Title page

Contents

Acknowledgments 12

Foreword 13

Executive Summary 15

Abbreviations 17

CHAPTER 1. GLOBAL OUTLOOK 18

Summary 19

Global context 24

Global trade 25

Commodity markets 26

Global inflation 27

Global financial developments 28

Major economies: Recent developments and outlook 29

Advanced economies 29

China 31

Emerging market and developing economies 31

Recent developments 36

EMDE outlook 36

LICs outlook 39

Per capita income growth 39

Global outlook and risks 39

Summary of global outlook 39

Risks to the outlook 45

Policy challenges 52

Key global challenges 52

Challenges in emerging market and developing economies 55

References 61

CHAPTER 2. REGIONAL OUTLOOKS 67

East Asia and Pacific 68

Recent developments 68

Outlook 69

Risks 71

Europe and Central Asia 74

Recent developments 74

Outlook 75

Risks 77

Latin America and the Caribbean 81

Recent developments 81

Outlook 81

Risks 84

Middle East and North Africa 87

Recent developments 87

Outlook 88

Risks 90

South Asia 94

Recent developments 94

Outlook 95

Risks 97

Sub-Saharan Africa 100

Recent developments 100

Outlook 101

Risks 103

References 107

CHAPTER 3. THE MAGIC OF INVESTMENT ACCELERATIONS 109

Introduction 110

Contributions 111

Main findings 112

Database and identification methodology 113

Database 113

Identification methodology 113

Features of investment accelerations 114

Number of accelerations 114

Distribution of accelerations over time and across countries 114

Amplitude and duration of accelerations 115

Correlates of investment accelerations 116

Output growth and its underlying channels 116

Other macroeconomic and financial correlates 118

Development outcomes 121

Drivers of investment accelerations 121

Initial conditions 122

Macroeconomic policies and structural reforms 123

Institutional quality 124

Robustness 124

Policies to start investment accelerations 125

Fiscal and monetary policies 125

Structural policies 126

Institutional quality 127

Interventions at the micro level 128

Designing a policy package 128

Conclusion 129

ANNEX 3.1. Identification of investment accelerations 143

ANNEX 3.2. Methodological annex 146

ANNEX 3.3. Investment accelerations using different filtering algorithms 149

ANNEX 3.4. Robustness exercises 150

References 153

CHAPTER 4. FISCAL POLICY IN COMMODITY EXPORTERS: An Enduring Challenge 159

Introduction 160

Fiscal policy procyclicality 163

Conceptual definitions 163

Determinants of fiscal procyclicality 165

Fiscal policy volatility 171

Conceptual definitions 171

Basic features of fiscal policy volatility 171

Determinants of fiscal volatility 173

Implications of fiscal policy volatility for growth 174

Links between procyclicality and volatility 175

Fiscal institutions and frameworks 176

Fiscal rules 176

Sovereign wealth funds 177

Medium-term expenditure frameworks 177

Institutional quality and governance 178

Conclusions 179

ANNEX 4.1. Determinants of fiscal procyclicality 188

ANNEX 4.2. Linkages between fiscal policy volatility and economic growth 190

ANNEX 4.3. Additional tables 193

References 196

STATISTICAL APPENDIX 202

Data and Forecast Conventions 207

Selected Topics 208

TABLE 1.1. Real GDP 20

TABLE 1.2. Emerging market and developing economies 60

TABLE 2.1.1. East Asia and Pacific forecast summary 73

TABLE 2.1.2. East Asia and Pacific country forecasts 73

TABLE 2.2.1. Europe and Central Asia forecast summary 79

TABLE 2.2.2. Europe and Central Asia country forecasts 80

TABLE 2.3.1. Latin America and the Caribbean forecast summary 85

TABLE 2.3.2. Latin America and the Caribbean country forecasts 86

TABLE 2.4.1. Middle East and North Africa forecast summary 92

TABLE 2.4.2. Middle East and North Africa economy forecasts 93

TABLE 2.5.1. South Asia forecast summary 99

TABLE 2.5.2. South Asia country forecasts 99

TABLE 2.6.1. Sub-Saharan Africa forecast summary 105

TABLE 2.6.2. Sub-Saharan Africa country forecasts 106

FIGURE 1.1. Global economic prospects 21

FIGURE 1.2. Global economic prospects (continued) 23

FIGURE 1.3. Global trade 25

FIGURE 1.4. Commodity markets 26

FIGURE 1.5. Global inflation 27

FIGURE 1.6. Global financial developments 28

FIGURE 1.7. Major economies: Recent developments and outlook 30

FIGURE 1.8. Recent developments in emerging market and developing economies 37

FIGURE 1.9. Outlook in emerging market and developing economies 38

FIGURE 1.10. Per capita income growth 45

FIGURE 1.11. Global outlook 46

FIGURE 1.12. Risks to the outlook 47

FIGURE 1.13. Risks to the outlook (continued) 48

FIGURE 1.14. Growth outcomes under alternative scenarios 51

FIGURE 1.15. Global policy challenges 53

FIGURE 1.16. EMDE monetary policy challenges 54

FIGURE 1.17. EMDE fiscal policy challenges 56

FIGURE 1.18. EMDE structural policy challenges 58

FIGURE 2.1.1. China: Recent developments 69

FIGURE 2.1.2. EAP excluding China: Recent developments 70

FIGURE 2.1.3. EAP: Outlook 71

FIGURE 2.1.4. EAP: Risks 72

