Global economic growth has peaked: World Bank

  • Global growth appears to have peaked, with demographics, a lack of investment, a slowing in productivity gains and tightening monetary policy placing limits on economic expansion, the World Bank said.
  • The world’s economic output grew 3% in 2017 as more than half of economies accelerated, thanks to a rebound in investment, manufacturing activity and trade. The global economy is expected to maintain that rough growth level through 2020.
  • However, the problem facing the world is that after years of recovery from the 2008 financial crisis, most advanced and developing economies have closed the output gap between actual and potential economic growth.
  • Moreover, it is hard to see that changing unless governments embrace the sort of reforms and investment drives that the bank and other institutions have been demanding for years.
  • Already, the bank said, it expected growth in advanced economies to slow from 2.3% 2017 to 2.2% 2018 and 1.7% by 2020.
  • But emerging and developing economies, which grew by 4.3% as a group in 2017, are also likely to hit ceilings and contribute less to global growth.
  • The concerns over the long-term future of the global economy also coincide with fears in the short term.
  • Among those risks is a sudden rise in the now-low borrowing costs that have helped fuel much of the recovery in recent years, either from quicker than anticipated rate rises from the US Federal Reserve and other central banks, or because of growing concerns about soaring capital markets.
  • Protectionism and a resulting slowdown in global trade also remained a risk, especially as the 4.3% increase in the volume of goods and services traded in 2017 had been so important as an engine for broader growth.
  • Growth in China is projected to slow from 6.8% in 2017 to 6.4% in 2018 as rebalancing proceeds and credit growth decelerates. Policy support is expected to diminish, as monetary policy remains tight and fiscal policy becomes less accommodative. This outlook is predicated on continued reforms, reaffirmed by China’s 19th Party Congress, which are expected to lead to further reduction in excess capacity, gradual unwinding of financial sector vulnerabilities, and shift of growth drivers from capital accumulation to total factor productivity (TFP).
  • Growth in the rest of the region (East Asia and Pacific) is projected to accelerate marginally to 5.3% in 2018, led by a continued cyclical rebound in commodity-exporters, and stay around this level for the most part of the forecast horizon.
  • In South Asia, growth slowed to a still strong 6.5% in 2017, below the Jun 17 forecast, in part reflecting adjustment in India to the new Goods and Services Tax and the adverse impact of natural disasters across the region. Growth is expected to stabilize around 7% a year over 2018-2020, with private consumption remaining strong and investment recovered by infrastructure projects and reforms. Main risks to the outlook include setbacks in reviving investment, fiscal slippages, and disruptions to activity resulting from natural disasters.

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