World Bank predicts global growth this year followed by slowdown
The World Bank has forecast that global economic growth will edge up to 3.1 percent this year after a stronger-than-expected 2017, but warns that it will slow in the long term.
The forecast is 0.2 percentage points higher than its prediction in June last year. The lender attributes the increase to the continuous recovery in investment and manufacturing, and the growth potential of commodity-exporting developing economies, which are set to benefit from firming commodity prices.
“2018 is on track to be the first year since the financial crisis that the global economy will be operating at or near full capacity,” said the World Bank in its flagship Global Economic Prospects report.
It estimated that growth reached three percent in 2017, the strongest pace since 2011 and a notable recovery from a post-crisis low of 2.4 percent in 2016.
However, the momentum is expected to diminish in 2018-2020 as the upturn in advanced economies moderates and growth in China continues to decelerate.
Growth in advanced economies is expected to slow slightly to 2.2 percent in 2018, as central banks gradually remove their post-crisis accommodation and as an upturn in investment levels off. Growth in emerging markets and developing economies as a whole is projected to strengthen to 4.5 percent in 2018, as activity in commodity exporters continues to recover.
The World Bank upgraded its forecast for China's economic growth in 2018 to 6.4 percent, slightly higher than its June forecast. The Chinese economy is estimated to have grown 6.8 percent in 2017.
The growth is predicted to moderate to 6.3 percent in 2019, as China continues to rebalance its economy and credit growth decelerates.
China is already making progress in rebalancing, with consumption and the services sector maintaining relatively fast growth, said Ayhan Kose, director of the Word Bank's Development Economic Prospects Group, in a teleconference on Tuesday.
He suggested that China should continue to take measures to eliminate excess industry capacity and control risks in the financial system.
Risks hindering long-term growth
Despite the optimistic forecast, the World Bank warned that risks to the outlook remain tilted to the downside. It said they include an abrupt tightening of global financing conditions, escalating trade restrictions and rising geopolitical tensions.
The slowing productivity growth, weak investment and the aging of the global labor force are all contributing to the slowdown of potential growth, said the bank.
"The broad-based recovery in global growth is encouraging, but this is no time for complacency," said Jim Yong Kim, president of the World Bank, in a statement on Tuesday.
"This is a great opportunity to invest in human and physical capital. If policymakers around the world focus on these key investments, they can increase their countries' productivity, boost workforce participation, and move closer to the goals of ending extreme poverty and boosting shared prosperity," said Kim.