.A.B.FiscalbalanceasapercentageofGDP.C.Theinstitutionalqualityindexesgivehigherscorestocountrieswithbettermetrics.“EMDEs”showsthesimpleaverageof68commodity-exportingcountriesacrossthethreeindicatorsfrom1990-2019.ThecorrelationiscalculatedbetweentheGDPandtherealgovernmentexpenditureofacountryafterusingtheHodrick-Prescottfiltertoremovethetrendcomponentofthetimeseries.Bank2017).Partofthesesavingsweredrawndowntodownturnandtoboostlong-termproductivity(figureboosttheeconomyinthewakeoftheglobalfinancialB4.2.2.B).egovernmentfinancedthisdeficitbycrisis.Morerecently,theSWFwascrucialinfinancingdrawinguponsavingsfromthePulaFundandissuingabigfiscalstimuluspackageduringtheCOVID-19newdebt(WorldBank2016).pandemic.TopreventexcessivespendingandbolsterfiscalBotswanaandTimor-Lestesustainability,thegovernmenthasestablishedasetoffiscalrules,whichhavebeenmostlysetintermsofnon-Botswana.Diamondminingisthedominanteconomicbindingpoliticalcommitments.BotswanahasfoursectorinBotswana.egovernmentestablishedamainrules,whichtargetpublicspending,thefiscalsovereignwealthfund—thePulaFund—in1994tobalance,anddebt:servebothasasavingsfundandasashort-termstabilizationfund.emainobjectiveofthefundisto•Anindicativeexpenditurerule,theSustainableputasidepartoftheincomefromdiamondexportstoBudgetingIndex(SBI)wasestablishedin1994tobenefitfuturegenerations.Anotherobjectiveistoensurethatmineralrevenueisdirectedtowardprovideastabilizationmechanismforthegovernmentinvestmentsandsavings,ratherthanconsumptionbudgetandforeignreservesduringaneconomic(Apeti,Basdevant,andSalins2023;Kojo2010).downturnorslumpinmineralprices.Forexample,theeSBIcomputestheratioofrecurrentspendingPulaFundhelpedstabilizerevenueandoutputduring(excludingdevelopmentspending)overnon-the2007-09globalfinancialcrisis.During2008-10,thediamondrevenue,withtheobjectiveofkeepingthefiscaldeficitinBotswanaaveragedabout9.4percentofratiobelow1.AdheringtothisrulesetsasideGDP,asminingrevenuesdeclined,andexpendituresdiamondrevenuetofinancetheaccumulationofsurgedbecauseofanincreaseininfrastructurespendingfinancialassetsanddevelopmentspending.tooffsettheadverseeffectsoftheglobaleconomicGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER4177BOX4.2Dofiscalrulesandsovereignwealthfundsmakeadifference?Lessonsfromcountrycasestudies(continued)•ereisanindicativetargetonthecompositionofauthorizedtospendeachyear.evalueoffuturespending,whichspecifiesthatdevelopmentoilreceiptsisdeterminedusingtheU.S.Energyspendingshouldbeatleast30percentoftotalInformationAdministration'sforecastsforWestspending.TexasIntermediatecrudeoil.TransfersexceedingtheESIareallowedonlyifthegovernment•Anindicativetargetofanonnegativefiscalbalanceprovidesajustificationthatisapprovedbywasestablishedin2003.Parliament.erequirementisdesignedtoconstrainthegovernment’sabilitytospend•Foreignanddomesticdebtareeachprohibitedgovernmentresourceswithoutconsideringlong-fromexceeding20percentofGDP.termfiscalsustainability(Apeti,Basdevant,andSalins2023).SurplusfiscalsavingsaredepositedintothePulaFund,whichinvestsinlong-terminstrumentsoverseas,and•esecondruleisapoliticalcommitmenttodividendsfromtheseinvestmentsarepaidtothemaintainaceilingonthecostofexternaldebtat3Treasury.percentperyear.ItrequiresthegovernmenttobenchmarkthecostsofexternalborrowingagainstHowever,Botswana’sfiscalframeworkhaslimitations.theaveragerateofinvestmentreturnsofthePF.esustainablebudgetingprincipledoesnotdirectlyChannelingalloilrevenuesintothePFandrequiringincorporateasustainabilityconcept,andthePulaFundthattheESIruleisconsistentwiththesustainableusehasbeenreducingitsoverallsizewithwithdrawalsthatoffundsshould,inprinciple,mitigatetheimpactofoilarefarlargerthanitsinflow(Basdevant2008;Jefferispricecyclesonfiscalexpenditure.However,theescape2016).ePulaFundisnotgovernedbyclearlyclauseshavehinderedtheeffectivenessofTimor-Leste’sdefinedwithdrawalordepositrules,withdepositsfiscalframeworks.Until2008,governmentspendingofdeterminedbythesizeofthebudgetsurplusandoilrevenuewasconservativeandtransferstothebudgetwithdrawalsdeterminedbythesizeofdeficitstofinancethenon-oilbudgetdeficitwerelowerthan(Markowitz2020).Onbalance,however,BotswanahastheESI.Asaresult,thenetassetsofthePetroleumrunafairlyprudentfiscalpolicy,avoidingmanypitfallsFundgrewrapidlyfromUS$371millionin2005toexperiencedbyothercommodity-dependentcountries.US$4.2billionin2008,theequivalentof647percentofnon-oilGDP.estrengthandstabilityofBotswana’sinstitutionshavebeenkeyinachievingthissuccess(Kojo2010;Richaudetal.2019).Timor-Leste.OffshoreoilandgasreservesarethemainHowever,beginningin2009,thecountrystartedtosourcesofTimor-Leste’sresourcerevenues.ewithdrawfundsfromthePFinexcessoftheESItoPetroleumFund(PF)wasestablishedin2005tocollectfinancelargeinfrastructureprojects(IMF2012b).isoilrevenuesandismanagedbythecentralbank.eledtoasignificantslowdowninaccumulationofassets,PFprimarilyinvestsinoffshoreassets,suchasU.S.butthePFstillreachedalevelofaboutUS$19billionTreasurybonds.ePF’sonlyexpendituresarein2020.Sincetheglobalfinancialcrisis,expenditurestransferstothebudget,paymentofoperationalhavefollowedoilpricesclosely(figureB4.2.2.C).managementfees,andrefundsofoverpaidtaxes.eAdditionally,systematicexcesswithdrawalshavebeengovernmenthasadoptedtwofiscalrulestoguidetheauthorizedinrecentyears,evenpriortothepandemic.useofoilrevenuealthoughtheserulesarenotbinding.Giventhelowexpectedremaininglifetimeofthecountry’soilfields,thePFisatseriousriskofbeing•eEstimatedSustainableIncome(ESI),depletedwithinthenextdecade(WorldBank2021).establishedin2005,isamechanismforintegratingthePetroleumFundandthebudget.eESIisInsum,escapeclausesandweakinstitutionshavecalculatedas3percentoftotalwealthplusthediminishedtheeffectivenessoffiscalrulesinbothpresentvalueofprojectedfutureoilreceipts.atBotswanaandTimor-Leste,evenwhentheruleswerecombinedamountiswhatthegovernmentiswell-designedforlong-runsustainability.178CHAPTER4GLOBALECONOMICPROSPECTSJANUARY2024BOX4.2Dofiscalrulesandsovereignwealthfundsmakeadifference?Lessonsfromcountrycasestudies(continued)ArgentinaandIndonesiaanalyzedhere,Argentinahasneitherasovereignwealthfundnorasetoffiscalrules.FiscalpolicyinArgentinaIndonesia.emaincommodityexportsofIndonesiahasbeenhighlyprocyclical,withexpendituresgrowingarecrudeoil,gas,coal,palmoil,andrubber.Indonesiacloselyinlinewithcommodityexportpricesduringtheestablishedafiscalrulein2003,whichstipulatesafiscalcommoditypricecycleofthe2000s(Kaminsky2010;deficitceilingof3percentofGDPandadebtceilingofTenreyro2012).elackofstronginstitutionsand60percentofGDP.Atthattime,thegovernment’sfiscalrulescontributedtoadeteriorationinfiscaldeficitwas1.7percentofGDP,debtwasat57percentoutcomesoncethecommoditypriceboomendedofGDP,andtheeconomywaswellonitspathto(figureB4.2.3.B).Asaresult,thecountryhasfacedrecoveryaftertheAsianfinancialcrisis.eaimofthepersistentfiscalchallengesinthepastdecade(IMFfiscalrulewastosolidifythesegainsandtopromote