Global prospects

The Pak Banker - - FRONT PAGE -

In its lat­est re­port on global eco­nomic prospects, the World Bank says that global growth dur­ing 2017-18 will re­main un­changed and sta­ble as no new risks have arisen to threaten the out­look. The Bank ex­pects the global econ­omy by 2.9 per­cent in 2018 and 2019, the same as the last fore­cast. Ac­cord­ing to the WB, "over the past four years this is the first time we didn´t have a down­grade and we think that´s very good sign and growth is firm­ing." In the view of the World Bank, the is­sues that had the po­ten­tial to de­rail the in­cip­i­ent re­cov­ery have re­ceded for the time be­ing. These is­sues in­cluded stress in fi­nan­cial mar­kets due to ris­ing US in­ter­est rates, un­cer­tainty over the sta­bil­ity of oil prices, and con­cerns about elec­tion out­comes in Europe. But af­ter the Fed­eral Re­serve´s two rate in­creases in re­cent months, mar­kets have re­acted favourably.

On the other hand, Euro­pean po­lit­i­cal un­cer­tainty has sub­sided. Oil prices, al­though still low, have sta­bi­lized af­ter OPEC and non-OPEC oil pro­duc­ers ex­tended the agree­ment to limit out­put. No doubt, the risks are there but the over­all sit­u­a­tion is a lit­tle bit more im­proved to­day as com­pared to six months ago. In its pro­jec­tion, the World Bank has also taken into ac­count the un­cer­tainty re­lat­ing to poli­cies, es­pe­cially US trade pro­tec­tion­ism and im­mi­gra­tion re­stric­tions un­der the Trump ad­min­is­tra­tion.

The bank's reck­on­ing is that these could have an ad­verse im­pact on con­di­tions that could dampen growth. In the ab­sence of well de­fined poli­cies, firms may de­lay busi­ness de­ci­sions and post­pone in­vest­ments, es­pe­cially those com­pa­nies which have cross­bor­der op­er­a­tions im­pacted by the North Amer­i­can Free Trade Agree­ment which Pres­i­dent Don­ald Trump has opened to rene­go­ti­a­tion. In this con­nec­tion, the World Bank refers to the slow­down in in­vest­ment in emerg­ing mar­kets and de­vel­op­ing economies over the past few years.

How­ever, an im­por­tant point to note in this con­text is the fact that de­spite the slow­ing in­vest­ment growth, which has fallen to three per­cent from 10 per­cent six years ago, emerg­ing mar­kets are re­turn­ing as a strong en­gine of growth for the global econ­omy. The lat­est re­ports show that the seven largest emerg­ing mar­ket economies -- China, Brazil, Mex­ico, In­dia, In­done­sia, Turkey and Rus­sia -- which rep­re­sent about half of to­tal emerg­ing mar­ket GDP, are turn­ing the corner and re­turn­ing to growth. While China´s GDP has slowed to 6.5 per­cent and will inch up 6.3 per­cent in the next two years, Rus­sia and Brazil are see­ing pos­i­tive ex­pan­sion af­ter two years of re­ces­sion. Their per­for­mance has pos­i­tive spillover ef­fects on other economies, es­pe­cially in their own neigh­bor­hoods, but also for ad­vanced economies like Ger­many which sees more man­u­fac­tured goods ex­ports.

As a whole, emerg­ing mar­ket and de­vel­op­ing economies are ex­pected to grow 4.1 per­cent, and are pro­jected to con­tinue ac­cel­er­at­ing to 4.5 per­cent in 2018 and 4.7 per­cent in 2019. But there are many chal­lenges ly­ing ahead. Emerg­ing mar­ket economies face ris­ing debt and deficits, with half of them see­ing gov­ern­ment debt swell more than 10 points of GDP in 10 years. This makes them vul­ner­a­ble if the economies face a down­turn or as in­ter­est rates rise. The only way to avert a cri­sis is to im­prove tax col­lec­tion and debt man­age­ment as well as make spend­ing more ef­fi­cient. There is a les­son in all this for Pak­istan. We must act promptly and adopt pru­dent poli­cies to speed up the growth process, es­pe­cially ex­ports and in­dus­trial and agri­cul­tural pro­duc­tiv­ity.

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