This new outlook for the world economy is based on the Belgian Federal Planning Bureau’s NIME model and covers the period 2013-2024. The projection indicates that there should be a limited growth rebound over the period 2013-2016. Over this period, economic growth should allow a closing of the euro area’s output gap, even though world economic growth should continue to be driven mainly by countries other than those of the EU, the United States and Japan. In the longer run, world growth should decline due to a general slowdown in productivity growth, but also due to unfavourable demographic trends.
It should be noted that these 2013-2024 projections for the world economy do not serve as input for the Federal Planning Bureau’s short-term forecasts and medium-term projections for Belgium. Indeed, these latter rely on various ad hoc methodologies and integrate international forecasts from institutions such as the EU Commission, the OECD and the IMF.
Since August 2007, the world economy has fallen into recession and has been confronted with a severe financial crisis. In the context of what is now a world-wide recession, what hope can we place in announced fiscal stimulus plans? Will the fiscal stimulus plans decided and implemented in both the euro area and the United States since end 2008 be adequate responses, most notably in the face of the current systemic financial crisis? This document provides an evaluation of the effectiveness of fiscal policy and of current stimulus plans. It indicates that, while the fiscal stimulus measures will undoubtedly prove to be useful in limiting the scale and duration of the downturn, they won’t be sufficient by themselves to prevent a lengthy recession followed by a tepid recovery. In order to maximise the effectiveness of the stimulus plans, these should be accompanied by accommodative monetary policy. Furthermore, in view of accelerating and underpinning a recovery in world-wide economic activity, fiscal and monetary policies will also have to be supplemented by measures aimed at re-establishing properly functioning banking and financial sectors.
In this Working Paper, we describe how we used stochastic simulation to evaluate the risks surrounding the January 2006 nime Economic Outlook (neo) for the world economy. We summarise the main results by showing confidence intervals around the baseline projection as well as probabilities that certain events will occur. The results presented in this Working Paper are of an illustrative nature and do not constitute an update of the January 2006 nime Economic Outlook.