THE ECONOMIC WORLD CLIMATE

The Ifo Index for the world economy rose to 99.5 points from 95.9 points last
quarter. Both assessments of the current economic situation and the economic
outlook improved. WES experts forecast world economic growth of 2.3 percent this
year. The world economy is slowly gaining impetus.
The economic climate improved significantly in Europe, and especially in Central
and Eastern Europe. In Asia the economic climate brightened slightly and returned
to its long-term average. In North America, the indicator fell by almost ten points,
but remained way above its long-term average. In the CIS states the economic
climate recovered somewhat to reach 53.8 points, but remains well below its long-
term average of 88.1 points. In the Middle East and Latin America the indicator
continued to decline, falling to its lowest level in almost six years.
According to assessments by WES experts, economic growth in Europe (1.7
percent) and the USA (2.7 percent) will accelerate this year. The forecast growth
rates for Latin America (1.3 percent) and Asia (3.6 percent), by contrast, are lower
than last year’s figures. Experts expect Russia and the Ukraine to be hit by a deep
recession.
World Economy (Index, 2005 = 100)
Quarter/year II/1 III/13 IV/13 I/14 II/14 III/14 IV/1 I/15 II/15
3 4
Climate 96. 94.1  98.6  103.2  102.3  105.0  95.0  95.9  99.5 
8 
Situation 84. 82.2  84.1  91.6  91.6  95.3  91.6  91.6  95.3 
1 
Expectations 108 105.3  112.3  114.0  112.3  114.0  98.2  100.0  103.5 
.8 

Climate (2005=100)
Quarter/year II/13 III/13 IV/13 I/14 II/14 III/14 IV/14 I/15 II/15

North 87.0  93.7  88.7  102.1  107.1  110.5  101.3  107.1  97.9 
America
Europe 93.2  99.0  109.7  116.5  118.4  117.5  101.0  108.7  120.4 

Asia 106.1  89.5  98.2  97.4  89.5  99.1  93.9  90.4  93.0 

Note
Since 1981 the Ifo Institute has conducted a quarterly survey in numerous
countries on business cycle developments and other economic factors in the
experts’ home countries. The April 2015 survey received responses from 1,092
experts in 115 countries. A detailed regional analysis appears in the quarterly
journal: CESifo World Economic Survey. This press release contains advance
information on the most important results.
To 2016
The Ifo Index for the world economy dropped from 89.6 points to 87.8 points this
quarter, drifting further from its long-term average (96.1 points). While
assessments of the current economic situation brightened marginally, expectations
were less positive than last quarter. The sharp decline in oil prices seems to be
having no overall positive economic impact. Growth in the world economy
continues to lack impetus.
The economic climate deteriorated in all regions, except in Oceania, Asia and Latin
America. In Oceania the climate index stabilised at a low level, and in Asia and
Latin America it edged upwards. The indicator is now below its long-term average
in all regions, with the exception of Europe. The climate in the CIS states and the
Middle East clouded over, especially due to poorer economic expectations. In
Europe WES experts are slightly less positive about future economic developments
than in October 2015. In North America and Africa, by contrast, the slightly less
favourable economic situation led to a deterioration in the economic climate.
Interest rate expectations remained unchanged from last quarter’s survey. While
short-term interest rates are only expected to increase in a few countries over the
next six months, long-term interest rates will continue to edge upwards in the
majority of countries. The US dollar is still considered to be somewhat over-valued.
Survey participants across all countries nevertheless expect the dollar to continue
to appreciate on average over the next six months.
Economic activity in the world economy remains lacklustre, with little prospect for a
turnaround in 2016, says the United Nations World Economic Situation and
Prospects as of mid-2016 report, launched today.
According to the report, world gross product will grow by just 2.4 per cent in 2016,
the same pace as in 2015, marking a downward revision of 0.5 percentage points
from UN forecasts released in December 2015. Persistent weakness in aggregate
demand in developed economies remains a drag on global growth, while low
commodity prices, mounting fiscal and current account imbalances and policy
tightening have further dampened prospects for many commodity-exporting
economies in Africa, the Commonwealth of Independent States and Latin America
and the Caribbean. This has been compounded by severe weather-related shocks,
political challenges and large capital outflows in many developing regions.
Launching the mid-year report at United Nations Headquarters in New York, Lenni
Montiel, Assistant Secretary-General in the United Nations Department of
Economic and Social Affairs (DESA) said, “The report underscores the need for a
more balanced policy mix to rejuvenate global growth and create an enabling
environment to achieve the 2030 Agenda for Sustainable Development.”
The report further highlights the prolonged economic downturns in Brazil and the
Russian Federation, with significant regional spillovers. In the Russian Federation,
GDP is forecast to contract by 1.9 per cent in 2016, due to fiscal tightening, further
declines in private consumption and investment, and continuing international
sanctions. In Brazil, a contraction of 3.4 per cent is projected, reflecting a
deepening political crisis, rising inflation, a surging fiscal deficit and high interest
rates.
GDP growth in the least developed countries is forecast to reach just 4.8 per cent
in 2016 and 5.5 per cent in 2017, well below the Sustainable Development Goal
target of “at least 7 per cent GDP growth”. This may put at risk much needed public
spending on education, health and climate change adaptation, as well as progress
in poverty reduction. In per capita terms, the slowdown in GDP growth in many
developing regions is particularly stark. In Africa, GDP per capita growth is
expected to average just 0.4 per cent during 2015-2017.
On the positive side, global energy-related carbon emissions remained flat in 2015,
suggesting a potential delinking of economic growth and carbon emissions growth
as highlighted in World Economic Situation and Prospects 2016. Investments in
renewable energy sources reached a new record in 2015, mainly due to increased
commitments and policy support in many developing countries.
Global growth is projected to rise marginally to just 2.8 per cent in 2017, remaining
well below pre-crisis trends. The protracted period of slow productivity growth and
feeble investment weigh on the longer-term potential of the global economy.
The report warns that downside risks to the global economy remain elevated.
Large developing economies remain prone to capital flow volatility and exchange
rate pressures, which may intensify in response to a widening divergence in global
interest rates, while a further deterioration of commodity prices could exacerbate
debt-service burdens of certain commodity-dependent economies. Greater policy
coordination among countries can mitigate the negative spillover effects of policy
misalignment and contain financial market volatility, the report noted.
Looking ahead, the report advocates that governments should fully and effectively
utilize available fiscal space, while broadening the tax base, strengthening tax
administration and increasing compliances in many developing and transition
economies.