Eco­nomic out­look

The Pak Banker - - FRONT PAGE -

The world eco­nomic out­look is show­ing a chang­ing pat­tern. In­ter­na­tional or­ga­ni­za­tions like the IMF, World Bank, OECD, EEC and many oth­ers reg­u­larly come up with re­ports and fore­casts that need to be stud­ied minutely by de­vel­op­ing coun­tries like Pak­istan in or­der to ad­just their poli­cies ac­cord­ingly. The In­ter­na­tional Mon­e­tary Fund pub­lishes World Eco­nomic Out­look ev­ery year which is a com­pre­hen­sive re­port on the state of the world econ­omy. In its re­cent re­port, the IMF pro­jected global growth at 3.5 per­cent for 2017 and 3.7 per­cent for 2018, low­er­ing its fore­cast by 0.3 per­cent­age points for both years. The IMF fore­cast a slow­down in China and said that the euro area would con­tinue to lan­guish. Ac­cord­ing to the IMF re­port, slower 2017 growth in China "re­flects the wel­come de­ci­sion by the au­thor­i­ties to take care of some of the im­bal­ances which are in place and the de­sire to re­ori­ent the econ­omy to­wards con­sump­tion and away from the real es­tate sec­tor and shadow bank­ing."

Ac­cord­ing to IMF, the euro zone and Ja­pan could suf­fer a long pe­riod of weak growth and dan­ger­ously low in­fla­tion. Pro­jec­tions for emerg­ing economies were also cut back, with the out­look for oil ex­porters like Rus­sia, Nige­ria and Saudi Ara­bia wors­en­ing the most. The IMF also low­ered pro­jec­tions for Brazil and In­dia, two ma­jor Brics coun­tries. The United States was the only sil­ver lin­ing in an oth­er­wise dis­mal re­port for ma­jor economies, with its pro­jected growth raised to 3.6 per­cent from 3.1 per­cent for 2018. The United States' per­for­mance is said to have partly com­pen­sated for the con­tin­u­ing weak­ness in the euro area.

The prospects for the world econ­omy seem to have im­proved lately thanks to some new de­vel­op­ments. The lat­est re­port in this re­gard has come from the Paris-based Or­gan­i­sa­tion for Eco­nomic Co-oper­a­tion and De­vel­op­ment which has sharply up­graded its eco­nomic fore­casts for the euro zone be­cause low oil prices and the Euro­pean Cen­tral Bank's pro­gramme of quan­ti­ta­tive eas­ing have lifted hopes for the re­gion's rapid re­cov­ery. OECD has also raised its pre­dic­tions for global growth, pre­dict­ing Ja­pan and In­dia will ex­pand more than pre­vi­ously fore­cast. The OECD re­port has painted a pos­i­tive out­look for Ja­pan, say­ing that growth will ac­cel­er­ate to 1.4 per cent in 2018, faster than an­tic­i­pated. It also markedly up­graded the fore­casts for In­dia, which is now ex­pected to grow by 7.7 per cent next year. This is more than a per­cent­age point faster than pre­vi­ously thought, sug­gest­ing In­dia will ex­pand at a more rapid pace than China over the next few years. At the same time, the OECD has played down fears of de­cel­er­a­tion of the US econ­omy, leav­ing its fore­casts un­changed.

But there is also a down­side. OECD has warned that the en­vi­ron­ment of low in­fla­tion and low in­ter­est rates cre­ates a grow­ing risk of fi­nan­cial in­sta­bil­ity. It has pointed out that ex­ces­sive reliance on mon­e­tary pol­icy alone is build­ing up fi­nan­cial risks, while not yet re­viv­ing busi­ness in­vest­ment. In this con­text it has rec­om­mended that a more balanced pol­icy ap­proach is needed, mak­ing full use of fis­cal and struc­tural re­forms, as well as mon­e­tary pol­icy, to en­sure sus­tain­able growth over the longer term.

For Pak­istan both the IMF and OECD eco­nomic sur­veys con­tain guide­lines which we must study and fol­low to keep the econ­omy on a sus­tain­able growth path. No doubt, there are new fac­tors sup­port­ing growth such as lower oil prices. But neg­a­tive forces are also at work, in­clud­ing the lin­ger­ing lega­cies of the fi­nan­cial cri­sis and lower po­ten­tial growth in many coun­tries. This mil­i­tates against the prospects of growth in ex­ports. To cope with the chal­lenges ahead, Pak­istan will have to de­velop a suit­able strat­egy. Above all, Pak­istan must un­der­take over­due struc­tural re­forms to sup­port long-term growth.

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