World Bank predicts moderate recovery

Oil drilling platform in front of Sugarloaf MountainImage copyright
Getty Images

The World Bank in its new Global Economic Prospects report predicts only a moderate strengthening of economic growth this year.

The pick-up will be driven mainly by improvements in emerging markets and developing economies, the Bank says.

This year’s forecast of 2.7% growth comes after what the Bank calls a post-crisis low in 2016.

The report says there is heightened uncertainty after the US Presidential election.

The World Bank’s new forecasts suggest we can expect more of the pattern of an unconvincing global economic revival after the financial crisis. Last year’s growth figure of 2.3% was the weakest in that period.

Investment was “anaemic” the report says and there was a further weakening of global trade.

Growth acceleration

For emerging market and developing economies the rise in interest rates in the US and the strengthening dollar also led to a “notable tightening of financing conditions” – which means credit that is either more expensive or harder to get.

Nonetheless, the Bank expects growth to accelerate in these countries partly due to higher commodity prices (such as oil and metals) which many of them export.

The Bank’s economists also expect the decline in activity in two large emerging economies, Brazil and Russia, to come to an end.

For the developed economies the Bank forecasts continued weak growth – slightly better than 2016, but at 1.8% still slow compared to the period before the crisis.

Uncertainty about future policies has increased following the British referendum on the European Union and, potentially especially significant for the global economy, Donald Trump’s victory in the US Presidential election.

The report includes an analysis of why the US matters so much to the rest of the world in terms of extensive trade and financial links.

It notes that there is a great deal of uncertainty about just what policies Mr Trump’s administration will pursue in office.

Image copyright
Getty Images

There is the potential for stronger US growth if Mr Trump implements proposals for cuts in personal and business taxes and for stimulating infrastructure investment.

The report also looks at the possible impact of more barriers to international trade. This is not just about Mr Trump, though he has said he would increase some tariffs on imports and has suggested he would consider undoing some existing trade agreements.

The Bank says that globally new trade restrictions reached a new post-financial crisis high last year and warns that emerging and developing economies would be most affected by further moves in that direction.

The Bank is especially concerned about the implications of the persistently subdued growth of the global economy for poverty in the developing world.

The report says that growth has been the main driver of poverty reduction for the last two decades. Repeated “growth disappointments” impede progress towards achieving the Bank’s goals.

Extreme poverty

The report says (assuming the distribution of income does not change): “If income per capita would continue to grow at the weak pace observed in 2015, extreme poverty would only decrease to 9% in 2030, from 11% in 2013.

“In contrast, a return to high pre-crisis (2003-08) growth rates in emerging market and developing economies would reduce extreme poverty to 4%, just short of the World Bank’s goal of 3%”, it adds.

We will get the economic outlook as seen by the International Monetary Fund next week (16 January).

When we do, it’s important not to compare its headline figures for global economic growth with the World Bank’s.

There are two different methods of adding together individual country growth rates to a get a global number and these institutions choose to headline different ones, thought they do report both.

Facebook

Get the Facebook Likebox Slider Pro for WordPress