Global prospects
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.