Uncertainty over US policy could impede global investment growth — World Bank
The World Bank has warned that policy uncertainty in major economies including the United States could further slow growth in investment across global economies.
In the January 2017 Global Economic Prospects report released yesterday, the World Bank noted that while growth in emerging market and developing economies as a whole should pick up to 4.2 per cent this year from 3.4 per cent in the year just ended – amid modestly rising commodity prices – the outlook is clouded by uncertainty about policy direction in major economies, including the United States.
The bank added that a protracted period of uncertainty could prolong the slow growth in investment that is holding back low-, middle-, and high-income countries.
“After years of disappointing global growth, we are encouraged to see stronger economic prospects on the horizon,” World Bank Group President Jim Yong Kim stated in a release from the World Bank. “Now is the time to take advantage of this momentum and increase investments in infrastructure and people. This is vital to accelerating the sustainable and inclusive economic growth required to end extreme poverty.”
“Because of the outsize role the United States plays in the world economy, changes in policy direction may have global ripple effects. More expansionary US fiscal policies could lead to stronger growth in the United States and abroad over the near-term, but changes to trade or other policies could offset those gains,” added World Bank Development Economics Prospects Director, Ayhan Kose. “Elevated policy uncertainty in major economies could also have adverse impacts on global growth.”
The report analyses the worrisome recent weakening of investment growth in emerging market and developing economies, which account for one-third of global GDP and about three-quarters of the world’s population and the world’s poor.
Investment growth were projected to have fallen to 3.4 per cent in 2015 from 10 per cent on average in 2010, and likely declined another half percentage point last year.
According to the bank, slowing investment growth is partly a correction from high pre-crisis levels, but also reflects obstacles to growth that emerging and developing economies have faced, including low oil prices (for oil exporters), slowing foreign direct investment (for commodity importers), and more broadly, private debt burdens and political risk.
“We can help governments offer the private sector more opportunities to invest with confidence that the new capital it produces can plug into the infrastructure of global connectivity,” said Chief Economist Paul Romer.
“Without new streets, the private sector has no incentive to invest in the physical capital of new buildings. Without new work space connected to new living space, the billions of people who want to join the modern economy will lose the chance to invest in the human capital that comes from learning on the job.”
Nonetheless, the World Bank’s global economic growth is forecast to accelerate moderately to 2.7 per cent in 2017 after a post-crisis low last year. Growth in advanced economies is also expected to edge up to 1.8 per cent in 2017, while emerging markets and developing economies growth rate trends upwards. Among advanced economies, growth in the United States is expected to pick up to 2.2 per cent, as manufacturing and investment growth gain traction after a weak 2016.
It added that although several countries in Latin America and the Caribbean experienced equity market turbulence and currency depreciation following the US elections, the outlook for the region is projected to return to positive growth in 2017 and expand by 1.2 per cent.
Jamaica is estimated to produce GDP growth of 2.0 per cent by the end of the year and 2.3 per cent for 2018.
However, over the fiscal year 2016, economic growth across the Latin American and Caribbean region is estimated to have contracted 1.4 per cent, according to the bank. It’s the second consecutive year of recession and the first multi-year contraction in more than 30 years. Throughout the Caribbean, growth is estimated to have slowed to 3.2 per cent.