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October 23, 2018

World Bank expects global economic growth to accelerate to 3.1% in 2018

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global economic growthThe World Bank expects global economic growth to accelerate to 3.1% in 2018 after stronger 2017. According to the new Global Economic Prospects annual report for 2018, the investment recovery, production and trade is continuing, and emerging economies relying on exports benefit from rising raw material prices.

The institution, however, considers this to be largely a short-term improvement. “In the long run, the slowdown in potential growth puts at risk the improvement of living standards and the reduction of poverty in the world”, warns the report. The global growth is projected to slow down to 3.0% in 2019 and 2.9% in 2020.

Growth in developed economies is expected to moderate slightly to 2.2% in 2018, while central banks are gradually removing incentive programs. However, the emerging market economy will continue to strengthen and accelerate its expansion to 4.5% in 2018, while exporters of raw materials continue to recover.

Positive, according to the World Bank, is that 2018 may be the first year after the financial crisis, in which the global economy will operate at almost full speed. It is expected that the stagnation in the economy will be dismantled, so central bankers will have to rethink their monetary and fiscal instruments to stimulate growth and consider initiatives that would support the long-term potential.

The slowdown in potential growth over the longer term is due to years of weakening productivity growth, weak investment, and an aging working-age population. The slowdown will spread widely, affecting economies that account for over 65% of global GDP.

“Without an effort to revive potential growth, the decline may continue over the next decade and slow global average growth by a quarter percentage point and the average growth of emerging markets and emerging economies – by half a percentage point over that period”, says the World Bank.

With regard to Europe and Central Asia, according to the Bank, the economy has expanded to 3.7% in 2017 compared to previous projections of 1.3%. The expectations for 2018 are that the region’s growth will slow down sharply to 2.9% this year and reach 3.0% over the next two years.

According to the report, Russia and Turkey have contributed most to the expansion of the region’s economy in the past year. Russia marks an economic growth of 1.7% after two years of recession thanks to stabilizing oil prices, monetary policy and weaker inflation. Turkey’s growth has jumped to 6.7% in 2017 from 3.2% in the previous year thanks to the fiscal stimulus.

The expectations for Russia are that the economy will continue to expand at a similar pace in this and next two years, but in Turkey growth will slow down sharply this year to 3.5%.

“The Eurozone gained significant momentum in 2017, reaching a growth of 2.4% – by 0.7% more than previous expectations”, said the World Bank. There are a number of improvements among Member States, supported by political incentives and strengthening global demand. Private sector lending particularly responds to the European Central Bank’s stimuli and the growth of domestic demand and imports also remains robust.

The Bank expects the cyclical improvement to continue in 2018, albeit at a more limited pace. The economy of the region will expand by 2.1% in 2018 and by 1.6% in 2019-2020.

As for the US, the assessment of the report is that the country’s economy will also slow down in the coming years, despite the recent tax reform and other measures. According to bank forecasts, growth has reached 2.3% in 2017, and this year will slightly accelerate to 2.5% but will slow to 2.2% and 2.0% over the next two years.

With regard to China, the estimate shows an increase of 6.8% in 2017, an upward correction against the June forecast, reflecting continued fiscal support and the effects of reforms, as well as a stronger than expected recovery in exports. However, growth is expected to slow down to 6.4% this year due to an average tightening of policies to 6.3% in 2019 and 2020.

The World Bank has sharply raised its forecast for the economic growth of Bulgaria as well. The country’s economy will expand by 3.9% in 2018 and by 4.0% in 2019, before again slowing down to 3.9% in 2020. Also the Bank revised its assessment of Bulgaria’s economic growth for the past year to 3.8%.

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