FIGURE 2.2.1. ECA: Recent developments 75

FIGURE 2.2.2. ECA: Outlook 76

FIGURE 2.2.3. ECA: Risks 78

FIGURE 2.3.1. LAC: Recent developments 82

FIGURE 2.3.2. LAC: Outlook 83

FIGURE 2.3.3. LAC: Risks 84

FIGURE 2.4.1. MNA: Recent developments 88

FIGURE 2.4.2. MNA: Outlook 89

FIGURE 2.4.3. MNA: Risks 90

FIGURE 2.5.1. SAR: Recent developments 95

FIGURE 2.5.2. SAR: Outlook 96

FIGURE 2.5.3. SAR: Risks 98

FIGURE 2.6.1. SSA: Recent developments 101

FIGURE 2.6.2. SSA: Outlook 102

FIGURE 2.6.3. SSA: Risks 104

FIGURE 3.1. Evolution of investment growth 111

FIGURE 3.2. Frequency of investment accelerations 115

FIGURE 3.3. Investment growth during accelerations 116

FIGURE 3.4. Public versus private investment during investment accelerations 117

FIGURE 3.5. Growth of output during investment accelerations 118

FIGURE 3.6. Contributions to GDP growth during investment accelerations 119

FIGURE 3.7. Total factor productivity growth, employment growth, and sectoral shifts around investment accelerations 120

FIGURE 3.8. Macroeconomic indicators around investment accelerations 121

FIGURE 3.9. Development outcomes during investment accelerations 122

FIGURE 3.10. Initial conditions and the start of investment accelerations 123

FIGURE 3.11. Policy improvements and the start of investment accelerations 124

FIGURE 3.12. Enabling factors for investment accelerations 125

FIGURE 3.13. Policy packages and potential growth 128

FIGURE 4.1. Commodities: Price volatility and importance for exports and revenues 161

FIGURE 4.2. Procyclicality of government expenditures 164

FIGURE 4.3. Fiscal procyclicality and macroeconomic factors in commodity exporters 165

FIGURE 4.4. Fiscal procyclicality, fiscal rules, and institutional factors 167

FIGURE 4.5. Fiscal policy volatility 172

FIGURE 4.6. Exchange rate regimes and capital account openness 174

FIGURE 4.7. Fiscal policy volatility and procyclicality 175

FIGURE 4.8. Fiscal volatility, growth, and fiscal frameworks 176

Boxes

BOX 1.1. Regional perspectives: Outlook and risks 32

BOX 1.2. Recent developments and outlook for low-income countries 40

BOX 3.1. Sparking investment accelerations: Lessons from country case studies 130

BOX 4.1. How does procyclical fiscal policy affect output growth? 168

BOX 4.2. Do fiscal rules and sovereign wealth funds make a difference? Lessons from country case studies 180

Box Tables

TABLE B1.2.1. Low-income country forecasts 43

TABLE B3.1.1. Investment and output growth during and outside investment accelerations 140

TABLE B3.1.2. Economic indicators during and outside investment accelerations 140

TABLE B3.1.3. Policy changes and reforms during investment accelerations 141

Box Figures

FIGURE B1.1.1. Regional outlooks 33

FIGURE B1.1.2. Regional risks 34

FIGURE B1.2.1. LICs: Recent developments 41

FIGURE B1.2.2. LICs: Outlook and risks 42

FIGURE B3.1.1. Investment accelerations in the Republic of Korea and Malaysia 131

FIGURE B3.1.2. Investment accelerations in Poland and Türkiye 133

FIGURE B3.1.3. Investment accelerations in Colombia and Uruguay 135

FIGURE B3.1.4. Investment accelerations in Chile and Morocco 137

FIGURE B3.1.5. Investment accelerations in India and Uganda 138

FIGURE B4.1.1. The amplification effect of procyclical fiscal policy on output 169

FIGURE B4.2.1. Fiscal rules, fiscal expenditures, and SWFs in commodity exporters 181

FIGURE B4.2.2. Fiscal expenditures and SWFs in Chile, Botswana, and Timor-Leste 183

FIGURE B4.2.3. Institutional quality and fiscal procyclicality 185

Annex Tables

TABLE A3.1.1. Investment accelerations: Distribution over country groups 144

TABLE A3.1.2. List of investment accelerations in EMDEs 145

TABLE A3.2.1. Institutional quality and initial conditions as drivers of the likelihood of investment accelerations 147

TABLE A3.2.2. Institutional quality and policies as drivers of the likelihood of investment accelerations 148

TABLE A3.3.1. Investment accelerations using different filtering algorithms 149

TABLE A3.4.1. Investment accelerations using different duration parameters 150

TABLE A3.4.2. Investment accelerations using different duration and growth parameters 151

TABLE A3.4.3. Baseline regressions with additional controls 152

TABLE A3.4.4. Baseline regressions based on investment growth (not in per capita terms) 153

TABLE A4.1.1. Drivers of fiscal procyclicality 189

TABLE A4.1.2. Institutional drivers of fiscal procyclicality 189

TABLE A4.1.3. Output growth and commodity prices 189

TABLE A4.1.4. Government spending and commodity prices 190

TABLE A4.2.1. Determinants of fiscal policy volatility: Cross-sectional regressions 191

TABLE A4.2.2. Determinants of fiscal policy volatility; by type of commodity 192

TABLE A4.2.3. Effects of fiscal policy volatility on GDP per capita growth 192

TABLE A4.3.1. List of economies for analysis of fiscal procyclicality and volatility 193

TABLE A4.3.2. Variables for analysis of fiscal procyclicality 194

TABLE A4.3.3. Variables for analysis of fiscal policy volatility 195