The World Bank forecasts global economic growth to edge up to 3.1 percent in 2018 after a much stronger-than-expected 2017, as the recovery in investment, manufacturing, and trade continues.
Global Economic Prospects, a report released by the World Bank this month, says growth in advanced economies is expected to moderate slightly to 2.2 percent in 2018, as central banks gradually remove their post-crisis accommodation and the upturn in investment growth stabilizes.
Growth in emerging market and developing economies as a whole is projected to strengthen to 4.5 percent in 2018, as activity in commodity exporters continues to recover amid firming prices.
The global economy is reportedly experiencing a broad-based cyclical upturn, which is expected to be sustained over the next couple of years, although with downside risks. In contrast, growth in potential output (full-employment output) is flagging, languishing below its longer-term and pre-crisis average both globally and among emerging market and developing economies (EMDEs), according to the report.
The report says the forces depressing potential output growth will continue unless countered by structural policies. In oil-exporting economies, the 2014-16 oil price collapse has already prompted some reforms. Nevertheless, across all EMDEs, room for policy improvements remains. Policy initiatives to lift physical and human capital, encourage labor force participation, and improve institutions could help raise potential growth and reduce inequality.
EMDE growth accelerated in 2017 to 4.3 percent, reflecting a recovery in commodity exporters amid continued robust activity in commodity importers. EMDE growth is projected to further strengthen to 4.5 percent in 2018 and to an average of 4.7 percent in 2019-20—close to potential—as headwinds to commodity exporters dissipate. However, potential growth over the next decade is likely to decline, reflecting the lagged effect of recent investment weakness, slowing productivity growth, and unfavorable demographic trends.
According to the report, growth in the Europe and Central Asia (ECA) region is estimated to have accelerated from 1.7 percent in 2016 to 3.8 percent in 2017.
The recovery was reportedly broad-based and supported by revitalized domestic demand and robust external demand. Growth is expected to moderate to 2.9 percent in 2018 and stabilize at 3 percent in 2019-20. Risks appear more balanced than in June 2017 but continue to be tilted to the downside. Domestic fiscal, external, and financial sector vulnerabilities, as well as policy uncertainty, amplify risks.
