Commodities rebound set to boost global growth

The pace of global growth will increase this year, fuelled by a rebound in commodity-exporting emerging economies and further recovery in advanced economies such as the US, according to the World Bank.

However, the bank’s latest forecasts, which were released yesterday, included a warning that the arrival of the Trump administration in the US and elections this year in Europe raised questions about the direction of economic policy and a potential new round of protectionism.

Global growth is expected to accelerate to 2.7 per cent this year after growing by 2.3 per cent in 2016, its worst performance since the 2008 crisis. Advanced economies as a group are expected to grow at the slightly faster rate of 1.8 per cent this year.

“After years of disappointing global growth, we are encouraged to see stronger economic prospects on the horizon,” said Jim Yong Kim, World Bank president.

“The good news is that there is a recovery and that this recovery is coming after a bottom, if you think of 2016 as that bottom,” said Ayhan Kose, lead author of the bank’s annual Global Economic Prospects. “But there are significant downside risks . . . including political uncertainty.”

The US economy was expected to expand by 2.2 per cent in 2017, up from an estimated 1.6 per cent last year, the bank said.

That forecast increase comes before tax cuts, infrastructure spending and deregulation that US president-elect Donald Trump has promised will boost growth. Both the eurozone (1.5 per cent) and Japan (0.9 per cent) are expected to grow at a weaker pace this year.

The expected acceleration in the US is likely to help lift other parts of the global economy. “What happens in the US does not stay in the US,” Mr Kose said.

But a strengthening dollar and higher US interest rates and their impact on particularly corporate debtors in emerging economies posed risks, he said. Fast growth in the US is likely to be accompanied by a surge in commodity-exporting emerging and developing economies, which are expected to expand by 2.3 per cent this year, after two years of stagnation.

Recessions in countries such as Brazil and Russia because of the collapse in commodity prices were likely to end this year thanks to a modest recovery in prices, the bank said. Both economies contracted in 2016 and are expected to grow modestly this year.

The same applies to Nigeria, Africa’s largest economy, which the World Bank expects to grow by 1 per cent in 2017 after contracting by 1.7 per cent last year. That would bring relief for countries that many last year saw as the potential source of emerging market crises.

But Mr Kose said that while many commodity-exporting developing economies were on a better footing than they were a year ago, most still remained vulnerable to swings in international prices and a further downturn.

The World Bank said it remained concerned about a slowdown in global investment growth, which had fallen from 10 per cent in 2010 to below 3.5 per cent in 2016.

It was more optimistic, however, about global trade, the slowdown in which has plagued the world economy for the past five years.

World trade volumes grew by 2.5 per cent in 2016 but are expected to expand by 3.6 per cent this year, or 1.3 times global gross domestic product, thanks mainly to the changing fortune of commodity-exporting countries and a rebound in other large developing economies.


By Shawn Donnan

Published on Jan 17,2017 [ Vol 17 ,No 872]



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