World Bank prog­no­sis

The Pak Banker - - FRONT PAGE -

The World Bank has fore­cast thatPak­istan's eco­nomic growth in next fis­cal year is likely to slow down due to higher oil prices.Growth in the Pak­istani econ­omy is ex­pected to slow to 5pc in 2018-19 from ex­pected growth of 5.8pc in the out­go­ing fis­cal year, re­flect­ing tighter poli­cies to im­prove macroe­co­nomic sta­bil­ity.Pak­istan's GDP growth rose in 2017-18, sup­ported by in­fras­truc­ture projects funded by the China-Pak­istan Eco­nomic Cor­ri­dor (CPEC), im­prove­ments in en­ergy sup­ply, and per­sis­tent pri­vate con­sump­tion growth.The fore­cast for the next two years shows that growth in Pak­istan will re­main at 5.4pc in 2019-20 and 2020-21.

By con­trast, growth in the rest of South Asia is pro­jected to strengthen to 6.9pc in 2018 and to 7.1pc in 2019. Growth in In­dia is pro­jected to ad­vance 7.3pc in 2018-19 and 7.5pc in 2019-20, re­flect­ing ro­bust pri­vate con­sump­tion and strength­en­ing in­vest­ment.Bangladesh is ex­pected to ac­cel­er­ate to 6.7pc in 201819.The risks to South Asia out­look in­clude do­mes­tic pol­icy slip­pages, re­newed se­cu­rity chal­lenges, and nat­u­ral dis­as­ters.The out­look could also be ad­versely af­fected by ex­ter­nal shocks such as an abrupt tight­en­ing of global fi­nan­cial con­di­tions and es­ca­lat­ing trade pro­tec­tion­ism, even though the re­gion is rel­a­tively less open to trade.

Since South Asia is net oil im­porter, a higher-than-ex­pected rise in oil prices might am­plify macroe­co­nomic vul­ner­a­bil­i­ties and weigh on eco­nomic ac­tiv­ity. In a num­ber of coun­tries, a fur­ther de­te­ri­o­ra­tion in fis­cal bal­ances (In­dia, Mal­dives, Pak­istan, Sri Lanka), a con­tin­ued buildup of debt, and widen­ing cur­rent ac­count deficits (Pak­istan), present sig­nif­i­cant vul­ner­a­bil­i­ties to a tight­en­ing of do­mes­tic or ex­ter­nal fi­nanc­ing con­di­tions.Fur­ther­more, a set­back in the im­ple­men­ta­tion of re­forms to re­solve weak­en­ing cor­po­rate and fi­nan­cial sec­tor bal­ance sheets could hold back the in­vest­ment re­cov­ery cur­rently un­der­way and dampen credit growth in the re­gion. An in­crease in po­lit­i­cal un­cer­tainty (Afghanistan, Bangladesh, Pak­istan, Sri Lanka), and fur­ther de­te­ri­o­ra­tion in the se­cu­rity en­vi­ron­ment in some coun­tries (Afghanistan) might dampen con­fi­dence and set back growth.

At the same time, the num­ber of peo­ple and ge­o­graph­i­cal ar­eas af­fected by nat­u­ral dis­as­ters such as drought, floods, and earth­quakes has risen in the re­gion.A rise in the preva­lence of nat­u­ral dis­as­ters, in­clud­ing those caused by cli­mate change, could dis­rupt in­fras­truc­ture, agri­cul­tural out­put, and eco­nomic ac­tiv­ity in gen­eral (Bhutan, Nepal, Sri Lanka).Ac­cord­ing to a state­ment is­sued by the World Bank, de­spite re­cent soft­en­ing, global eco­nomic growth will re­main ro­bust at 3.1pc in 2018 be­fore slow­ing grad­u­ally over the next two years, as ad­vanced-econ­omy growth de­cel­er­ates and the re­cov­ery in ma­jor com­mod­ity-ex­port­ing emerg­ing mar­ket and de­vel­op­ing economies lev­els off.

If it can be sus­tained, ro­bust eco­nomic growth could help lift mil­lions out of poverty, par­tic­u­larly in the fast-grow­ing economies of South Asia. But growth alone won't be enough to ad­dress pock­ets of ex­treme poverty in other parts of the world. Pol­i­cy­mak­ers need to fo­cus on ways to sup­port growth over the longer run-by boost­ing pro­duc­tiv­ity and la­bor force par­tic­i­pa­tion-in or­der to ac­cel­er­ate progress to­ward end­ing poverty and boost­ing shared pros­per­ity.

Ac­tiv­ity in ad­vanced economies is ex­pected to grow 2.2pc in 2018 be­fore eas­ing to a 2pc rate of ex­pan­sion next year, as cen­tral banks grad­u­ally re­move mon­e­tary stim­u­lus. Growth in emerg­ing mar­ket and de­vel­op­ing economies over­all is pro­jected to strengthen to 4.5pc in 2018, be­fore reach­ing 4.7pc in 2019 as the re­cov­ery in com­mod­ity ex­porters ma­tures and com­mod­ity prices level off fol­low­ing this year's in­crease.This out­look is sub­ject to con­sid­er­able down­side risks. The pos­si­bil­ity of dis­or­derly fi­nan­cial mar­ket volatil­ity has in­creased, and the vul­ner­a­bil­ity of some emerg­ing mar­ket and de­vel­op­ing economies to such dis­rup­tion has risen. Trade pro­tec­tion­ist sen­ti­ment has also mounted, while pol­icy un­cer­tainty and geopo­lit­i­cal risks re­main el­e­vated. In short, the over­all out­look is pos­i­tive but down­side risks con­tinue to hover.

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