IMF’s World Economic Outlook for 2018 is Optimistic

With the global economic upswing that started mid-2016 gaining further momentum, the present global economic situation is an opportune time for policymakers to boost growth, according to the latest International Monetary Fund’s (IMF) World Economic Outlook (WEO) published on 18 April 2018. The current report predicts that while the advanced economies will continue to grow faster during 2018 and 2019 before slowing down in later years, the emerging and developing economies will also speed up, again levelling off a few years down the road.

According to the latest report, global growth is right on track to reach 3.9% during 2018-19, as was predicted in the WEO January update. This is the strongest broad-based growth since the world economy rebounded in 2010, post the financial crisis starting 2008-09. Faster growth in the US, Japan and China, would largely drive global growth during 2018-19. A favourable trade and investment environment, along with easing financial conditions would also positively impact global economic conditions.

Global Outlook

Advanced economies, as a whole are expected to grow at the rate of 2.5% during 2018, up from 2.3% during 2017. Growth in these economies is expected to moderate to 2.2% during 2019. The expansionary fiscal policy in the US and its spillover effects will drive economic growth in these economies.

World Economic Outlook Projections: Overview

                                      Source: World Economic Outlook, April 2018

Among the advanced economies, US is expected to grow the fastest at a rate of 2.9%, during 2018, a 0.6% jump from 2017, before moderating slightly at 2.7% during 2019. The growth is driven by various factors such as stronger than expected economic activity, robust external demand, fiscal policy changes and the slashing of corporate income tax from 2018.

An improved outlook can be expected during 2018 and 2019 for the Euro area as recovery in the region strengthens and excess capacity reduces on account of accommodative monetary policy. The region is expected to grow at 2.4% in 2018, up from 2.3% in 2017 before moderating to 2% during 2019.

Growth prospects for Japan remain weak with the economy expected to grow at around 1.2% during 2018, down from 1.7% in 2017. The growth rate is expected to further decline to 0.9% during 2019, primarily owing to a shrinking labour force, according to the IMF.

The emerging markets and developing economies are expected to grow strongly during the coming two years. The growth rate for these economies is projected around 4.9% during 2018, slightly higher than 4.8% during 2017. These economies are expected to further notch up the pace at 5.1% during 2019.

GDP growth in China, which was the fastest growing economy last year, is expected to slow down to 6.6 % during 2018 from 6.9% in 2017 and is expected to moderate at around 6.4% during 2019. The growth forecast is higher compared to the WEO October update on account of improvements in external demand. However, rising non-financial debt and other vulnerabilities are concerns, which may slacken the medium term growth outlook for the economy.

India is projected to regain its status of the world’s fastest growing large economy with an expected impressive rate of 7.4% in 2018, which is set to increase further to 7.8% in 2019, up from 6.7% in 2017. According to the IMF, prospects for the Indian economy are bright, propelled by strong consumption growth and structural reforms. Further, the transitory effects of reforms such as the Goods and Services Tax (GST) and demonetization are fading out.

Robust growth is projected for the ASEAN-5 (Indonesia, Malaysia, Philippines, Thailand, Vietnam) economies, which are expected to grow at the rate of 5.3% during 2018, unchanged from the 2017 rate and are expected to improve slightly to 5.4% during 2019.

Improved Global Trade Conditions

The strengthening of the global economy during 2017 was largely due to improved global trade conditions which recovered strongly in 2017 to an estimated growth rate of 4.9%. The improvement was more pronounced in the emerging markets and developing economies where trade growth improved from 2.2% in 2016 to 6.4% in 2017, that led to improved investment conditions. Advanced economies also witnessed strong domestic demand along with higher investment as a result of improved global trade conditions.

World Trade Volume Projections: Overview

                                         Source: World Economic Outlook, April 2018

Though the present situation is an opportunity to boost growth, future prospects appear challenging, notes the IMF. While the advanced economies face the challenges of unfavourable demographics with an aging population and future lower productivity, raising middle and lower income levels in other countries is also a formidable task. Moreover, increasing protectionist tendencies and retaliations is another potential risk. Therefore, policymakers must resort to forward looking policies as they prepare for these future challenges, concludes the IMF.

 

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