Global Economy Reviews

07.06.2017 11:34 World Economy Review - May 2017

The World Bank forecasts that global economic growth will strengthen to 2.7 percent in 2017 as a pickup in manufacturing and trade, rising market confidence, and stabilizing commodity prices allow growth to resume in commodity-exporting emerging market and developing economies.

According to the World Bank`s June 2017 Global Economic Prospects, growth in advanced economies is expected to accelerate to 1.9 percent in 2017, which will also benefit the trading partners of these countries. Global financing conditions remain favorable and commodity prices have stabilized. Against this improving international backdrop, growth in emerging market and developing economies as a whole will pick up to 4.1 percent this year from 3.5 percent in 2016.

Growth among the world`s seven largest emerging market economies is forecast to increase and exceed its long-term average by 2018. Recovering activity in these economies should have significant positive effects for growth in other emerging and developing economies and globally.

Nevertheless, substantial risks cloud the outlook. New trade restrictions could derail the welcome rebound in global trade. Persistent policy uncertainty could dampen confidence and investment. Amid exceptionally low financial market volatility, a sudden market reassessment of policy-related risks or of the pace of advanced-economy monetary policy normalization could provoke financial turbulence. Over the longer term, persistently weak productivity and investment growth could erode long-term growth prospects in emerging market and developing economies that are key to poverty reduction.

"For too long, we`ve seen low growth hold back progress in the fight against poverty, so it is encouraging to see signs that the global economy is gaining firmer footing, World Bank Group President Jim Yong Kim said. With a fragile but real recovery now underway, countries should seize this moment to undertake institutional and market reforms that can attract private investment to help sustain growth in the long-term. Countries must also continue to invest in people and build resilience against overlapping challenges, including climate change, conflict, forced displacement, famine, and disease.

The report highlights concern about mounting debt and deficits among emerging market and developing economies, raising the prospect that an abrupt rise in interest rates or tougher borrowing conditions might be damaging. At the end of 2016, government debt exceeded its 2007 level by more than 10 percentage points of GDP in more than half of emerging market and developing economies and fiscal balances worsened from their 2007 levels by more than 5 percentage points of GDP in one-third of these countries.

The reassuring news is that trade is recovering, said World Bank Chief Economist Paul Romer. The concern is that investment remains weak. In response, we are shifting our priorities for lending toward projects that can spur follow-on investment by the private sector.

A bright spot in the outlook is a recovery in trade growth to 4 percent after a post-financial crisis low of 2.5 percent last year. The report highlights a key area of weakness in global trade, trade among firms not linked through ownership. Such trade through outsourcing channels has slowed much more sharply than intra-firm trade in recent years. This is a reminder of the importance of a healthy global trading network for the less integrated firms that account for the majority of enterprises.

After a prolonged slowdown, recent acceleration in activity in some of the largest emerging markets is a welcome development for growth in their regions and for the global economy, said World Bank Development Economics Prospects Director Ayhan Kose. Now is the time for emerging market and developing economies to assess their vulnerabilities and strengthen policy buffers against adverse shocks.

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06.05.2017 13:56 World Economy Review - April 2017

The global economy is expected to grow 3.5 percent this year, the International Monetary Fund (IMF) said in its World Economic Outlook report.

That figure is up from the previous estimate of 3.4 percent as the bank cited "buoyant financial markets and a long-awaited cyclical recovery in manufacturing and trade under way. It kept its 2018 global growth forecast unchanged at 3.6 percent.

There are still risks, however, against the world economy, such as low productivity growth, high income inequality, inward-looking policies in advanced economies, and the U.S.`s Federal Reserve raising rates faster than expected.

Expectations for the U.S. economy were left unchanged at 2.3 percent for 2017 and 2.5 percent for the following year, but the IMF revised upwards its forecast for most major economies.

The eurozone is estimated to expand by 1.7 percent in 2017, instead of 1.6 percent, while Germany, France and Italy were each revised up 0.1 points to 1.6 percent, 1.4 percent, and 0.8 percent, respectively. The U.K. is anticipated to grow 2 percent this year, instead of 1.5 percent.

Japan`s forecast was revised up 0.4 points to 1.2 percent. The Russian economy is expected to expand 1.4 percent this year instead of 1.1 percent, while 2017projections for China was raised to 6.6 percent from 6.5 percent.

Turkey`s economy is expected to contract to 2.5 percent from 2.9 percent, but the bank kept 2018 forecasts unchanged at 3.3 percent.

Turkey`s outlook "is clouded by heightened political uncertainty, security concerns, and the rising burden of foreign-exchange-denominated debt caused by the lira depreciation," the IMF said.

