Moreover, risks from commodity prices appear limited over the next couple of years: if, for example, oil prices were to jump unexpectedly, the fact that wages did not rise correspondingly during the 2005–07 oil price spikes is largely reassuring about the prospective behavior of inflation. But if the shock is to productivity, the desired capital stock would fall and, accordingly, capital investment would also fall, reducing business capacity. Sources: Bloomberg Financial Markets; Eurostat; Haver Analytics; and IMF staff calculations. Thus, the focus should be not just on enhancing microprudential regulation but also on developing a more macroprudential approach to limit systemic risks emanating from too-big-to-fail institutions, which are now recognized to include nonbanks. In the short term, high uncertainty in financial markets; weak real estate markets, household balance sheets, and incomes; and slowing inventory rebuilding will restrain the transition from publicly to privately led recovery in advanced economies. For most of the advanced economies, the sample period begins in 1994; the samples for many of the emerging market economies begin later due to a lack of available data and the presence of structural breaks. In particular, common equity will represent a higher proportion of capital and thus allow for greater loss absorption. Inflation is projected to stay low amid continued excess capacity and high unemployment. The average price of oil in U.S. dollars a barrel was $61.78 in 2009; the assumed price based on future markets is $75.27 in 2010 and $77.50 in 2011. Policies that eliminate distortions to domestic demand in key emerging economies would strengthen prospects for global demand rebalancing and thereby support a more robust recovery in both emerging and advanced economies. At the same time, unless financial and structural policies are significantly strengthened, potential output in advanced economies is likely to remain appreciably below precrisis trends. By The inventory-driven rebound is largely over; as capacity utilization rates climb, investment should expand further, making a growing contribution to output growth. Requirements differ in emerging economies. Against this backdrop, price spillovers to other major food crops—through substitution linkages on the consumption and supply sides—have been limited so far. 25No. 5 Japan’s consumer confidence data are based on a diffusion index, where values greater than 50 indicate improving confidence. In the near term, with the exception of wheat, stock-to-use ratios could even increase, as markets for major crops may be in surplus in 2010 and 2011. Fluctuating in a $75 to $80 range, crude oil prices are higher than usual at this stage of a recovery. Given trade and financial linkages, the ultimate effect could be substantially lower global demand. Country weights used to construct aggregate growth rates for groups of economies were revised. As discussed, the fiscal adjustment that is shaping up is likely to detract from demand. In fact, concerns about the potential for high inflation in advanced economies in the future have been lingering in the background. The relatively low cyclical sensitivity of food demand means that actual and anticipated demand growth has remained modest. Sources: Consensus Forecasts; and IMF staff calculations. The latest crisis comes on top of an ongoing decline in advanced versus emerging economy growth rates. This is a sign that autonomous private demand is overtaking short-term, policy-related factors in the recovery. What explains this evidence for increased long-term scarcity of base metals? Available at www.imf.org/external/pubs/ft/wp/2009/wp09203.pdf. Intrinsically, potential output is unobservable; it must be inferred from the movement of actual output, either on its own or in conjunction with the comovement of associated variables. 1 Trend estimated using a cointegrating relationship with global GDP. The values for inflation risks and oil market risks are entered with the opposite sign since they represent downside risks to growth. In Japan, fiscal stimulus and the rebound in global trade and strong demand elsewhere in Asia have boosted output growth since the fourth quarter of 2009, but activity weakened significantly in the second quarter of 2010. The increase in prices can then be interpreted as a “scarcity rent,” and the price can be expected to continue rising until demand is choked off and the resource is effectively exhausted. Residential investment does not appear likely to come back anytime soon, especially given the outlook for house prices. Nonetheless, public debt ratios are projected to continue to rise, unless further action is taken. 3Indonesia, Malaysia, Philippines, Thailand, and Vietnam. In Australia and New Zealand, growth is expected to be about 3 percent in 2010, before accelerating to 3½ and 3¼, respectively, in 2011, with still-robust commodity prices boosting private domestic demand. In this context, the new forecasts hinge on implementation of policies to rebuild confidence and stability, particularly in the euro area. With negative and positive factors broadly canceling each other out over the next couple of years, WEO projections for 2010 and 2011 foresee little change in global growth. Bai Jushan and SerenaNg2007“Determining the Number of Primitive Shocks in Factor Models,”Journal of Business and Economic StatisticsVol. For details on measures to support the unemployed, including their reintegration into labor markets, see Chapter 3 of the April 2010 World Economic Outlook. This poses particular challenges for euro area banks because of their high reliance on wholesale funding markets. World Economic Outlook in Maps offers select indicators from the online April 2010 World Economic Outlook (WEO) database, such as inflation and GDP. Data are available from 1980 to the present, and projections are given for the next two years. Unemployment rates and general government series for revenue, total Consolidations equal 2 percentage points of GDP in the United States and half as much in other advanced economies (red lines). In particular, natural gas prices in the North American market have remained relatively low, reflecting weak demand, given the still large output gap in the region and the shale gas “revolution” (the promise of unlocking large quantities of natural gas from shale deposits through advances in hydraulic fracturing). This largely makes up for the diminishing fiscal stimulus, which starts in the second half of 2010. In this regard, exchange rate instability and overshooting remain important concerns for many emerging economies. Consider the first figure, which shows 90 percent confidence intervals for both year-over-year growth and the level of potential output in the United States. See Appendix 1.2 in the April 2009 WEO for details. But such vulnerability is much less apparent in recent years. 4Simple average of prices of U.K. Brent, Dubai, and West Texas Intermediate crude oil. The underlying scenario analysis can be found in Chapter 1 of the April 2010 World Economic Outlook.
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