Global economy seen to sustain momentum, grow 3% in 2018

Global economy seen to sustain momentum, grow 3% in 2018

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After exceeding expectations in 2017, the global economy is projected to carry forward its current momentum to generate a 3% growth rate through 2018, according to the latest global economic outlook from an independent international business membership and research association.

The Conference Board Global Economic Outlook 2018 provides projections for the output growth of the world economy, including 11 major regions and individual estimates for 33 mature and 36 emerging market economies for 2018-2022 and 2023-2027.

“Global growth has finally left the starting gate since the global economic and financial crisis,” said Bart van Ark, chief economist of The Conference Board. “GDP growth, which we predicted to grow at 2.8 percent a year ago, is likely to end at about 3 percent for 2017, and through 2018.”

While the growth path of mature markets will remain solid in the short term, potential for much faster growth is limited, and a growth slowdown is likely to set in later in the decade.

“As some major emerging markets are maturing themselves, especially China, they are unlikely to return to growth trends of the past,” added van Ark. “The good news is that a larger role for qualitative growth factors—an improvement in labor force skills, digitization, and especially stronger productivity growth—may help sustain growth and provide better conditions for businesses to thrive over the next decade.”

For mature economies, momentum increased during 2017, which sets them up to continue growing at a decent pace in 2018 compared to the previous five-year average of 1.8% (2012-2017). Mature economies are projected to grow by 2.1% in 2018 compared to 2.2% in 2017.

The U.S. economy will especially benefit from carrying stronger investment growth into next year. By the middle of 2018, several European economies may see some modest weakening of cyclical tailwinds and fall back to their medium-term growth trend. On the other hand, Japan and the UK are projected to slow down more dramatically next year.

For emerging markets, they will continue to gain some strength in 2018 (projected to grow by 3.8%, compared to 3.7% in 2017), but with significant differences across countries. China had somewhat stronger growth in 2017 than anticipated, but it will continue its long, soft fall going into 2018. India, which had a weaker-than-expected year due to implementation difficulties with major policy initiatives, will see improved growth in 2018, largely driven by consumption. Brazil will continue to recover slowly from a deep economic crisis, while Mexico is likely to face more headwinds from uncertainty around the NAFTA negotiations and domestic policy uncertainty related to upcoming elections in 2018.

The Conference Board warns that several factors may limit the period during which the current strength in the global economy may continue.

“The growth uptick in 2017 reflects a combination of unique events, including the stabilization of energy and commodities prices, improved business confidence based on hopes for fiscal stimulus and tax reforms by the new US administration, a cyclical recovery in Europe, and China’s policy-driven growth stimulus. These events are unlikely to provide sustained growth going forward,” said the report.

Other potential challenges include a less-than-convincing recovery in investment, a slowdown in consumption growth as real wage growth remains slow, a modest global trade growth in light of a shift in growth toward less trade-intensive categories of services, and policy and geopolitical risks.

Long-term economic trends and structural changes pose even bigger risks in the global economy, said the report. Slow labor force growth due to aging populations, troubles with translating technology into productivity, and unequal distribution of the benefits of technological change have limited the potential size of the economy. Unfavorable corporate tax regimes and business regulations may be additional structural factors hindering business investment.

Photo: Don Denton

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