The IMF also warns of headwinds that could weaken its global projections. The organization highlights the possibility of protectionism and what the report calls "trade warfare".

However, the dominant tone of the report is rather sunnier than it has been for some time. For much of the period since the financial crisis of 2008 the IMF has worried that the recovery was failing to generate momentum.

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09.04.2017 12:46 World Economy Review - March 2017

Global debt rose to 325 per cent of the world`s gross domestic product (GDP) in 2016, totaling $215 trillion (172.39 trillion pounds), an Institute for International Finance (IIF) report showed, boosted by the rapid growth of issuance in emerging markets.

Global debt grew by $7.6 trillion in 2016 compared with the prior year. Issuance rose from 320 per cent of GDP in 2015.

Emerging market debt saw a "spectacular rise" to $55 trillion outstanding in 2016, equal to 215 per cent of their GDP. This was driven mostly by non-financial corporate debt, the report said.

Emerging markets have raised nearly $40 trillion of new debt between 2006 and 2016, a significant acceleration from the roughly $9 trillion added between 1996 and 2006, according to the report.

Global debt has risen more than $70 trillion in the last decade to a record high for debt issuance, the institute said.

Developed market countries accounted for $160 trillion, the lion`s share of global debt, reaching nearly four times, or 390 per cent of those markets` combined GDP.

The report found that the $32 trillion increase in developed market debt had been driven largely by governments, with the US and UK public sector debt having more than doubled since 2006. Japan and developed markets in Europe have seen an increase of about 50 per cent in the dollar value of their outstanding government debt.

The majority of the increase in emerging market indebtedness has been in local currency, which was more than $48.5 trillion as of the end of 2016 from around $43 trillion in 2015.

The world is racking up a record level of debt, much of it driven by emerging markets. But with interest rates in the U.S. heading up, the excessive reliance on easy money to drive economic growth can backfire on countries that depend on money flows from abroad.

The global debt pile has climbed to $215 trillion in 2016, an increase of $70 trillion from a decade ago, according to a report published Monday by the International Institute of Finance.

Once minor players in global lending markets, developing-market nations have benefited from international investors willing to invest in assets from markets perceived as riskier in search of relatively richer returns, or income, as ultralow and subzero interest rates from quantitative easing snatched away easy returns from safe assets like U.S. Treasurys.

The published findings confirms worries that the global economy has binged on debt, even if the usual suspects may have changed. Most of the recent concern among investors over growing debt levels has been targeted toward the high-income countries of the West.

The U.S. has continued to bump against the debt ceiling, raising concerns that it will no longer have the economic or political wherewithal to pay back the interest and principal on its debt. Greece has struggled to pay its creditors, and Italy is trying to bail out its big banks saddled with bad loans.

In fact, much of this precipitous rise has come from emerging markets. In the past decade, emerging markets have issued $40 trillion of additional debt.

Higher domestic rates and a stronger U.S. dollar pose headwinds for those emerging markets with a debt-driven growth model, wrote the authors of the report, titled Eye-watering rise in debt levels.

A tightening interest-rate cycle in the U.S. can result in a pull-back in portfolio flows, sparking a credit crunch. And a rising U.S. currency can make it more expensive for overseas borrowers to pay back investors in dollars when the money earned to pay back the interest is denominated in a weakening currency.

Particularly worrying is the rapid growth in corporate credit. Principal culprits of the boom in corporate lending include China, Turkey and Saudi Arabia. Bonds from such issuers have already been hit by a combination of slowing growth, heightening political turmoil and dipping energy prices.

Though an accumulating debt mound can trouble investors concerned over possible defaults, the credit profile for emerging markets has improved as corporate credit grades have recovered since the first half of 2016, according to an average of S&P`s, Moody`s and Fitch`s ratings compiled by Bloomberg.

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06.03.2017 21:26 World Economy Review - February 2017

The Organization for Economic Co-operation and Development (OECD) stated that the United States, Japan, Germany and France are all showing signs of economic growth. Forecasts from the OECD are expecting GDP growth in the aforementioned countries to pick up.

The Paris-based organization said its leading indicator (CLI) which purpose is to signal early hints of turning points in economic activity, remained just below its long-term average of 100 at 99.9 for the second consecutive month.

Here are the readings for the following countries:

United States - reading climbed from 99.3 in November 2016 to 99.4 the next month.

Japan - November`s reading was at 100 and rose to 100.1 in December.

Germany - From 100.3, the reading moved higher to 100.5.

France - its November reading of 100.5 edged up 100.6 in the succeeding month.

