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09/01/2018 - 19:29hs

World Bank changes up global GDP growth forecast

The institution sees the world’s economy widening by 3.1%, following stronger-than-expected growth in 2017. Forecasts regarding Brazil, the Middle East and North Africa have also changed for the better.

São Paulo – The World Bank revised up its 2018 Gross Domestic Product (GDP) growth forecasts for the world, as well as Brazil and the Middle East & North Africa region. In its World Economic Outlook report, released this Tuesday (9) in Washington, D.C., it estimates that global GDP will widen by 3.1% in 2018, up from a prior 3% forecast issued in 2017.

The forecast for this year is up 0.2 percentage point from the one made last June, whereas 2017 growth was revised up by 0.3%. According to the World Bank, last year saw much stronger growth than expected.

The bank believes that in 2018, the world’s economy will for the first time operate at full or near-full capacity since the international financial crisis that broke out in 2008. As a result, the World Bank claims growth could be short-term, since potential growth – i.e. the gap between how much an economy actually grows and what it could grow – is diminishing.

This gap is about to become narrower. In view of this scenario, the World Bank says governments must work on more than simply their monetary and fiscal policies. “This is a great opportunity to invest in human and physical capital,” a World Bank Group press release quoted president Jim Yong Kim as saying.

“Reforms that promote quality education and health, as well as improve infrastructure services could substantially bolster potential growth, especially among emerging market and developing economies”, said World Bank senior director for Development Economics Shantayanan Devarajan. He noted, however, that some of these reforms will meet resistance from politically powerful groups.

In the short term, emerging and developing economies are expected to grow by 4.5% this year – up from a prior 4.3% forecast –, which should pick up to 4.7% in 2019 and 2020. Continuous recovery is expected in commodity-exporting countries.

Brazil and Arab countries

As for Brazil, the World Bank estimates 2% growth in 2018, up 0.2 percentage point from last June’s forecast. Brazil’s 2017 GDP  growth was revised up 0.7 percentage point to 1%, with an expected 2.3% in 2019 and 2.5% in 2020.

According to the World Bank, Brazil is growing again “following a deep two-year-long recession, supported primarily by recovering private consumption.” However, “political uncertainty” threatens this scenario. This year, elections will be held for president, state governors, senators, and federal and state-level congressmen.

Growth across the Middle East and North Africa slowed to 1.8% in 2017 after hitting 5% in 2016. This was brought about by weaker oil output – the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC member countries agreed to slash output to drive prices up – as well as by ongoing geopolitical tensions, i.e. the conflicts taking place in the region.

Fiscal adjustments in Saudi Arabia and the blockade on Qatar by neighboring countries were other factors.

The World Bank expects the MENA region to grow by 3% this year and 3.2% in 2019. Forecasts for this year and the next moved up 0.1 percentage point from the July 2017 report, with tensions expected to ease and oil prices seen going up slightly. A looser fiscal environment and infrastructure investments are also expected in the lead-up to events such as Expo 2020, the world exhibition which Dubai is set to host.

Risks facing the region include the escalation of conflicts and cheaper-than-expected oil prices.

*Translated by Gabriel Pomerancblum

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