2020).futurefiscaldisciplinebyenactingthesefiscalresponsibilitycriteriaintolaw(Blöndal,ConclusionsHawkesworth,andChoi2009).eruleshavebeenrespectedandonlytemporarilyliftedduringtheisboxanalyzestheexperiencesofselectedcom-pandemicwithinlegallypre-establishednorms.modity-exportingcountries,allbutoneofwhichadoptedfiscalrulesandSWFs,inmanagingcommodityAlthoughIndonesia’sfiscalrulehasprovidedasolidpriceshocks.Insightsfromthesecasestudiesleadtothenominalanchorandhassafeguardeddebtsustainability,followingconclusions.fiscalspendinghasnotbeendisconnectedfromthecommoditypricecycle(figureB4.2.3.A;Ismal2011).First,SWFsandfiscalrulesdifferamongcountriesinForexample,over1993-2008,fiscalpolicyinIndonesiaobjectivesanddesign.SWFscanhavealong-termwasnotcountercyclical(IMF2009).efactorspurpose(suchastheaccumulationofpensionfunds)orunderlyinglimitedfiscalresponsestooutputashort-termone(suchasdampeningtheimpactoffluctuationsoriginatedfromstructuralweaknessesintemporaryeconomicshocks).SomerulesaredesignedpublicfinancemanagementandalackofbudgettomakeanSWFsustainable,otherstomakethemflexibility.isweaknessincludedahighdependenceaccessiblewhenneeded(Bauer2014;Richaudetal.onrevenuefromnaturalresources,narrowandvolatile2019).Thisaspectplaysanimportantroleintaxbases,lowdiscretionaryspending,andproblemsprocyclicalitybecausethecriteriagoverningaccessibilitywithbudgetexecution.willdeterminetheextenttowhichagovernmentcanaccessfunds(andspendthem).ThesustainabilityAdditionally,likemanyEMDEs,Indonesiareliesonconditionsmightalsoimposealimitontheamountexternalfinancingwhichtendstobeprocyclical.thatcanbeusedevenintimesofneed.Liquidityconstraints,particularlyduringdownturns,weakenthegovernment’sabilitytorunanexpansionarySecond,whensupportedbywell-designedfiscalrulesandfiscalpolicytooffsettheeffectsofaneconomicinstitutions,SWFscanhelpreduceprocyclicality.slowdown.Forexample,duringthe2007-09globalInternationalexperiencesuggeststhatastrongpoliticalfinancialcrisis,Indonesia’sexternalborrowingspreadscommitmenttofiscaldiscipline,aswellasstrongincreasedsharply,bynearly1,200basispoints,muchinstitutionsofgoodgovernance,areneededforSWFshigherthanitsregionalpeers—Malaysia,thetoworkwell.CountrieswithgoodcorruptioncontrolPhilippines,andailand(IMF2009).AnotherfactorandlawandorderhavebeenabletoconstructeffectivecontributingtofiscalprocyclicalityisthehighsubsidySWFsthatreduceprocyclicalitybyservingasabuffercomponentofthebudget,particularlyenergysubsidies,againstrevenuevolatilityorasasourceoffinancingwhichleaveslittleroomtorespondtotheeconomicduringdownturns(figuresB4.2.3.C).Inthecasesofcycle.However,thesubsidiesbillhasbeendecliningNorway(oil)andChile(copper),commodityrevenuessince2015owingtoaseriesofreforms.arechanneleddirectlyintotheSWFs,severinglinksfromresourcerevenuetogovernmentspending.TheseArgentina.ecountry’scommodityexportbasketisfundsarethenavailableforspecificpurposesunderbasedonagriculturalgoods.Unliketheothercountriescertainconditions,avoidingorlimitingfiscalGLOBALECONOMICPROSPECTSJANUARY2024CHAPTER4179BOX4.2Dofiscalrulesandsovereignwealthfundsmakeadifference?Lessonsfromcountrycasestudies(continued)procyclicality.Inothercases,despitethepresenceofwell-alsotodebtsustainabilityissues.InbothIndonesiaanddesignedrules,theexistenceofescapeclausesandweakArgentina,thetwocountrieswithoutanSWFintheinstitutionscanrenderSWFslessuseful(Perry2007).sample,fiscalpolicieshavebeenprocyclical.dWhileTheseobservationsareinlinewiththefindingsoftheIndonesiahasbenefitedfromasetofrulesaimedatanalysisinthischapter,whichshowsthatweakdebtsustainability,theabsenceofrulesinArgentinainstitutionslimittheabilityofgovernmentstofollowhasallowedmorediscretionaryspendingpoliciesthatcountercyclicalfiscalpolicydespitehavingfiscaltoolsathavecontributedtosuccessivecrises.theirdisposal.d.IndonesiaestablishedaSWFin2021thatleveragesstateassetsasFinally,commodity-exporterswithoutSWFsorrobustfiscalwellaspublicandprivateinvestmentforinfrastructurespending.Itisrulesaremorepronenotonlytoprocyclicalfiscalbehaviorbutnotdesignedforfiscalstabilization.ANNEX4.1Determinantsofcapitaissignificantatthe5percentlevelbutthetwoothercontrolvariablesarenotsignificant.Infiscalprocyclicalityallthreecases,theF-testforthejointsignificanceofthefourrelevantexplanatoryvariablesisCross-countryregressionsforcommodityexport-significantlydifferentfromzeroatleastatthe10ersareusedtoidentifythemaindriversoffiscalpercentlevel.procyclicality.ThedependentvariableisthecorrelationbetweenthecyclicalcomponentsofThecross-countryregressionsarealsousedtorealgovernmentspendingandrealGDP.Theanalyzetheroleofinstitutionalvariablesindrivingexplanatoryvariablescaptureeachofthefourfiscalprocyclicality,ashighlightedbythecorrela-explanationsfortheexistenceofprocyclicalfiscaltionsreportedinfigure4.4.Theroleofsovereignpolicy:thefinancialopennessindex;thepoliticalwealthfunds(SWFs)andfiscalrulesisalsoconstraintsindex;thestandarddeviationofGDP;explored.TocaptureSWFs,adummyvariableisandcontrolofcorruption.Eachofthesefourincludedthattakesthevalueof1ifacountryhasvariablesissignificantandthreeofthefouraSWF,and0otherwise.SWFscanplayancoefficientshavetheexpectedsign(tableA4.1.1).importantroleinreducingprocyclicalitybecauseMorefinancialopennessandbettercontrolofthesefundsaredesignedtosaveduringcommodi-corruptionreduceprocyclicalitywhilegreatertypriceboomsanddis-saveduringpriceslumpsoutputvolatilityincreasesprocyclicality.However,(Asik2017).Resultsshowthathighergovernmenttheeffectofthepoliticalconstraintsindexisstability,betterlawandorder,andthepresenceofcounterintuitive,suggestingthateithertheSWFsandfiscalrulesalltendtoreducefiscal“voracityeffect”doesnotholdorthatthepoliticalprocyclicality(tableA4.1.2).Overall,theanalysisconstraintindexisnotanappropriateproxyforprovidesevidencethatbetterinstitutionsarethedetrimentaleffectsofmorefiscalclaimantsonassociatedwithlowerfiscalprocyclicality.availableresources.Whenallthesevariablesareincludedtogether,theyarejointlysignificant.Althoughfiscalrulesmayreduceprocyclicality,theexistenceoffiscalprocyclicalitymaypromptRobustnesschecks.InlinewithLane(2003),policymakerstoadoptfiscalrules.ToaccountforGDPpercapita,sizeofthepublicsectorrelativethispotentialendogeneity,instrumentalvariabletoGDP,andopenness(sumofexportsandestimation(two-stageleastsquares)isusedwithimportsasapercentageofGDP)areusedasbureaucracyquality(fromthePRSdatabase)asancontrolsintheregressiononeatatime.GDPperinstrument.180CHAPTER4GLOBALECONOMICPROSPECTSJANUARY2024TABLEA4.1.1DriversoffiscalprocyclicalityDependentvariable:CorrelationbetweenrealgovernmentspendingandrealGDP(1)(2)(3)(4)(5)-0.19Financialopenness-0.25-0.07-0.08Corruptioncontrol-0.121.26Politicalconstraintindex-0.4772GDPvolatility1.580.18F-testObservations92749297R-squared0.050.130.050.06Source:WorldBank.Note:Cross-sectionalOLSregressionsforcommodityexporters.Forregression(5),theF-testevaluatesthejointsignificanceoffinancialopenness,corruptioncontrol,andGDPvolatility.,,anddenotesignificanceatthe10,5,and1percentlevel,respectively.TABLEA4.1.2InstitutionaldriversoffiscalprocyclicalityDependentvariable:CorrelationbetweenrealgovernmentspendingandrealGDP(1)(2)(3)(4)(5)(6)(7)Governmentstability-0.09-0.01-0.07Lawandorder-0.13-0.12-0.06Fiscalrules-0.61-2.11-0.31-1.26Sovereignwealthfunds-0.53-0.37-0.21F-testObservations137137106194838383R-squared0.050.240.170.13n/r0.470.15Source:WorldBank.Note:Cross-sectionregressionforfullsample.Regressions(1)-(4)and(6):OLS.Regressions(5)and(7):IV(two-stageleastsquares).n/rmeansnotreportedbySTATA.Forregressions(6)and(7),theF-testreportedevaluatesthejointsignificanceofthethreeinstitutionalvariables.Regression(7),centeredR-squared.Overidentificationtestsdonotapplytoregressions(5)and(7)sinceequationsareperfectlyidentified.Inregressions(5)and(7),thefirst-stageF-testofexcludedinstrumentsimpliesrejectionofthenullhypothesisofweakidentification(p-value=0.00)inbothcases.,,anddenotesignificanceatthe10,5,and1percentlevel,respectively.TABLEA4.1.3OutputgrowthandcommoditypricesDependentvariable:GDPgrowth(1)(2)(3)(4)(5)(6)0.085EMDEsFullsampleCommodityexportpriceindex0.0630.0800.0240.026Termsoftrade0.0290.018GDP(t−1)0.0260.366CommodityexportpriceindexxEMDE3813640.3670.0620.054F-test0.046Observations1111370533Countries11154365181515Source:WorldBank.Note:Panelleastsquareswithcountryfixedeffects.Allvariablesareinlog-differences.Theestimatesincolumns(1)-(3)arebasedonthesampleofemergingmarketanddevelopingeconomies(EMDEs)onlywhilethoseincolumns(4)-(6)arebasedonthefullsamplethatincludesadvanced-economycommodityexporters.F-testincolumns(4)-(6)evaluatesthejointsignificanceofcommodityexportpriceindexandtheinteractionoftheindexwiththedummyvariablesforEMDEs.,,andindicatestatisticalsignificanceat10,5,and1percent,respectively.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER4181TABLEA4.1.4GovernmentspendingandcommoditypricesDependentvariable:Realgovernmentspending(1)(2)(3)(4)(5)(6)EMDEsFullsample-0.121Commodityexportpriceindex0.0610.080.061-0.123-0.0720.6250.183Termsoftrade-0.060-0.072GDP(t−1)0.68841315CommodityexportpriceindexxEMDE0.1840.158F-testObservations276269276415341Countries1111111515Source:WorldBank.Note:Panelleastsquareswithcountryfixedeffects.Allvariablesareinlog-differences.Theestimatesincolumns(1)-(3)arebasedonthesampleofemergingmarketanddevelopingeconomies(EMDEs)onlywhilethoseincolumns(4)-(6)arebasedonthefullsamplethatincludesadvanced-economycommodityexporters.F-testincolumns(4)-(6)evaluatesthejointsignificanceofcommodityexportpriceindexandtheinteractionoftheindexwiththedummyvariablesforEMDEs.,,andindicatestatisticalsignificanceat0.10,0.05,and0.01percent,respectively.GDP=grossdomesticproduct.ANNEX4.2Linkagesβsummarizesthecyclicalbehavioroffiscalpolicybetweenfiscalpolicyandindicateswhetherfiscalpolicyiscountercycli-volatilityandeconomiccalorprocyclical.Itiscomposedofbothautomat-growthicstabilizersandthediscretionaryresponseofgovernmentstoeconomicfluctuations.23TheEstimatingfiscalpolicyvolatilityresidual,ϵ,captureschangesinfiscalpolicythatareunrelatedtothebusinesscycleoranyoftheTheframeworkusedtoestimatefiscalpolicycontrolvariables.ThesedecisionscanbetheresultvolatilityisbasedontheapproachinFatásandofpoliticaldecisions(suchaschangesintaxratesMihov(2013),whichinvolvesestimatingafiscalorspendingassociatedwiththepoliticalcycle)orpolicyreactionfunctionofthefollowingform:errorsinpolicy(suchasmismeasurementoftheoutputgap).TheuncertaintyassociatedwiththeFiscalPolicyt=α+βEconomicActivitytresidualcanbeseenasgeneratingexcessivevolatilityinGDPand,possibly,reducedlong-+γControlst+єt(4.2.1)termgrowth.FollowingFatásandMihov(2013),thevolatilityoffiscalpolicyismeasuredasthewhere“FiscalPolicy”isavariablethatcapturesstandarddeviationoftheresidualinthefiscalthestanceoffiscalpolicy.Fouralternativepolicyreactionfunction(σєi).measuresoffiscalpolicyareused:primaryexpenditures,revenues,primarybudgetbalance,Implicationsoffiscalpolicyvolatilityforandgovernmentconsumption.Primaryexpendi-tures,revenues,andgovernmentconsumptionaregrowthallexpressedinrealtermsandmeasuredaslogdifferences.TheprimarybudgetbalanceisTheimpactoffiscalpolicyvolatilityonpercapitaexpressedastheannualchangeofitsratiotoGDPgrowthisanalyzedbyestimatingvariantsofGDP.“EconomicActivity”denotesthecyclicalastandardgrowthregression(Barro1991).Thestanceoftheeconomyandisrepresentedbybenchmarkspecificationisgivenby:annualGDPgrowth.Thealternatives—theoutputgapandtheunemploymentrate—aremore23Thespecificationhaspotentialendogeneityissuessincefiscaldifficulttoconstructormeasureaccuratelyforpolicycouldaffecteconomicactivitycontemporaneously.Whilethediverseeconomies.22literaturehasacknowledgedtheseissues,ithasmadeuseofOLSinmanyinstancesbecauseofthelackofanobviousinstrument(for22HP-filteredGDPlevelsarealsousedasameasureofeconomicexample,Aghion,HemousandKharroubi2014;Alesina,Campanteactivitytochecktherobustnessoftheresults.TheresultsusingthisandTabellini2008;andLane2003).Studiesthathaveexploredasetalternativemeasureareconsistentwiththebaselineresults.ofinstrumentstotesttherobustnessoftheresultspresentedintheseearlierpapersfindsimilarresults(forexample,FatásandMihov2013).Giventhis,andforthesakeofsimplicity,theanalysisinthischaptermakesuseofOLS.182CHAPTER4GLOBALECONOMICPROSPECTSJANUARY2024∆yi=α′+ρ′log(σiε)+γ′Zi+ui(4.2.2)ThecontrolsincludedintheregressionaretakenfromthespecificationofFatásandMihov(2013),where∆yiistheaveragepercapitaGDPgrowthwhicharebasedonthegrowthregressionsofforcountryi;σiεisthemeasureoffiscalpolicySala-i-Martin,DoppelhoferandMiller(2004).24volatility—thekeyregressor;ZiisavectorofThecontrolsincludedaregovernmentsize,initialvariablesthathavebeenfoundtohavesignificantGDPpercapita,capitalaccountopenness,andtheexplanatorypowerforthecross-countryvariationpriceofinvestment.ingrowth.Fiscalpolicyvolatilityismeasuredusingprimaryexpenditures.Equation(4.2.2)is24Forrobustness,differentspecificationswereestimatedwithaestimatedusingbothOLSaswellasinstrumentalvarietyofcontrols,includingtheexistenceofasovereignwealthfund.variablestoaddressendogeneityconcerns.Theresultsarenotsignificant.NotethatthisvariableisalreadyInstrumentsusedarepoliticalconstraintsandincludedasaninstrumentforfiscalpolicyvolatility.controlofcorruptionfromthePRSGroupdatabase,InternationalCountryRiskGuide.TABLEA4.2.1Determinantsoffiscalpolicyvolatility:Cross-sectionalregressionsDependentvariable:Primaryexpenditurevolatility(1)(2)(3)(4)(5)(6)(7)4.9301.7560.536-1.255EMDE(0.657)(0.870)-2.381-0.398(1.151)(0.970)3.295-1.0530.03981.082Commodityexporters(0.852)(0.845)(1.266)(1.276)(0.849)(0.753)Resourcerents0.3760.5430.402GDPpercapita3.930(0.0814)0.6613.356(0.180)(0.0678)SWF(0.460)-1.2401.0230.282Politicalconstraints(0.423)(0.747)(1.134)(1.091)(0.651)Controlofcorruption178-0.324-0.349Fiscalpolicyrules0.21917.3900.281(0.832)(0.703)Capitalaccount(4.495)3.963openness177(0.0688)-1.040(4.676)Exchangerateregime0.451(0.411)-0.761Constant-0.548-4.256(0.388)Observations(1.729)-0.694R-squared(0.464)-4.541(0.308)(1.294)-4.202-11.27-3.596-0.9470.928(1.666)(2.502)(3.224)(0.348)(10.191)-3.206-1.997-1.836-7.312(0.857)(0.421)(0.570)(2.574)938.710-4.7220.636(5.579)17.9219.44(1.093)(1.305)(5.025)14.0477(2.836)0.7131331320.3940.595930.371Source:WorldBank.Note:Robuststandarderrorsinparentheses.