World economy to grow at 2.7%

12 January 2017

The global economy is forecast to grow by 2.7% in 2017 after reaching a post-crisis low of 2.3% in 2016, according to the World Bank.

The bank’s Global Economic Prospects 2017 report said the receding of obstacles to economic activity in emerging markets and commodity exporters would drive growth.

The forecast for advanced economies is growth edging up to 1.8% in 2017.

However, the forecast could be revised upwards if fiscal stimulus in economies such as the US generates faster domestic growth or downwards if rising trade protection has adverse effects.

Emerging and developing economies should see growth rise to 4.2% from 3.4% in 2016, largely due to modestly rising commodity prices.

Uncertainty about policy direction in many major economies could become protracted and prolong the sluggish investment climate that is hampering low, middle and high-income countries.

One of the report’s key concerns was weakening in investment growth, which has recently struck emerging and developing economies. These account for around a third of global GDP as well as 75% of the world’s population and poor.

Investment growth fell to 3.4% in 2015 from 10% in 2010 and probably declined by another 0.5% in 2016.

While falling figures are partly a correction from high pre-crisis levels they also reflect obstacles to growth in those economies such as low oil prices, slowing FDI for commodity importers, private debt burdens and political risk.

World Bank chief economist Paul Romer said: “Without new streets, the private sector has no incentive to invest in the physical capital of new buildings.

“Without new work space connected to new living space, the billions of people who want to join the modern economy will lose the chance to invest in the human capital that comes from learning on the job.”

The report predicts that commodity exporters in emerging and developing economies will expand by 2.3% in 2017, up from 0.3% in 2016, as commodity prices stage a recovery. Russia and Brazil are expected to resume growth after their recessions.

Commodity-importing emerging market and developing economies see growth prospects unchanged at 5.6% this year.

China’s gently slowing growth will sit at 6.5%. The US is likely to see growth of 2.2% as its manufacturing and investment sectors recover from a weak 2016.

“Because of the outsize role the United States plays in the world economy, changes in policy direction may have global ripple effects,” said World Bank development economics prospects director Ayhan Kose.

“More expansionary US fiscal policies could lead to stronger growth in the United States and abroad over the near term, but changes to trade or other policies could offset those gains.”

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