A Welcome Bright Forecast for Global Growth
By John Bostwick, Managing Editor, Radius
In April, the International Monetary Fund released its World Economic Outlook (WEO) report, which included the following tentative subtitle: “Gaining Momentum?” Even the subtitle’s cautious optimism is welcome given the mostly bleak growth numbers and forecasts since the onset of the great recession. In any case, the WEO report’s forward begins on an even more hopeful note: “Consistently good economic news since summer 2016 is starting to add up to a brightening global outlook.” It adds that the WEO has raised its projections for 2017 global growth from 3.4 percent to 3.5, and continues to predict 3.6 percent growth for 2018.
The report cautions that these rates are historically speaking “subdued.” Moreover, risks still abound that could derail the projected growth, including the possibility of “a turn toward protectionism” that could lead to “trade warfare” and “undermine international trading relationships and multilateral cooperation more generally.” The report calls for trade policies that promote productivity and domestic policies that redistribute trade gains internally and improve worker skills.
This month, the World Bank released its Global Economics Prospects report, which has many similarities to the WEO report, right down to a qualified subtitle (“A Fragile Recovery”). The World Bank — which is the IMF’s fellow Bretton Woods Institution — has global growth projection rates that don’t precisely align with those in the April IMF April report. Nevertheless both sets of projections reflect a positive trend. The World Bank projects global growth to improve to 2.7, “up from a post-crisis low of 2.4 percent in 2016.” Growth rates should further improve to 2.9 percent in 2018-2019.
The World Bank report, which is “predicated only on legislated fiscal and trade policies,” attributes the positive outlook to among other things a recovery in global trade, strengthening investment, “benign” financing, low market volatility and a moderate rise in commodity prices. It announces that “global growth is firming, contributing to an improvement in confidence.” It predicts growth in advanced economies to rise to a modest 1.9 percent in 2017, and growth in emerging market and developing economies (EMDEs) to rise to 4.1 percent in 2017 and 4.6 percent in 2018-2019 (from 3.5 percent last year).
Like its IMF counterpart, the World Bank report cautions that “substantial risks cloud” the outlook for global growth. Risks include escalating trade restrictions, policy uncertainty that could hamper investment and trigger market turmoil, and ongoing weak productivity. A press release announcing the report notes that there is particular “concern about mounting debt and deficits among [EMDEs], raising the prospect that an abrupt rise in interest rates or tougher borrowing conditions might be damaging.”
Despite the risks, though, it’s worth emphasizing that the projected rates for EMDEs are particularly rosy at 4.1 percent in 2017. Ayhan Kose, a director at the World Bank, is quoted in the press release as saying: “After a prolonged slowdown, recent acceleration in activity in some of the largest emerging markets is a welcome development for growth in their regions and for the global economy. … Now is the time for emerging market and developing economies to assess their vulnerabilities and strengthen policy buffers against adverse shocks.”
Kose urged policymakers in all economies to exploit the moment, saying: “This is a good time to undertake the types of policies that will make these economies more resilient. … Fix your roof when the sun is shining.” As Kose’s comments suggest, the World Bank report echoes the IMF’s in its recommendations for bolstering ongoing growth. The World Bank urges global policymakers to promote worker training and “to share the dividends of growth and gains from globalization more widely.”
The press release notes that the excellent forecasted growth rates for EMDEs should have “significant positive effects for growth in other emerging and developing economies and globally.”
Here's a look at a few major economies highlighted in the report.
The World Bank projects growth in the US to rise from 1.6 percent in 2016 to 2.1 percent in 2017. This is of course lower than the predicted global rate of 2.7 percent and is, as US News points out, “well shy of the 3 percent to 4 percent growth the Trump administration has promised under his leadership.”
The World Bank predicts that China’s economy will expand at a rate of 6.5 percent in 2017 and 6.3 percent in 2018 and 2019. This forecast follows a general trend in China of high numbers that nonetheless show a slow decline. The rate there was 7.3 percent in 2014, 6.9 in 2015 and 6.7 in 2016. While on the decline, these numbers are of course remarkably high. The report warns, however, that, “Significant disruption to China’s exports would undermine its growth, with large spillovers on the region. Furthermore, trade-restricting measures in the United States could trigger retaliatory measures.”
Brazil’s economy is expected to grow at 0.3 percent in 2017, and while this may seem on the face of it anemic (especially after discussing China’s rates), it’s in fact a welcome, considerable leap from Brazil’s dismal rates of -3.8 in 2015 and -3.6. in 2016. Those negative numbers reflect the recession in Brazil brought on by plunging oil prices. Happily, the World Bank predicts continued growth in Brazil, with forecasts of 1.8 percent in 2018 and 2.1 in 2019.
The UK’s forecasted rates are 1.7 percent in 2017 and 1.5 percent in 2018 and 2019. The Telegraph notes that the 2017 forecast is up from the World Bank’s 2017 forecast of 1.2 percent in January, and that “the revisions were driven by expectations of stronger growth in advanced and emerging economies, with a recovery in industrial activity and a rise in global trade expected to lift output around the world.” (World Bank forecasters may be scrambling to again revise their UK numbers in the wake of this month’s surprising general election results.)
The World Bank puts the Euro area’s growth rate at 1.7 percent in 2017 and 1.5 percent in 2018 and 2019, exactly mirroring the UK’s forecasted rates. The Euro area’s numbers, also like the UK’s, have been upgraded since January, to account for (according to the press release) “strengthening domestic demand and exports.”