Outlook and updating increases

Equity prices in advanced economies continued to rally, buoyed by generally favorable sentiment regarding earnings prospects, expectations of a very gradual normalization path for monetary policy in a weak inflation environment, and low expected volatility in underlying fundamentals. dollar and the euro remain close to their August 2017 level in real effective terms.Emerging market equity indices have risen further since August, lifted by the improved near-term outlook for commodity exporters. The Japanese yen has depreciated by 5 percent on widening interest differentials, while the sterling has appreciated by close to 4 percent as the Bank of England raised interest rates in November and as expectations of a Brexit deal rose.For the two-year forecast horizon, the upward revisions to the global outlook result mainly from advanced economies, where growth is now expected to exceed 2 percent in 20. tax reform and associated fiscal stimulus are expected to temporarily raise U. Risks Risks to the outlook are broadly balanced in the near term, but—as in the October 2017 WEO—remain skewed to the downside over the medium term. tax policy appears to have been limited so far, and markets currently anticipate a more gradual pace of monetary policy tightening than incorporated into the WEO baseline. investment to tax policy changes could be more modest than envisaged in the baseline, with attendant repercussions on the strength of external demand for the main U. Policies Two common policy objectives tie advanced, emerging, and developing economies together.This forecast reflects the expectation that favorable global financial conditions and strong sentiment will help maintain the recent acceleration in demand, especially in investment, with a noticeable impact on growth in economies with large exports. One notable threat to growth is a tightening of global financing terms from their current easy settings, either in the near term or later. A financial market correction could be triggered, for example, by signs of firmer inflation in the United States, where the boost to demand will exert downward pressure on the already very low unemployment rate. The tightening of global financial conditions would have implications for global asset prices and capital flows, leaving economies with high gross debt refinancing needs and unhedged dollar liabilities particularly exposed to financial distress. First, the need to raise potential output growth—through structural reforms to lift productivity and, especially in advanced economies with aging populations, enhance labor force participation rates—while making sure that the gains from growth are shared widely.High-frequency hard data and sentiment indicators point to a continuation of strong momentum in the fourth quarter.World trade has grown strongly in recent months, supported by a pickup in investment, particularly among advanced economies, and increased manufacturing output in Asia in the run up to the launch of new smartphone models.Markets expect prices to gradually decline over the next 4–5 years—as of mid-December, medium-term price futures stood at about per barrel, modestly higher than in August. Federal Reserve policy rates have shifted up since August, reflecting the well‑anticipated December rate hike, but they continue to price in a gradual increase over 20.The increase in fuel prices raised headline inflation in advanced economies, but wage and core-price inflation remain weak. The Bank of England raised its policy rate for the first time since 2008 in view of diminishing slack in the economy and above‑target inflation driven by the past sterling depreciation; the European Central Bank announced that it will taper its net asset purchases starting in January.

Note: Real effective exchange rates are assumed to remain constant at the levels prevailing during November 13, 2017-December 11, 2017.

1/ Difference based on rounded figures for both the current and October 2017 World Economic Outlook forecasts.

Countries whose forecasts have been updated relative to October 2017 World Economic Outlook forecasts account for 94 percent of world GDP measured at purchasing power parity.

3/ Excludes the G7 (Canada, France, Germany, Italy, Japan, United Kingdom, United States) and euro area countries. dollars a barrel was .7 in 2017; the assumed price based on futures markets (as of December 11, 2017) is .9 in 2018 and .4 in 2019.

4/ For India, data and forecasts are presented on a fiscal year basis and GDP from 2011 onward is based on GDP at market prices with FY2011/12 as a base year. Brent, Dubai Fateh, and West Texas Intermediate crude oil.

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In some cases, long-term yields have inched up in recent months, but they generally remain low, and interest rate spreads remain compressed. Across emerging market currencies, the renminbi has appreciated by around 2 percent, the Malaysian ringgit has rebounded by about 7 percent on an improved growth outlook and stronger commodity prices, and the South African rand by close to 6 percent onperceptions of reduced political uncertainty.

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