Global growth expected to stabilise at 3.1%—World Bank

The World Bank Group has said that global growth is projected to stabilise at 3.1 per cent in 2018 the same pace as last year supported by firming investment in advanced economies, a continued recovery in commodity-exporting emerging market and developing economies, and still robust growth in commodity-importing ones. In a new report it that “However, only in a minority of countries will activity accelerate further this year, and global growth is projected to ease gradually over the next two years, to 2.9 per cent in 2020. Despite the projected moderation, global growth will continue to exceed potential, suggesting that capacity constraints will become more binding and global inflation will rise.

The report said that “Trade has been robust, but is expected to moderate, as the recovery in capital spending wanes. A faster-than-expected rise in global interest rates, combined with a renewed strength of the U.S. dollar, have contributed to tighter external financing conditions and moderating capital inflows in emerging market and developing economies (EMDEs). In this context, investors have become increasingly focused on country-specific exposures to rising borrowing costs and currency pressures. Commodity prices particularly oil are also higher than previously expected, mainly reflecting supply-side considerations”.

It said that “Growth in Emerging Markets and Developing Economies EMDEs, is projected to gain further strength, reaching 4.5 per cent in 2018 before stabilising at 4.7 per cent in 2019-20 as the recovery in commodity exporters matures. Growth in commodity exporters is expected to increase to 2.5 per cent in 2018 and to average 3.0 per cent in 2019 and 2020, as investment growth plateaus and output gaps close”. The report further said “Growth in commodity importers is projected to remain broadly stable in 2018-20, averaging 5.8 per cent, as a structural slowdown in China is offset by a moderate pickup in the rest of the group. 

“Per capita income in EMDEs: uneven progress. Growth prospects for EMDEs remain favourable over the forecast horizon but may not be sufficient to ensure rapid poverty alleviation, particularly in Sub- Saharan Africa. In that region, per capita income growth is projected to reach 1 per cent by 2020, significantly lower than the EMDE average of 3.5 percent. In contrast, per capita income growth is expected to reach 6 percent in South Asia, which is the region with the second largest number of extreme poor. At the projected pace, growth will be insufficient to restart the catch-up of income per capita with advanced economies in about one-third of EMDEs.

It said that “Risks to the outlook are tilted to the downside, with some becoming more acute. In particular, an accelerated tightening of global financing conditions and disorderly exchange rate developments could have severe consequences in many EMDEs facing record-high debt levels, mounting refinancing needs, and deteriorating credit quality (Figure 1.D). Escalation of trade restrictions among major economies could derail global trade, with particularly adverse consequences for EMDEs (Figure 1.E). Electoral outcomes in a number of countries, including in Europe, could heighten policy uncertainty, while an intensification of geopolitical tensions could also hamper growth prospects. Depleted policy buffers make many countries unprepared to the possibility of a faster-than-expected slowdown in global growth.

“Policymakers need to meet head-on the prospects of rising global interest rates and possible financial market volatility. Deteriorating debt dynamics underline the importance of fostering revenue mobilisation and restoring fiscal buffers. EMDEs also need to boost longer-term growth prospects by intensifying economic diversification among commodity exporters, and, more broadly, by strengthening workforce skills, adapting to technological change, and promoting trade openness. Higher tertiary education enrollment can help move EMDEs closer to technological frontiers, but improving basic numeracy, literacy, and skills from current levels is a key priority for many low- and middle-income countries”

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