World Bank official: Global economies in cyclical upturn

KUALA LUMPUR: Global economies are experiencing a broad-based cyclical upturn as the output gap is narrowing significantly, according to World Bank Development Prospects Group director Ayhan Kose.

He said the gap between the world economies’ potential output production and real output had been closing for the first time in a decade. This trend largely indicates a pick-up in global production and economic growth.

“From what we have seen last year, the world has experienced synchronised growth in both advanced and emerging economies. Moving into 2018, the economic recovery is expected to continue, aided by a rebound in investment and trade.

“More than 50% of countries globally will see higher economic growth this year compared to last year. Given such expectations in place, the World Bank projects the world economy to strengthen by 3.1% year-on-year (y-o-y) compared to the estimated 3% growth in 2017,” he said.

Kose was speaking to reporters after the World Bank’s briefing on its flagship report “Global Economic Prospects: Broad-based Upturn, but for How Long?”

The World Bank expects the overall gross domestic product (GDP) of emerging economies to accelerate by 4.5% y-o-y in 2018, slightly higher than the forecast 4.3% growth last year. This mainly reflects a further pick-up of growth in commodity exporters, as oil and other commodity prices firm and the effects of the earlier commodity price collapse dissipate.

Meanwhile, the advanced economies’ GDP growth will likely moderate to 2.2% in 2018 from 2.3% a year earlier. The moderation in economic growth can be attributed to the unwinding of a cyclical upturn in investment and further normalisa- tion of monetary policy, as the advanced economies’ output gap closes.

Kose pointed out that confidence among consumers and businesses around the world has been improving, surpassing the positive level of 100 points.

“Driven by the improvement in consumer and business confidence globally, maybe this indicates that there could be an upside risk, with the global economy performing even better than what we have envisioned for the next two to three years,” he said.

However, despite the positive improvements seen in global economic conditions, Kose urged governments to implement necessary policies as “buffers” against any potential economic crisis, moving forward.

“We observed that economic crises have taken place in every decade since the 1970s. With the last economic crisis experienced in 2008, it is important for govern- ments around the world to take precautionary measures to weather any impact from a future economic crisis.

“While this does not mean that an economic crisis will happen in the near future, it is a good idea to make sure that we have a resilient financial system. Apart from that, it is important for us to have adequate policy space to implement the types of policies necessary to stimulate the economy, in the event of an economic crisis,” he said.

Commenting on Malaysia’s economic performance, Kose said that the country had registered stellar growth last year, driven by a strong trade momentum, which would likely continue in 2018.

“Malaysia’s economy is more diverse today than what we have seen over the last 20 years, supported by stronger institutions and macro-economic policy framework. Hence, the country will continue delivering robust growth in the near future,” said Kose.