Year
2016 ended on a rather low note for the global economy with low
output and employment growth, stagnant global trade, subdued
investment, and heightened policy uncertainty marking another
difficult year. Global growth in 2016 is estimated at a post-crisis
low of 2.3 per cent by the World Bank, while the IMF estimate is at a
slightly higher 3.1 per cent (See:
http://www.ecofin-surge.co.in/index.html
or http://www.slideshare.net/EcofinSurge/gr-prjctns-32631011).
World trade growth for 2016 is estimated by World Bank to have fallen
from 2.8 per cent in 2015 to 2.5 per cent, while the IMF estimate for
2016 is at an even lower 1.9 per cent. In the second half of the year
growth did rebound in the US after a weak first half of 2016. Output
remains below potential in a number of other advanced economies,
notably in the Euro area, though growth figures were somewhat
stronger than previously forecast in some economies, such as Spain
and the UK, where domestic demand held up better than expected in the
aftermath of the Brexit
vote. The growth rate in China was slightly stronger than expected,
supported by continued policy stimulus, though deep concerns remain
over imbalances caused by the country’s reliance on credit and its
high savings rate. But activity was weaker than expected in some
Latin American countries currently in recession, such as Argentina
and Brazil, as well as in Turkey, which faced a sharp contraction in
tourism revenues. Activity in Russia was slightly better than
expected, in part reflecting firmer oil prices.
While
slowing investment growth is partly a correction from high pre-crisis
growth rates in some EMDEs, it also reflects a range of obstacles
holding back investment, including terms-of-trade shocks for oil
exporters, slowing foreign direct investment inflows, as well as
private debt burdens and political risks. Commodity prices have
stabilized and are projected to increase moderately during 2017-19,
providing support for commodity-exporting EMDEs. The rise in US
yields since early November has led to a notable tightening of
financing conditions for EMDEs, in some cases resulting in
significant currency depreciation and portfolio outflows.
High corporate debt, declining profitability, weak bank
balance sheets, and thin policy buffers in several economies add to
concerns. Fiscal stimulus, if implemented in key economies, could
result in stronger growth. Monetary policy has so far remained mostly
accommodative across the globe; however fiscal space remains
inadequate in several economies, both advanced and emerging, because
of already high public debts.
Risks
to the global growth outlook are assessed to be skewed to the
downside. A projected stabilization in energy and commodity prices
may provide a small tailwind for resource rich economies in 2017, but
the medium-term trend continues to be dominated by weak investment
growth.
Adding to the inertia is a wait-and-watch attitude
among corporates and governments. Going into 2017, businesses have to
prepare for more disruptions from geopolitical tensions, policy
uncertainty, and financial market volatility. Lingering uncertainty
about the course of US economic policy could have a significantly
negative effect on global growth prospects as the new US government’s
policies take shape. Accelerating inflation and a soaring US dollar
are among the risks to the economic balance. Even more alarming is
the fact that recent political developments highlight a fraying
consensus about the benefits of cross-border economic integration.
Major policy shifts along these lines are seen to lead to potential
widening of global imbalances coupled with sharp exchange rate
movements and in response could further intensify protectionist
pressures. Increased restrictions on global trade and migration would
hurt productivity and incomes, and take a toll on market sentiment as
well, leading to a vicious circle of growth debilitating outcomes.
