World Bank warns 2018 could be last hurrah for strong global growth as it upgrades forecasts
An acceleration in the global economic expansion this year threatens to be a last hurrah for rising prosperity if governments allow the productivity slowdown to continue, according to the World Bank.
The organisation, which focuses on promoting international development, predicts global GDP growth will edge up to 3.1 per cent in 2018 from an estimated three per cent expansion last year, according to forecasts published this evening.
The figures represent a significant upgrade compared to the World Bank’s last forecasts in June, after Eurozone GDP growth smashed all expectations during 2017.
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However, the forecasts see global growth slowing to three per cent and 2.9 per cent respectively in 2019 and 2020, after this year’s peak.
World Bank group president Jim Yong Kim warned the strengthening global recovery left “no time for complacency”, with serious threats to future prosperity from slowing productivity growth and weak investment, all at a time when the global workforce is ageing rapidly.
The world economy’s potential output, the amount the economy can produce if labour and capital are used fully, could be weighed down by these longer-term changes, the World Bank warned.
In a foreword to the World Bank’s report, World Bank senior director for development economics, Shanta Devarajan, said: “To arrest and possibly reverse this decline in potential growth, emerging market and developing economies need to accelerate investment in both physical and human capital.”
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The slowdown in the growth of total factor productivity (TFP) – how efficiently labour and capital are combined in production – is “particularly troubling”, Devarajan said, given its key role in improving living standards in the past.
Governments around the world should focus on reforms to promote improved education, health and infrastructure, Devarajan said. Such reforms will be resisted by “politically powerful groups”, he said, but could “substantially bolster potential growth”.
“The costs of neglecting these principles have gone sky-high,” he added.
Over the long term, the slowdown in potential output growth across rich and poor nations would make the global economy “more vulnerable to shocks”.
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In the short term growth could also be derailed if financing costs increase, the World Bank said, in a clear warning to central bankers to tread carefully when attempting to remove stimulus and normalise monetary policy.
Meanwhile, if concerns about the growing asset bubble are borne out in 2018 it could lead to financial stress and the disruption of capital flows into poorer nations, potentially starving them of the finance needed to promote growth.
Similar damage could be done by rising protectionism, with Latin America particularly at risk from a rise in economic nationalism in the US. US President Trump’s renegotiation of the North American Free Trade Agreement (Nafta) could cause “an appreciable decline in trade among member countries” Canada, the US, and Mexico, the World Bank warned.
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