“EMDE”isadummyvariablethattakesthevalue1ifacountryisclassifiedasanEMDE,and0otherwise.“Commodityexporters”isadummyvariablerepresentingwhetheracountryisacommodityexporterornot.“SWF”isadummyequalto1ifacountryhasasovereignwealthfundand0otherwise.p<0.01,p<0.05,p<0.1.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER4183TABLEA4.2.2Determinantsoffiscalpolicyvolatility;bytypeofcommodityDependentvariable:Primaryexpenditurevolatility(1)(2)EMDE2.9001.794AgricultureexportersMetalexporters(1.047)(0.867)EnergyexportersGDPpercapita0.712-0.592ResourcesrentsConstant(0.983)(1.036)ObservationsR-squared2.236-0.136(1.337)(1.353)6.185-1.125(1.625)(1.252)-1.243-1.114(0.523)(0.453)0.377(0.089)17.08116.017(5.593)(4.818)1771770.2920.450Source:WorldBank.Note:Robuststandarderrorsinparentheses.“Agricultureexporters,”“metalexporters,”and“energyexporters”aredummyvariablesthattakethevalue1ifacountryisanetexporteroftherespectivecommoditygroup,and0otherwise.p<0.01,p<0.05,p<0.1.TABLEA4.2.3EffectsoffiscalpolicyvolatilityonGDPpercapitagrowthDependentvariable:GDPpercapitagrowthOLSIV(1)(2)(3)(4)-0.0220.079Fiscalpolicyvolatility(0.060)-0.116-0.110(0.042)Governmentsize0.015InitialGDPpercapita(0.022)(0.036)(0.012)Capitalaccountopenness-0.774Investmentprice0.0130.020(0.138)Commodityexporter0.930(0.012)(0.013)(0.342)-1.546-0.659-0.767(0.318)-0.734(0.138)(0.147)(0.318)9.7081.2101.230(1.284)(0.302)(0.314)1280.433-1.481-1.548(0.392)(0.432)Constant1.9868.4169.202(0.533)(1.157)(1.332)ObservationsR-squared1771611280.0060.3560.403Source:WorldBank.Note:Robuststandarderrorsinparentheses.Fiscalpolicyvolatilityinallspecificationsismeasuredusingprimaryexpenditures.Theestimatesincolumns(1)and(2)arebasedonordinaryleastsquares(OLS)regressions.Columns(3)and(4)isbasedoninstrumentalvariables(IV)estimation,withthe“politicalconstraints”and“controlofcorruption”usedasinstruments.p<0.01,p<0.05,p<0.1.184CHAPTER4GLOBALECONOMICPROSPECTSJANUARY2024ANNEX4.3AdditionaltablesTABLEA4.3.1ListofeconomiesforanalysisoffiscalprocyclicalityandvolatilityArgentinaAgricultureCommodityexportersAlgeriaEnergyBelizeNewZealandMetalsAngolaNigeriaBeninNicaraguaAzerbaijanNorwayBrazilParaguayArmeniaBahrainOmanBurkinaFasoRwandaAustraliaBoliviaQatarBurundiSenegalBotswanaBruneiDarussalamRussianFederationCaboVerdeSeychellesCentralAfricanRepublicCameroonSaudiArabiaChadSolomonIslandsChileCanadaTimor-LesteComorosSudanCongo,Dem.Rep.ChadTrinidadandTobagoCostaRicaTajikistanGuineaColombiaUnitedArabEmiratesCôted’IvoireTanzaniaKyrgyzRepublicEcuadorEthiopiaTogoLiberiaEquatorialGuineaFijiUgandaMauritaniaGabonGuatemalaUkraineMongoliaGhanaGuinea-BissauUruguayMozambiqueGuyanaHondurasUzbekistanNamibiaIndonesiaIcelandNigerIran,IslamicRep.KenyaPapuaNewGuineaIraqLaoPDRPeruKazakhstanMadagascarSierraLeoneKuwaitMalawiSouthAfricaLibyaMaliSudanMyanmarSurinameTajikistanZambiaAlbaniaDominicaCommodityimportersMoldovaSpainAntiguaandBarbudaDominicanItalyMoroccoSriLankaAustriaEgypt,ArabRep.JamaicaNepalSt.KittsandNevisBahamas,TheElSalvadorJapanNetherlandsSt.VincentandtheGrenadinesBangladeshEritreaJordanNorthMacedoniaSwedenBarbadosEstoniaKiribatiPakistanSwitzerlandBelarusEswatiniKorea,Rep.PalauSyrianArabRepublicBelgiumFinlandLatviaPanamaTaiwan,ChinaBhutanFranceLebanonPhilippinesThailandBosniaandHerzegovinaGeorgiaLesothoPolandTongaBulgariaGermanyLithuaniaPortugalTunisiaCambodiaGreeceLuxembourgRomaniaTürkiyeChinaGrenadaMalaysiaSamoaTuvaluCroatiaHongKongSAR,ChinaMaldivesSerbiaUnitedKingdomCyprusHungaryMaltaSingaporeUnitedStatesCzechiaIndiaMarshallIslandsSlovakRepublicVanuatuDenmarkIrelandMauritiusSloveniaVietNamDjiboutiIsraelMexicoMicronesiaSource:WorldBank.Note:Commodityexportsofeconomiescanchangeovertimeimplyingthepossibilityofre-categorization.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER4185TABLEA4.3.2VariablesforanalysisoffiscalprocyclicalityVariableDescriptionSourceGovernmentRealgovernmentexpenditure.IMF,WorldEconomicspendingOutlook(WEO)PoliticalriskIndexbasedon12componentswithvaryingweights:governmentstability,socioeconomicconditions,investmentprofile,internalconflict,externalconflict,corruption,militaryinpolitics,religioustensions,lawPRSGroup(database)andorder,ethnictensions,democraticaccountability,andbureaucracyquality.BureaucracyInstitutionalstrengthandqualityofthebureaucracyisashockabsorberthattendstominimizerevisionsqualityofpolicywhengovernmentschange.Inlow-riskcountries,thebureaucracyissomewhatautonomousPRSGroup(database)frompoliticalpressure.Indexmeasuresthequalityofbureaucracyfrom0to6.ControlofAmeasureofcorruptionwithinthepoliticalsystemthatisathreattoforeigninvestmentbydistortingthePRSGroup(database)corruptioneconomicandfinancialenvironment,reducingtheefficiencyofgovernmentandbusinessbyenablingpeopletoassumepositionsofpowerthroughpatronageratherthanability,andintroducinginherentinstabilityintothepoliticalprocess.Indexrangesfrom0to6.GovernmentAmeasureofboththegovernment’sabilitytocarryoutitsdeclaredprogram(s)andtostayinoffice.ThePRSGroup(database)stabilityriskratingassignedisthesumofthreesubcomponents:governmentunity,legislativestrength,andpopularsupport.Lawandorder“Law”assessesthestrengthandimpartialityofthelegalsystem,whilethe“order”elementisanPRSGroup(database)assessmentofpopularobservanceofthelaw.CapitalaccountTheChinn-Itoindex(KAOPEN)measuringacountry’sdegreeofcapitalaccountopenness;availableChinnandIto(2006)opennessfrom1970-2019for182countries.ExchangerateAdummyindicator,where1isfloatingexchangerateregimeand0isfixed.Classificationcodes1-3inIlzetzki,Reinhart,andregimethedatabasehavebeenclassifiedas“0”andcodes4-6as“1.”Rogoff(2021)OpennessSumofexportsandimports(percentofGDP).WorldIntegratedTradeSolution(WorldBank)FiscalrulesCoversfourtypesofrules:budgetbalancerules,debtrules,expenditurerules,andrevenuerules,Davoodietal.