Meanwhile, Britain`s reading recovered to 99.5 in December from 99.3 in the preceding month.

The OECD described the country as having indefinite indications of accelerating growth, adding that terms regarding its withdrawal from the European Union still affect the British economy negatively.

In the United Kingdom, there are tentative signs of growth gaining momentum, although the CLI remains below trend and uncertainty persists about the nature of the agreement the UK will eventually conclude with the EU, the organization said.

Elsewhere, after a deep recession, Portugal`s economy is steadily recovering thanks to a broad structural reform agenda that has led to improving economic growth, declining unemployment numbers and impressive progress in export performance.

According to a report from the OECD, keeping the momentum for additional reforms is vital to address the remaining challenges and bring about stronger and more inclusive growth.

Additionally, the latest OECD Economic Survey of Portugal also indicates the necessity to lower high levels of public and private sector indebtedness and address non-performing loans in the banking system, which are hindering investment and restraining growth and productivity. The share of non-performing loans in the financial sector makes up over 12% of total loans and is one of the highest levels among European countries.

In Europe, Portugal still has one of the most unequal income distributions. The survey said that the country would need to overcome its legacy of a low-skilled labor force. Enhancing the skills of all Portuguese citizens will definitely boost growth, and will be essential in addressing the inequality.

The OECD also reported that economic inequality has accelerated faster in Sweden than any other developed country in recent decades as top earners have cashed in on growing asset prices while immigrants and unemployed citizens have been left behind.

Nonetheless, the gap between top and bottom earners remains tighter in the Nordic nation than most countries, the OECD added.

However, while real incomes for the wealthiest 5% of the Swedish population have risen nearly 70% since 1990, the poorest 5% have only witnessed a 10% growth.

Income inequality rose more rapidly than in any other OECD country since the 1990s, the OECD report read. The rise in income inequality needs to be contained.

Sweden has been widely regarded as an example of a country that demonstrated fairness and equality, using high taxes to stabilize income difference and support the poorer citizens through high welfare spending.

A rising stock market since deregulation in 1990s and soaring house prices have benefited those with financial assets, however, while fortunate capital gains taxes in relation to income taxes have further benefited the rich.

The OECD also indicated that increases in benefits have slumped wages while high levels of entry wages makes it tough for several lower-skilled individuals, usually many of whom are foreigners, to get jobs.

More than 30% of the foreign born fell below the poverty line, the OECD reported.

The government stated that the Swedish population rose by over 100,000 in 2014 - the result of a then-record high immigration of 127,000 and births outnumbering deaths.

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07.02.2017 22:02 World Economy Review - January 2017

The global economy was set to accelerate over the next two years but there were uncertainties around exactly what policies the US would put in place and several emerging market economies were now seen growing more slowly, the International Monetary Fund said.

In an update of its October 2016 World Economic Outlook forecasts, the IMF said global gross domestic product would expand at a 3.4% clip in 2017 and by 3.6% in 2018, which was unchanged from its prior projections.

The new set of forecasts included assumptions for a changed policy mix in the States and a higher price of oil, the Fund said. However, advanced economies were now seen expanding slightly more quickly and emerging ones, where financial conditions have generally tightened, a tad more slowly.

Among the former, the IMF now expected saw the US growing at a pace of 2.5% in 2018, which was four tenths of a percentage point more than previously expected.

In parallel, the UK was seen growing 1.4% in that year, versus a prior forecast of 1.7%. That was more than offset by an upwards revision to the IMF`s 2017 projection from 1.1% to 1.5%. Italy on the other hand was now seen growing less in both 2017 and 2018, by 0.7% and 0.8%, respectively, instead of by 0.9% and 1.1%.

Emerging market and developing economies would grow by 4.5% and 4.8% over those same two year, with the former being one tenth of a percentage point less than previously anticipated.

Growth expectations for the Asean-5 and India in 2017 were marked down, as well as those for Latin America and the Caribbean and the Middle East for both years.

Saudi Arabia fared particularly poorly, with the Fund`s economists` new forecasts calling for an expansion of 0.4% and 2.3%, which were 1.6 and 0.3 percentage points than the IMF said in October.

At 0.2%, Brazil`s economy was now seen expanding 0.3 percentage points less quickly in 2017. Mexico would also grow 0.6 percentage points less in both years, with GDP increasing 1.7% and 2.0%.

On a more positive note, the forecast for Chinese GDO growth in 2017 was revised from 6.2% to 6.5%. Despite its markdown for India, the Subcontinent was still seen clocking in with growth of 7.2% and 7.7% over the same time horizon.

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