WB Says Global Growth Back to Pre-Crisis Level

The global lender has surprised analysts by predicting better-than-expected global growth. But the bank also warned of fading potential mainly in advanced economies due to aging populations.

According to the World Bank's Global Economic Prospects report released Tuesday, the global economy is expected to grow by 3.1% in 2018, after a better-than-expected performance in 2017 that boosted global gross domestic product by 3% last year, news outlets reported.

In its twice-yearly report, the bank noted that for the first time since the global financial crisis, all major regions of the world were experiencing an uptick in economic growth. "The current, broad-based growth acceleration is a welcome trend and could be self-reinforcing," it said.

The "highly synchronized" economic expansion across all regions includes solid growth in the big three advanced economies—the US, Japan and the EU—and improvements in the important emerging market economies. Moreover, large commodity exporting economies like Russia and Brazil are recovering amid rising prices for raw materials.

India’s GDP growth will pick up to 7.3% in 2018-19 and to 7.5% for the next two years, the World Bank report said. The bank has raised its forecast for Chinese GDP growth for 2017 to 6.8%, from the 6.7% it forecast October.

However, the report warns the upswing will be short term, with gains in improving living standards and reducing poverty levels at risk long term. For the immediate future, the bank sees a reasonably upbeat prospect.

The bank's President Jim Yong Kim said: "The broad-based recovery in global growth is encouraging". The forecast is better than what the bank was expecting in its previous assessment last June.

Among the large economies, the up-rating is especially marked for the eurozone, though the bank still thinks it will slow somewhat this year, but by less than its previous forecast.

Aging Populations a Risk Factor

World Bank economist Ayhan Kose told the news agency AFP that the ultra-lose monetary policies pursued by the world's major central banks had helped stabilize the global economy and fueled the recovery.

But Kose—who heads the bank's Development Prospects Group—warned that "downside risks continue dominating the outlook." Those included rising debt levels, which were more concerning given that central banks are beginning to raise interest rates and could do so more quickly if the recovery started to ignite inflation, he said. Another risk was "escalating trade restrictions," he added.

In its report, the World Bank also cited headwinds from aging populations in both advanced and developing economies, expecting decreased labor supply and productivity growth. "More than 84% of global GDP is currently produced by countries whose working age population shares are expected to shrink by 2030," it stated, DW said.

In order to increase potential growth and offset the impact of aging populations, the World Bank is calling on all countries to increase investment in infrastructure and their workforces, stressing that the cost of neglecting these priorities would be "sky-high."

Long-Term Growth

Emerging and developing economies will grow slightly faster than last year in this forecast. However, the bank is worried about the longer term, BBC said.

The issue is whether the world economy will have the capacity to maintain decent growth beyond the current upturn. Its potential is growing more slowly than it used to, the bank says.

That's the result of years of lackluster improvement in productivity—the amount each worker can produce—weak investment and an ageing workforce.

This slowdown in longer term prospects is widespread, the bank says. It affects countries that account for about two thirds of global economic activity.

It says government should promote reforms to improve education and health services and infrastructure—such as roads ports, electricity supplies and telecommunications networks.

Warnings on Interest Rates, Inflation

Financial markets are complacent about the risks of sharply higher interest rates that could be triggered by better than expected growth in the global economy this year, the report warned.

It said that much of the rich west was running at full capacity as a result of a broad-based upswing in activity, but were now vulnerable to a period of rising inflation that would prompt action from central banks.

The lead author of the report, Franziska Ohnsorge, said: “There could be faster than expected inflation that would mean faster than expected interest rate hikes.” He added that stock markets were at levels similar to those seen before the Wall Street Crash of 1929, while bond markets were assuming that low inflation would keep official borrowing costs down.

“Financial markets are vulnerable to unforeseen negative news. They appear to be complacent,” she said.