(2022)applyingtothecentralorgeneralgovernmentorthepublicsector.SWF(sovereignDummyvariable:“0”ifacountrydoesnothaveaSWFand“1”ifithasaSWF.www.swfinstitute.org/fund-wealthfund)rankings/sovereign-wealth-fundSource:WorldBank.186CHAPTER4GLOBALECONOMICPROSPECTSJANUARY2024TABLEA4.3.3VariablesforanalysisoffiscalpolicyvolatilityVariableDescriptionSourceIMF,WorldEconomicGeneralgovernmentrevenueConsistsoftaxes,socialcontributions,grantsreceivable,andotherrevenue.Outlook(WEO)PrimarybalancePrimarynetlending/borrowingisnetlending(+)/borrowing(-)plusnetinterestWEOpayable/paid(interestexpenseminusinterestrevenue;percentofGDP)PrimaryexpenditureObtainedbysubtractinginterestpaymentsfromgeneralgovernmenttotalexpenditures.WEOandauthors’InterestpaymentsarecalculatedasthedifferencebetweenoverallfiscalbalanceandcalculationsGovernmentconsumptiontheprimarybalance(allinpercentofGDP).RealGDP;realGDPpercapitaPoliticalconstraintsGeneralgovernmentfinalconsumptionexpenditureincludesallgovernmentcurrentWorldDevelopmentexpendituresforpurchasesofgoodsandservices(includingcompensationofIndicators(WorldBank)employees)andmostexpendituresonnationaldefenseandsecurity;excludesgovernmentmilitaryexpendituresthatarepartofgovernmentcapitalformation.WEOThePoliticalConstraintsIndex(POLCON)measurestheextenttowhichpolicychangesPOLCONdataset(Heniszareconstrainedbyinstitutionalandpoliticalfactors.2000)ControlofcorruptionAnindexmeasuringcorruptionwithinthepoliticalsystem;rangesfrom0to6.PRSGroup(database)GovernmentsizeGeneralgovernmenttotalexpenditure(percentofGDP).WEOInvestmentpricePricelevelofinvestment.PennWorldTableCapitalaccountopennessOpennessTheChinn-Itoindex(KAOPEN)measuringacountry’sdegreeofcapitalaccountChinnandIto(2006)openness;availablefrom1970-2019for182countries.ResourcesrentsSumofexportsandimports(percentofGDP).WorldIntegratedTradeSolution(WorldBank)Sumofoilrents,naturalgasrents,coalrents(hardandsoft),mineralrents,andforestWorldDevelopmentrents.TheestimatesofnaturalresourcerentsarecalculatedasthedifferencebetweenIndicators(WorldBank)thepriceofacommodityandtheaveragecostofproducingit.FiscalrulesCoversfourtypesofrules:budgetbalancerules,debtrules,expenditurerules,andDavoodietal.(2002)revenuerules,applyingtothecentralorgeneralgovernmentorthepublicsector.SWF(sovereignwealthfund)Dummyvariable:0ifacountrydoesnothaveaSWFand1ifithasaSWF.www.swfinstitute.org/fund-rankings/sovereign-wealth-fundSource:WorldBank.GLOBALECONOMICPROSPECTSJANUARY2024CHAPTER4187ReferencesDataEvidenceontheVoracityEffect.”IMFWorkingPaper10/209,InternationalMonetaryFund,Afonso,A.,andD.Furceri.2008.“GovernmentSize,Washington,DC.Composition,VolatilityandEconomicGrowth.”WorkingPaperSeries849,EuropeanCentralBank,Arezki,R.,K.Hamilton,andK.Kazimov.2011.Frankfurt.“ResourceWindfalls,MacroeconomicStabilityandEconomicGrowth.”IMFWorkingPaper11/142,Aghion,P.,D.Hemous,andE.Kharroubi.2014.InternationalMonetaryFund,Washington,DC.“CyclicalFiscalPolicy,CreditConstraints,andIndustryGrowth.”JournalofMonetaryEconomics62:Arezki,R.,andK.Ismail.2013.“Boom-bustCycle,41-58.AsymmetricalFiscalResponseandtheDutchDisease.”JournalofDevelopmentEconomics101(March):256-67.Aizenman,J.,andN.Marion.1999.“VolatilityandInvestment:InterpretingEvidencefromDevelopingArezki,R.,C.A.Pattillo,M.G.Quintyn,andM.Zhu.Countries.”Economica66(262):157-79.2012.“CommodityPriceVolatilityandInclusiveGrowthinLow-IncomeCountries.”Washington,DC:Al-Hassan,A.,S.Brake,M.G.Papaioannou,andM.InternationalMonetaryFund.Skancke.2018.“Commodity-basedSovereignWealthFunds:ManagingFinancialFlowsintheContextoftheArroyoMarioli,F.,A.Fatás,andG.Vasishtha.2023.SovereignBalanceSheet.”IMFWorkingPaper18/26,“FiscalPolicyVolatilityandGrowthinEmergingInternationalMonetaryFund,Washington,DC.MarketsandDevelopingEconomies.”PolicyResearchWorkingPaper10409,WorldBank,Washington,DC.Al-Sadiq,A.,P.Bejar,andI.Otker.2021.“CommodityShocksandExchangeRateRegimes:ArroyoMarioli,F.,andC.A.Végh.2023.“FiscalImplicationsfortheCaribbeanCommodityExporters.ProcyclicalityinCommodityExportingCountries:IMFWorkingPaper21/104,InternationalMonetaryHowMuchDoesitPourandWhy?”NBERWorkingFund,Washington,DC.Paper3143,NationalBureauofEconomicResearch,Cambridge,MA.Alesina,A.,F.Campante,andG.Tabellini.2008.“WhyisFiscalPolicyOftenProcyclical?”JournaloftheAsik,A.2017.“EffectivenessofStabilizationFundsinEuropeanEconomicAssociation6(5):1006-36.ManagingVolatilityinOil-RichCountries.”UnpublishedManuscript,TOBBEconomicsandAllen,R.,T.Chaponda,L.Fisher,andR.Ray.2017.TechnologyUniversity,Ankara,Türkiye.“Medium-TermBudgetFrameworksinSub-SaharanAfricanCountries.”IMFWorkingPaper17/203,Auerbach,A.J.,andY.Gorodnichenko.2012.InternationalMonetaryFund,Washington,DC.“MeasuringtheOutputRespon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4.51.94.05.05.610.75.23.23.94.0........5.56.33.54.04.0........13.9-5.01.84.24.1-10.3-10.6....13.06.44.83.23.13.63.66.26.94.52.21.82.52.91.81.51.51.16.95.10.52.63.44.12.5-0.3-0.65.74.61.83.33.83.95.31.0..5.6-2.12.61.30.9-3.5-2.7-1.84.97.72.52.03.03.81.00.50.91.79.48.07.55.54.5........11.45.54.23.13.94.13.34.03.93.4-29.14.83.26.5-30.6-31.4-10.519.57.45.75.55.55.5........196STATISTICALAPPENDIXGLOBALECONOMICPROSPECTSJANUARY2024RealGDPgrowth(continued)Annualestimatesandforecasts1Quarterlyestimates2(Percentchange)(Percentchange,year-on-year)202120222023e2024f2025f22Q222Q322Q423Q123Q223Q3e4.6..LatinAmericaandtheCaribbean7.23.92.22.32.56.84.52.73.12.0Argentina..-0.8Bahamas,The10.75.0-2.52.73.2..5.71.51.4-5.0..Barbados9.3..Belize17.014.44.31.81.64.6........3.4Bolivia3.5..Brazil-0.813.84.64.03.05.2........2.0Chile12.30.6Colombia15.212.74.53.53.34.510.08.27.84.1CostaRica..-0.3Dominica6.13.51.91.51.55.24.11.32.42.05.9DominicanRepublic1.4..Ecuador5.02.93.11.52.22.54.32.74.23.5..ElSalvador....Grenada11.72.4-0.41.82.34.50.2-2.3-0.7-0.8..Guatemala....Guyana11.07.31.21.83.0..7.42.13.00.4..Haiti34.3..Honduras7.84.35.23.93.64.82.84.34.45.8..Jamaica23.3..Mexico6.95.94.94.64.04.5..........Nicaragua9.63.3Panama12.34.92.55.15.0-3.35.03.31.40.96.2Paraguay3.4..Peru4.22.91.30.72.0..2.74.31.03.3..St.Lucia..-1.0St.VincentandtheGrenadines11.22.62.82.32.3..2.21.20.83.1..Suriname8.7..Uruguay4.76.43.93.83.56.3..........2.9-0.2MiddleEastandNorthAfrica8.04.13.43.53.56.63.83.53.73.8..Algeria....Bahrain20.163.429.038.215.23.2..........Djibouti2.2..Egypt,ArabRep.3-1.8-1.7-2.51.32.210.4..........Iran,IslamicRep.32.9..Iraq212.54.03.23.23.4..4.12.12.03.1..Jordan....Kuwait4.65.22.32.01.4..5.93.84.22.3..Lebanon42.2..Libya5.83.93.62.62.14.15.04.53.53.4..Morocco4.02.4Oman10.33.83.13.23.511.23.42.53.53.9..Qatar....SaudiArabia15.810.84.94.65.32.810.010.49.38.2-4.4SyrianArabRepublic48.0..Tunisia4.00.14.63.83.83.42.91.74.95.9-0.2UnitedArabEmirates....WestBankandGaza13.42.7-0.42.52.32.01.7-0.4-0.5..Yemen,Rep.4..12.215.93.22.92.3........0.84.96.04.83.7........-2.42.42.02.63.0........5.34.91.23.22.63.4-0.11.6-2.53.85.81.93.53.56.04.73.92.83.43.22.52.62.63.73.83.0..2.74.92.83.33.23.44.22.02.04.53.14.75.15.7........3.36.63.83.53.94.43.93.92.94.73.84.23.73.23.24.15.76.4-2.17.0-2.94.22.96.0-1.32.6..3.72.42.62.52.62.42.02.82.61.37.90.82.62.7........