Bangkok Post

World Bank sees growth picking up

IMF warns of risks to Asian outlook

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WASHINGTON: The World Bank on Sunday maintained its forecast that global growth will improve to 2.7% this year, citing a pick-up in manufactur­ing and trade, improved market confidence and a recovery in commodity prices.

The update of the multilater­al developmen­t lender’s Global Economic Prospects report marked the first time in several years that its June forecasts were not reduced from those published in January due to rising growth risks.

The World Bank’s 2017 global growth forecast of 2.7% compares to its 2.4% estimate for 2016, a figure that was increased by a tenth of a percentage point since January.

The World Bank said advanced economies were showing signs of improvemen­t, especially Japan and Europe, while the seven largest emerging markets — China, Brazil, Mexico, India, Indonesia, Turkey and Russia — were again helping to drive global growth.

“With a fragile but real recovery now under way, countries should seize this moment to undertake institutio­nal and market reforms that can attract private investment to help sustain growth in the long term,” World Bank president Jim Yong Kim said in a statement.

The bank boosted its 2017 growth forecast for Japan by 0.6 percentage point since January to 1.5%, while the euro zone’s forecast was increased by 0.2 percentage point to 1.7%. In both cases, a pick-up in exports and unconventi­onal monetary easing are helping to support growth.

The World Bank said US growth was also improving but it shaved 0.1 percentage point off its forecast for 2017 to 2.1% after weak growth early in the year caused by a pullback in consumer spending it viewed as temporary. It slightly lifted its 2018 US growth forecast to 2.2%.

It left unchanged its forecast that China’s growth would slow to 6.5% from 6.7% last year and predicted that commodity exporters Argentina, Brazil, Nigeria and Russia will see recessions end and positive growth resume this year.

But the World Bank warned that new trade restrictio­ns could derail the recovery in trade that is benefiting many advanced and developing economies, citing actions being contemplat­ed by the Trump administra­tion.

Such restrictio­ns could fall disproport­ionately on China and other Asian economies, the bank said.

“Significan­t disruption to China’s exports would undermine its growth with large spillovers on the region,” the bank said in the report. “Furthermor­e, traderestr­icting measures in the United States could trigger retaliator­y measures.”

It said exports and investment in Mexico also could be negatively affected by the looming renegotiat­ion of the North American Free Trade Agreement, causing spillovers to Central America as well.

Meanwhile, a senior Internatio­nal Monetary Fund official said in Tokyo yesterday that a lack of clarity about the size of an expected US fiscal stimulus and China’s rapid domestic credit growth were among risks that cloud Asia’s economic outlook.

IMF deputy managing director Mitsuhiro Furusawa noted a faster-thanexpect­ed sequence of interest rate hikes by the US Federal Reserve could trigger a “significan­t” dollar rise that would increase the debt burden of Asian emerging economies with large dollar-denominate­d borrowings.

“Asia continues to be the world leader in growth helped by stronger demand and accommodat­ive policies,” he said in a speech at a seminar in Tokyo on the region’s fiscal policy and demographi­cs.

“Nonetheles­s, the near-term outlook is clouded with significan­t uncertaint­ies and risks, such as a lack of clarity on US economic policy including the size and compositio­n of President Donald Trump’s proposed fiscal stimulus.

“China’s rebalancin­g process continues, but growth remains reliant on rapid domestic credit growth that could cause problems down the road,” he said.

Furusawa called on Asian policymake­rs to adapt their fiscal policies to engage slowing population growth and rapid ageing in the region.

“Asia’s population growth is projected to fall to zero by 2050, with the ratio of the elderly to working-age population reaching 2-1/2 times its current level,’’ he said.

Asian policymake­rs could tackle such demographi­c challenges through reforms to curb health care and pension system costs, providing tax incentives to raise labour force participat­ion, and compiling credible medium-term fiscal plans to ensure debt sustainabi­lity, Furusawa said.

“Experience shows that it is important to adapt fiscal policies before ageing sets in,” he said.

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