Growth in advanced economies is expected to edge up to 1.8 percent in 2017, the World Bank’s January2017 Global Economic Prospects report said. Fiscal stimulus in major economies—particularly in theUnited States—could generate faster domestic and global growth than projected, although rising tradeprotection could have adverse effects. Growth in emerging market and developing economies as a wholeshould pick up to 4.2 percent this year from 3.4 percent in the year just ended amid modestly risingcommodity prices.
Nevertheless, the outlook is clouded by uncertainty about policy direction in major economies. Aprotracted period of uncertainty could prolong the slow growth in investment that is holding back low,middle, and high income countries.
“After years of disappointing global growth, we are encouraged to see stronger economic prospects onthe horizon,” World Bank Group President Jim Yong Kim said. “Now is the time to take advantage ofthis momentum and increase investments in infrastructure and people. This is vital to accelerating thesustainable and inclusive economic growth required to end extreme poverty.”
The report analyzes the worrisome recent weakening of investment growth in emerging market anddeveloping economies, which account for one-third of global GDP and about three-quarters of theworld’s population and the world’s poor. Investment growth fell to 3.4 percent in 2015 from 10 percenton average in 2010, and likely declined another half percentage point last year.
Slowing investment growth is partly a correction from high pre-crisis levels, but also reflects obstacles togrowth that emerging and developing economies have faced, including low oil prices (for oil exporters),slowing foreign direct investment (for commodity importers), and more broadly, private debt burdens andpolitical risk.
“We can help governments offer the private sector more opportunities to invest with confidence that thenew capital it produces can plug into the infrastructure of global connectivity,” said World Bank ChiefEconomist Paul Romer. “Without new streets, the private sector has no incentive to invest in thephysical capital of new buildings. Without new work space connected to new living space, the billions ofpeople who want to join the modern economy will lose the chance to invest in the human capital thatcomes from learning on the job.”
Emerging market and developing economy commodity exporters are expected to expand by 2.3 percent in 2017 after analmost negligible 0.3 percent pace in 2016, as commodity prices gradually recover and as Russia and Brazil resume growingafter recessions.
Commodity-importing emerging market and developing economies, in contrast, should grow at 5.6 percent this year,unchanged from 2016. China is projected to continue an orderly growth slowdown to a 6.5 percent rate. However, overallprospects for emerging market and developing economies are dampened by tepid international trade, subdued investment,and weak productivity growth.
Among advanced economies, growth in the United States is expected to pick up to 2.2 percent, as manufacturing andinvestment growth gain traction after a weak 2016. The report looks at how proposed fiscal stimulus and other policyinitiatives in the United States could spill over to the global economy.
“Because of the outsize role the United States plays in the world economy, changes in policy direction may have global rippleeffects. More expansionary U.S. 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,” said World Bank Development EconomicsProspects Director Ayhan Kose. “Elevated policy uncertainty in major economies could also have adverse impacts on globalgrowth.”