-7.0-0.60.2............31.4-1.214.14.14.3........8.01.32.83.13.31.70.73.52.33.14.31.42.72.96.87.44.0-0.21.54.92.82.53.14.46.22.21.03.98.7-0.54.14.28.65.33.81.21.3-3.5-5.5............4.42.41.23.03.03.41.81.80.63.56.63.43.73.88.35.53.73.77.03.9-3.7-6.05.44.62.23.12.9-1.01.5-0.52.0..........GLOBALECONOMICPROSPECTSJANUARY2024STATISTICALAPPENDIX197RealGDPgrowth(continued)Annualestimatesandforecasts1Quarterlyestimates2(Percentchange,year-on-year)(Percentchange)202120222023e2024f2025f22Q222Q322Q423Q123Q223Q3e11.95.13.74.96.4..SouthAsia8.35.95.75.65.9..........Afghanistan4....Bangladesh3-20.7............Bhutan3..7.6India36.97.16.05.65.813.1..........Maldives27.5..Nepal23-3.34.84.64.04.69.0........2.1Pakistan2357.21.6SriLanka9.17.26.36.46.5-7.46.24.56.17.8..2.8..Sub-SaharanAfrica37.713.96.55.25.53.612.01.24.40.0..Angola....Benin4.85.61.93.95.05.21.7-1.1......Botswana....BurkinaFaso5.86.2-0.21.72.4..1.01.8-0.6-2.7..Burundi....CaboVerde3.5-7.8-3.81.72.4..-11.5-12.4-11.5-3.1Cameroon..4.43.72.93.84.1..3.72.92.12.7......1.23.00.52.83.1..3.92.60.30.0......7.26.35.86.06.0................11.85.83.84.14.3..5.35.95.43.4......6.91.54.34.85.1................3.11.82.94.24.5................5.617.14.54.74.73.5..............3.63.84.04.24.5............5.2..CentralAfricanRepublic1.00.51.31.63.1-1.4..........Chad....Comoros-1.22.23.02.82.7............Congo,Dem.Rep.....Congo,Rep.2.12.63.03.54.0............Côted'Ivoire....EquatorialGuinea6.28.96.86.56.2..........5.9Eritrea4.77.2Eswatini1.01.53.24.13.05.9..........Ethiopia3..3.1Gabon7.06.76.36.56.53.4........7.5Gambia,The7.5..Ghana-0.93.1-2.5-6.1-3.9............Guinea....Guinea-Bissau2.92.52.63.23.37.6..........Kenya..Lesotho10.70.53.62.92.8........LiberiaMadagascar6.36.45.86.47.0........MalawiMali1.53.02.73.02.8........MauritaniaMauritius4.34.34.85.35.5........MozambiqueNamibia5.13.12.32.84.42.73.73.33.2NigerNigeria4.34.75.15.86.2........RwandaSãoToméandPríncipe6.43.52.85.64.5........SenegalSeychelles7.64.85.05.25.34.33.75.55.4SierraLeone1.61.82.22.52.14.2-3.1-2.21.45.04.84.55.46.2........5.73.84.04.84.7........2.80.91.62.83.3........3.13.74.04.05.0........0.76.44.85.15.5........3.48.85.04.63.6........2.34.26.05.05.03.64.24.24.73.54.62.82.93.15.44.98.35.51.411.52.312.87.4........3.63.32.93.33.72.43.62.42.610.98.26.97.57.810.07.39.26.31.90.10.52.53.3........6.54.24.18.89.3........5.49.04.34.13.98.81.73.5-2.44.13.53.13.74.3........198STATISTICALAPPENDIXGLOBALECONOMICPROSPECTSJANUARY2024RealGDPgrowth(continued)Annualestimatesandforecasts1Quarterlyestimates2(Percentchange)(Percentchange,year-on-year)202120222023e2024f2025f22Q222Q322Q423Q123Q223Q3eSub-SaharanAfrica(continued)SouthAfrica4.71.90.71.31.50.24.10.80.21.5-0.7SouthSudan3-5.1-2.3-0.42.32.4............Sudan-1.9-1.0-12.0-0.60.2............Tanzania4.34.65.15.56.1............Togo6.05.85.25.25.8............Uganda33.44.75.36.06.65.99.04.51.85.45.3Zambia4.64.72.74.64.84.35.86.15.57.7..Zimbabwe8.56.54.53.53.5............Sources:HaverAnalytics;WorldBank.Note:e=estimate;f=forecast.SinceCroatiabecameamemberoftheeuroareaonJanuary1,2023,ithasbeenaddedtotheeuroareaaggregateandremovedfromtheEMDEandECAaggregateinalltablestoavoiddoublecounting.1.AggregategrowthratescalculatedusingGDPweightsataverage2010-19pricesandmarketexchangerates.2.Quarterlyestimatesarebasedonnon-seasonally-adjustedrealGDP,exceptforadvancedeconomies,aswellasAlgeria,Ecuador,Morocco,andTunisia.Insomeinstances,quarterlygrowthpathsmaynotaligntoannualgrowthestimates,owingtothetimingofGDPreleases.QuarterlydataforIraq,Jamaica,Nepal,andPakistanaregrossvalueadded.QuarterlydataforMontenegroarepreliminary.DataforTimor-Lesterepresentnon-oilGDP.Regionalaveragesarecalculatedbasedondatafromthefollowingeconomies.EastAsiaandPacific:China,Indonesia,Malaysia,Mongolia,thePhilippines,Thailand,andVietNam.EuropeandCentralAsia:Albania,Armenia,Belarus,BosniaandHerzegovina,Bulgaria,Georgia,Hungary,Kazakhstan,Moldova,Montenegro,NorthMacedonia,Poland,Romania,theRussianFederation,Serbia,Türkiye,andUkraine.LatinAmericaandtheCaribbean:Argentina,Belize,Bolivia,Brazil,Chile,Colombia,CostaRica,theDominicanRepublic,Ecuador,ElSalvador,Guatemala,Honduras,Jamaica,Mexico,Nicaragua,Panama,Paraguay,Peru,andUruguay.MiddleEastandNorthAfrica:Bahrain,theArabRepublicofEgypt,theIslamicRepublicofIran,Jordan,Morocco,Oman,Qatar,SaudiArabia,Tunisia,theUnitedArabEmirates,andWestBankandGaza.SouthAsia:India,Maldives,Pakistan,andSriLanka.Sub-SaharanAfrica:Angola,Botswana,Ghana,Kenya,Lesotho,Mozambique,Namibia,Nigeria,Rwanda,theSeychelles,SouthAfrica,Uganda,andZambia.3.AnnualGDPisonfiscalyearbasis,asperreportingpracticeinthecountry.ForBangladesh,Bhutan,Egypt,Nepal,andPakistan,thecolumnfor2022referstoFY2021/22.ForIndiaandtheIslamicRepublicofIran,thecolumnfor2022referstoFY2022/23.4.DataforAfghanistan(beyond2021),Lebanon(beyond2023),Myanmar(beyond2024),theSyrianArabRepublic(beyond2023),andtheRepublicofYemen(beyond2024)areexcludedbecauseofahighdegreeofuncertainty.5.DataforBosniaandHerzegovinaarefromtheproductionapproach.AnnualGDPforPakistanarebasedonfactorcost.GLOBALECONOMICPROSPECTSJANUARY2024STATISTICALAPPENDIX199DataandForecastConventionsThemacroeconomicforecastspresentedinthisAggregations.AggregategrowthfortheworldandreportarepreparedbystaffoftheProspectsGroupallsubgroupsofcountries(suchasregionsandoftheEquitableGrowth,FinanceandInstitutionsincomegroups)iscalculatedusingGDPweightsVice-Presidency,incoordinationwithstafffromataverage2010-19pricesandmarketexchangetheMacroeconomics,Trade,andInvestmentratesofcountry-specificgrowthrates.IncomeGlobalPracticeandfromregionalandcountrygroupsaredefinedasintheWorldBank’sclassifi-offices,andwithinputfromregionalChiefEcon-cationofcountrygroups.omistoffices.Theyaretheresultofaniterativeprocessthatincorporatesdata,macroeconometricForecastprocess.Theprocessstartswithinitialmodels,andjudgment.assumptionsaboutadvanced-economygrowthandcommoditypriceforecasts.Theseareusedascon-Data.Datausedtopreparecountryforecastscomeditioningassumptionsforthefirstsetofgrowthfromavarietyofsources.NationalIncomeforecastsforEMDEs,whichareproducedusingAccounts(NIA),BalanceofPayments(BOP),andmacroeconometricmodels,accountingframe-fiscaldataarefromHaverAnalytics;theWorldworkstoensurenationalaccountidentitiesandDevelopmentIndicatorsbytheWorldBank;theglobalconsistency,estimatesofspilloversfromWorldEconomicOutlook,BalanceofPaymentsmajoreconomies,andhigh-frequencyindicators.Statistics,andInternationalFinancialStatisticsbyTheseforecastsarethenevaluatedtoensurecon-theInternationalMonetaryFund.PopulationdatasistencyoftreatmentacrosssimilarEMDEs.ThisandforecastsarefromtheUnitedNationsWorldisfollowedbyextensivediscussionswithWorldPopulationProspects.Country-andlending-Bankcountryteams,whoconductcontinuousgroupclassificationsarefromtheWorldBank.macroeconomicmonitoringanddialoguewithTheProspectsGroup’sinternaldatabasesincludecountryauthoritiesandfinalizegrowthforecastshigh-frequencyindicatorssuchasindustrialpro-forEMDEs.TheProspectsGrouppreparesad-duction,consumerpriceindexes,emergingmar-vanced-economyandcommoditypriceforecasts.ketsbondindex(EMBI),exchangerates,exports,Throughouttheforecastingprocess,staffuseimports,policyrates,andstockmarketindexes,macroeconometricmodelsthatallowthecombi-basedondatafromBloomberg,HaverAnalytics,nationofjudgementandconsistencywithmodel-IMFBalanceofPaymentsStatistics,IMFInterna-basedinsights.tionalFinancialStatistics,andJ.P.Morgan.200SELECTEDTOPICSGLOBALECONOMICPROSPECTSJANUARY2024GlobalEconomicProspects:SelectedTopics,2015-24GrowthandbusinesscyclesEconomicsofpandemicsJanuary2022,chapter4ImpactofCOVID-19onglobalincomeinequalityJune2020,specialfocusRegionalmacroeconomicimplicationsofCOVID-19June2020,chapter3LastingScarsoftheCOVID-19PandemicJune2020,chapter4Addingfueltothefire:CheapoilduringthepandemicJune2020,box1.1HowdeepwilltheCOVID-19recessionbe?June2020,box1.3ScenariosofpossibleglobalgrowthoutcomesJune2020,box1.4HowdoesinformalityaggravatetheimpactofCOVID-19?June2020,boxSF1TheimpactofCOVID-19onglobalvaluechainsJune2020,box3.1Howdodeeprecessionsaffectpotentialoutput?June2020,box3.2Howdodisastersaffectproductivity?June2020,box4.1Reformsafterthe2014-16oilpriceplungeJune2020,annex3.1Themacroeconomiceffectsofpandemicsandepidemics:AliteraturereviewJune2020,box1.4InformalityJanuary2019,chapter3HowdoesinformalityaggravatetheimpactofCOVID-19?January2019,box3.1Growingintheshadow:ChallengesofinformalityJanuary2019,box3.2LinkagesbetweenformalandinformalsectorsJanuary2019,box3.3Regionaldimensionsofinformality:AnoverviewJanuary2019,box3.4Castingashadow:ProductivityinformalandinformalfirmsUnderthemagnifyingglass:Howdopoliciesaffectinformality?June2022,specialfocus1June2021,chapter4InflationJanuary2020,specialfocus2GlobalstagflationJune2019,specialfocus1.2Emerginginflationpressures:Causeforalarm?January2019,box1.1Lowforhowmuchlonger?Inflationinlow-incomecountriesCurrencydepreciation,inflation,andcentralbankindependenceJanuary2023,chapter4ThegreatdisinflationJune2022,specialfocus1January2021,box1.4GrowthprospectsJune2020,annex3.1Smallstates:Overlappingcrises,multiplechallengesJune2020,box1.1GlobalstagflationJune2020,chapter3GlobalgrowthscenariosJune2020,specialfocusThemacroeconomiceffectsofpandemicsandepidemics:AliteraturereviewJune2019,specialfocus2.1HowdeepwilltheCOVID-19recessionbe?June2018,box1.1LastingScarsoftheCOVID-19PandemicRegionalmacroeconomicimplicationsofCOVID-19January2018,box1.1Growthinlow-incomecountries:Evolution,prospects,andpoliciesLong-termgrowthprospects:Downgradednomore?January2021,chapter3June2020,box3.1GlobaloutputgapJanuary2018,chapter3Istheglobaleconomyturningthecorner?January2018,box3.1January2018,box3.2PotentialgrowthJanuary2018,box3.3Globaleconomy:Headingintoadecadeofdisappointments?January2018,box3.4HowdodeeprecessionsaffectpotentialoutputinEMDEs?January2018,box3.5Buildingsolidfoundations:HowtopromotepotentialgrowthWhatispotentialgrowth?January2016,chapter3Understandingtherecentproductivityslowdown:FactsandexplanationsJanuary2016,box3.1Movingtogether?InvestmentandpotentialoutputJanuary2016,box3.2ThelongshadowofcontractionsoverpotentialoutputJanuary2016,box3.3ProductivityandinvestmentgrowthduringreformsCross-borderspilloversWhocatchesacoldwhenemergingmarketssneeze?SourcesofthegrowthslowdowninBRICSUnderstandingcross-bordergrowthspilloversWithin-regionspilloversGLOBALECONOMICPROSPECTSJANUARY2024SELECTEDTOPICS201GlobalEconomicProspects:SelectedTopics,2015-24GrowthandbusinesscyclesProductivityHowdodisastersaffectproductivity?June2020,box3.2Fadingpromise:HowtorekindleproductivitygrowthJanuary2020,chapter3EMDEregionalproductivitytrendsandbottlenecksJanuary2020,box3.1SectoralsourcesofproductivitygrowthJanuary2020,box3.2Patternsoftotalfactorproductivity:AfirmperspectiveJanuary2020,box3.3Debt,financialcrises,andproductivityJanuary2020,box3.4InvestmentThemagicofinvestmentaccelerationsJanuary2024,chapter3Sparkinginvestmentaccelerations:LessonsfromcountrycasestudiesJanuary2024,box3.1InvestmentgrowthafterthepandemicJanuary2023,chapter3Investment:Subduedprospects,strongneedsJune2019,specialfocus1.1Weakinvestmentinuncertaintimes:Causes,implications,andpolicyresponsesJanuary2017,chapter3Investment-lesscreditboomsJanuary2017,box3.1ImplicationsofrisinguncertaintyforinvestmentinEMDEsJanuary2017,box3.2InvestmentslowdowninChinaJanuary2017,box3.3InteractionsbetweenpublicandprivateinvestmentJanuary2017,box3.4ForecastuncertaintyScenariosofpossibleglobalgrowthoutcomesJune2020,box1.3QuantifyinguncertaintiesinglobalgrowthforecastsJune2016,specialfocus2FiscalspaceHavingspaceandusingit:FiscalpolicychallengesanddevelopingeconomiesJanuary2015,chapter3Fiscalpolicyinlow-incomecountriesJanuary2015,box3.1Whataffectsthesizeoffiscalmultipliers?January2015,box3.2Chile’sfiscalrule—anexampleofsuccessJanuary2015,box3.3NarrowfiscalspaceandtheriskofadebtcrisisJanuary2015,box3.4RevenuemobilizationinSouthAsia:PolicychallengesandrecommendationsJanuary2015,box2.3OthertopicsEducationdemographicsandglobalinequalityJanuary2018,specialfocus2RecentdevelopmentsinemerginganddevelopingcountrylabormarketsJune2015,box1.3LinkagesbetweenChinaandSub-SaharanAfricaJune2015,box2.1Whatdoesweakgrowthmeanforpovertyinthefuture?January2015,box1.1WhatdoesaslowdowninChinameanforLatinAmericaandtheCaribbean?January2015,box2.2MonetaryandexchangeratepoliciesJune2023,chapter3FinancialspilloversofrisingU.S.interestratesJanuary2021,chapter4Assetpurchasesinemergingmarkets:Unconventionalpolicies,unconventionaltimesJanuary2020,chapter4Thefourthwave:RapiddebtbuildupJanuary2020,specialfocus1Pricecontrols:Goodintentions,badoutcomesJanuary2020,specialfocus2Lowforhowmuchlonger?Inflationinlow-incomecountriesJune2019,specialfocus1.2Currencydepreciation,inflation,andcentralbankindependenceJanuary2019,box1.1ThegreatdisinflationJune2018,specialfocus2Corporatedebt:FinancialstabilityandinvestmentimplicationsJune2016,specialfocus1RecentcreditsurgeinhistoricalcontextJanuary2016,chapter4Pegandcontrol?ThelinksbetweenexchangerateregimesandcapitalaccountpoliciesJune2015,box1.1NegativeinterestratesinEurope:AglanceattheircausesandimplicationsJune2015,specialfocus1Hopingforthebest,preparingfortheworst:RisksaroundU.S.rateliftoffandpolicyoptionsJanuary2015,box1.2Countercyclicalmonetarypolicyinemergingmarkets:Reviewandevidence202SELECTEDTOPICSGLOBALECONOMICPROSPECTSJANUARY2024GlobalEconomicProspects:SelectedTopics,2015-24FiscalpoliciesJanuary2024,chapter4Fiscalpolicyincommodityexporters:AnenduringchallengeJanuary2024,box4.1Howdoesprocyclicalfiscalpolicyaffectoutputgrowth?January2024,box4.2Dofiscalrulesandsovereignwealthfundsmakeadifference?LessonsfromcountrycasestudiesJune2023,chapter4Fiscalpolicychallengesinlow-incomecountriesJanuary2022,specialfocusResolvinghighdebtafterthepandemic:lessonsfrompastepisodesofdebtreliefJanuary2021,box1.1Howhasthepandemicmadethefourthwaveofdebtmoredangerous?January2020,chapter4Thefourthwave:RapiddebtbuildupJune2019,box1.1Debt:NofreelunchJanuary2019,chapter4Debtinlow-incomecountries:Evolution,implications,andremediesJune2017,specialfocus1Debtdynamicsinemergingmarketanddevelopingeconomies:Timetoact?January2015,chapter3Havingfiscalspaceandusingit:FiscFalchallengesindevelopingeconomiesJanuary2015,box2.3RevenuemobilizationinSouthAsia:PolicychallengesandrecommendationsJanuary2015,box3.1Fiscalpolicyinlow-incomecountriesJanuary2015,box3.2Whataffectsthesizeoffiscalmultipliers?January2015,box3.3Chile’sfiscalrule—anexampleofsuccessJanuary2015,box3.4NarrowfiscalspaceandtheriskofadebtcrisisCommoditymarketsJune2022,specialfocus2Russia’sinvasionofUkraine:ImplicationsforenergymarketsandactivityJanuary2022,chapter3Commoditypricecycles:UnderlyingdriversandpolicyoptionsJune2020,box4.1Reformsafterthe2014-16oilpriceplungeJune2020,chapter4Addingfueltothefire:CheapoilinthepandemicJune2018,specialfocus1TheroleofmajoremergingmarketsinglobalcommoditydemandJune2018,SF1,boxSF1.1TheroleoftheEM7incommodityproductionJune2018,SF1,boxSF1.2Commodityconsumption:ImplicationsofgovernmentpoliciesJanuary2018,specialfocus1Withthebenefitofhindsight:Theimpactofthe2014–16oilpricecollapseJanuary2016,specialfocusFromcommoditydiscoverytoproduction:VulnerabilitiesandpoliciesinLICsJune2015,specialfocus2Afterthecommoditiesboom:Whatnextforlow-incomecountries?June2015,box1.2LowoilpricesinperspectiveJanuary2015,chapter4Understandingtheplungeinoilprices:SourcesandimplicationsJanuary2015,box4.1Whatdoweknowabouttheimpactofoilpricesonoutputandinflation?AbriefsurveyGlobalizationoftradeandfinancialflowsJune2021,chapter3Hightradecosts:causesandremediesJune2020,boxSF1TheimpactofCOVID-19onglobalvaluechainsJanuary2019,chapter4PovertyimpactoffoodpriceshocksandpoliciesJune2017,SpecialFocus2Arm’s-lengthtrade:Asourceofpost-crisistradeweaknessJanuary2017,SpecialFocusTheU.S.economyandtheworldJanuary2016,chapter4PotentialmacroeconomicimplicationsoftheTrans-PacificPartnershipAgreementJanuary2016,box4.1.1Regulatoryconvergenceinmega-regionaltradeagreementsJanuary2015,box2.1China’sintegrationinglobalsupplychains:ReviewandimplicationsJanuary2015,chapter4Canremittanceshelppromoteconsumptionstability?January2015,chapter4Whatliesbehindtheglobaltradeslowdown?GLOBALECONOMICPROSPECTSJANUARY2024SELECTEDTOPICS203ProspectsGroup:SelectedOtherPublicationsontheGlobalEconomy,2015-24CommodityMarketsOutlookColumn1Potentialnear-termimplicationsoftheconflictintheMiddleEastforcommoditymarkets:ApreliminaryassessmentOctober2023ForecastingindustrialcommoditypricesApril2023Pandemic,war,recession:DriversofaluminumandcopperpricesOctober2022TheimpactofthewarinUkraineoncommoditymarketsApril2022UrbanizationandcommoditydemandOctober2021CausesandconsequencesofmetalpriceshocksApril2021PersistenceofcommodityshocksOctober2020Foodpriceshocks:ChannelsandimplicationsApril2019TheimplicationsoftariffsforcommoditymarketsOctober2018,boxThechangingoftheguard:ShiftsinindustrialcommoditydemandOctober2018Oilexporters:PoliciesandchallengesApril2018InvestmentweaknessincommodityexportersJanuary2017OPECinhistoricalcontext:CommodityagreementsandmarketfundamentalsOctober2016Fromenergypricestofoodprices:Movingintandem?July2016ResourcedevelopmentinaneraofcheapcommoditiesApril2016Weakgrowthinemergingmarketeconomies:Whatdoesitimplyforcommoditymarkets?January2016UnderstandingElNiño:Whatdoesitmeanforcommoditymarkets?October2015HowimportantareChinaandIndiainglobalcommodityconsumption?July2015AnatomyofthelastfouroilpricecrashesApril2015PuttingtherecentplungeinoilpricesinperspectiveJanuary2015InflationinEmergingandDevelopingEconomies:Evolution,Drivers,andPoliciesChapter1Inflation:Concepts,evolution,andcorrelatesChapter2UnderstandingglobalinflationsynchronizationChapter3Sourcesofinflation:GlobalanddomesticdriversChapter4Inflationexpectations:ReviewandevidenceChapter5Inflationandexchangeratepass-throughChapter6Inflationinlow-incomecountriesChapter7PovertyimpactoffoodpriceshocksandpoliciesADecadeAftertheGlobalRecession:LessonsandChallengesforEmergingandDevelopingEconomiesChapter1Adecadeaftertheglobalrecession:LessonsandchallengesChapter2Whathappensduringglobalrecessions?Chapter3MacroeconomicdevelopmentsChapter4FinancialmarketdevelopmentsChapter5MacroeconomicandfinancialsectorpoliciesChapter6Prospects,risks,andvulnerabilitiesChapter7PolicychallengesChapter8TheroleoftheWorldBankGroupGlobalWavesofDebt:CausesandConsequencesChapter1Debt:Evolution,causes,andconsequencesChapter2Benefitsandcostsofdebt:ThedosemakesthepoisonChapter3Globalwavesofdebt:Whatgoesupmustcomedown?Chapter4Thefourthwave:Rippleortsunami?Chapter5Debtandfinancialcrises:FromeuphoriatodistressChapter6Policies:Turningmistakesintoexperience204SELECTEDTOPICSGLOBALECONOMICPROSPECTSJANUARY2024ProspectsGroup:SelectedOtherPublicationsontheGlobalEconomy,2015-24GlobalProductivity:Trends,Drivers,andPoliciesGlobalproductivitytrendsChapter1WhatexplainsproductivitygrowthChapter2Whathappenstoproductivityduringmajoradverseevents?Chapter3Productivityconvergence:Isanyonecatchingup?Chapter4Regionaldimensionsofproductivity:Trends,explanations,andpoliciesChapter5Productivity:Technology,demand,andemploymenttrade-offsChapter6SectoralsourcesofproductivitygrowthChapter7TheLongShadowofInformality:ChallengesandPoliciesChapter1OverviewChapter2Understandingtheinformaleconomy:ConceptsandtrendsChapter3Growingapartormovingtogether?Synchronizationofinformal-andformal-economybusinesscyclesChapter4Laggingbehind:informalityanddevelopmentChapter5Informalityinemergingmarketanddevelopingeconomies:RegionaldimensionsChapter6Tacklinginformality:PolicyoptionsCommodityMarkets:Evolution,ChallengesandPoliciesChapter1TheevolutionofcommoditymarketsoverthepastcenturyChapter2Commoditydemand:Drivers,outlook,andimplicationsChapter3ThenatureanddriversofcommoditypricecyclesChapter4CausesandconsequencesofindustrialcommoditypriceshocksFallingLong-TermGrowthProspectsChapter1Potentialnotrealized:AninternationaldatabaseofpotentialgrowthChapter2Regionaldimensionsofpotentialgrowth:HopesandrealitiesChapter3Theglobalinvestmentslowdown:ChallengesandpoliciesChapter4Regionaldimensionsofinvestment:Movingintherightdirection?Chapter5Potentialgrowthprospects:Risks,rewardsandpoliciesChapter6Tradeasanengineofgrowth:SputteringbutfixableChapter7Services-ledgrowth:Betterprospectsafterthepandemic?High-frequencymonitoringColumn1GlobalMonthlynewsletterECO-AUDITEnvironmentalBenefitsStatementTheWorldBankGroupiscommittedtoreducingitsenvironmentalfootprint.Insupportofthiscommitment,weleverageelectronicpublishingoptionsandprint-on-demandtechnology,whichislocatedinregionalhubsworldwide.Together,theseinitiativesenableprintrunstobeloweredandshippingdistancesdecreased,resultinginreducedpaperconsumption,chemicaluse,greenhousegasemissions,andwaste.WefollowtherecommendedstandardsforpaperusesetbytheGreenPressInitiative.ThemajorityofourbooksareprintedonForestStewardshipCouncil(FSC)-certifiedpaper,withnearlyallcontaining50-100percentrecycledcontent.Therecycledfiberinourbookpaperiseitherunbleachedorbleachedusingtotallychlorine-free(TCF),processedchlorine-free(PCF),orenhancedelementalchlorine-free(EECF)processes.MoreinformationabouttheBank’senvironmentalphilosophycanbefoundathttp://www.worldbank.org/corporateresponsibility.