Global economy should do well until 2020: World Bank

The momentum gained in the global economy with the synchronized upturn in most countries is expected to continue in the next few years, a senior World Bank official said Wednesday. 

In an interview with Anadolu Agency, World Bank Development Economics Prospects Group Director Ayhan Kose painted a positive outlook for the global economy, which seems to be enjoying a cyclical upturn after years of anemic growth. 

His remarks came a day after the publication of the World Bank’s flagship report, “Global Economic Prospects,” where the growth forecast for this year was revised to 3.1 percent, up 0.2 percentage point from the previous estimate announced last June. 

“We think the single most important difference from the June report is better-than-expected [economic] activity in many parts of the world and how we upgraded our forecasts.” Kose said. 

The highly synchronized acceleration brought upward revisions to growth expectations for major advanced and developing economies, including the United States, the Euro Area, Japan, China, Russia and Turkey. 

The forecast for the Euro Area was up by 0.7 points to 2.4 percent for last year and by 0.6 points to 2.1 percent for this year. 

“In the context of the Euro Area, there has been significant policy accommodation for an extended period of time. We think we are seeing the fruits of that,” Kose said. 

The forecasts for the United States were also upgraded, though not by as much. The U.S. economy is estimated to have grown by 2.3 percent in 2017, 0.2 points higher than previously expected, and 2018’s forecast was revised up to 2.5 percent from 2.2 percent. 

The higher growth expectations for the U.S. reflected the increase in private investment and recently legislated corporate and income tax cuts, according to the GEP report. 

“We think this will help improve the growth in the short run and have spillovers to the rest of the world. It will also bring the U.S. tax code closer to international standards.” Kose said. 

The World Bank also raised its forecast for China by 0.3 points to 6.8 percent in 2017 and expects 6.4 percent GDP expansion in 2018. 

“This synchronized upturn we see around the world is a welcome development” Kose said. “We think the recovery is firming and the momentum is there that we would see the global economy doing well for the next two to three years.” 

The Washington-based lender expects monetary policy normalization to continue in a gradual fashion. 

“In the U.S., this year we expect three rate hikes. As the economy registers a robust growth and the Federal Reserve communicates its policies clearly, we think this would be a healthy development for other economies,” Kose said. 

The expectation of three rate hikes in 2018 matches the latest projections of the Federal Reserve. At their December meeting, Fed officials penciled in three 25-basis-point rate hikes for this year. 

Kose, however, cited a sudden increase in borrowing costs, which could be triggered by faster than expected normalization, as the number one risk.

“Emerging markets need to be ready for the increase in borrowing costs given that there is momentum and a process is underway for the normalization of monetary policy” 

While the rise of protectionist sentiments and geopolitical tensions are also among the risks in the near term, the single most important risk is the weakness in potential growth in the medium and long term, Kose said. 

“It is going to be critical to undertake structural policies to improve human capital and physical capital and productivity.”