World economy Prospects for global macroeconomic development for 2018.
As the storm of the global financial crisis subsides, policy makers have more room to deal with longer-term issues that hold back sustainable development
The last decade has been marked by a series of economic crises and negative events, from the global financial crisis of 2008-2009, through the European sovereign debt crisis of 2010-2012, to the readjustment of world prices of products 2014-2016 basics. As these crises subside and the persistent tensions that accompanied them, the global economy has strengthened, thus allowing greater room for maneuver to reorient policies towards longer-term issues that slow down progress in the economy, social and economic dimensions. of sustainable development.
It is estimated that in 2017 world economy growth has reached 3.0%, a percentage that represents a strong acceleration compared to the meager 2.4% in 2016 and constitutes the highest global growth rate registered since 2011. Labor market indicators continue improving in a wide range of countries, and around two thirds of the countries in the world have grown more in 2017 than in the previous year. Worldwide, it is expected that in 2018 and 2019 growth will remain stable at 3.0%.
The strengthening of the economy has been uneven in the different countries and regions
The recent acceleration in the gross world product is mainly due to the more stable growth of several developed economies, although East Asia and South Asia remain the most dynamic regions in the world. Cyclical improvements in Argentina, Brazil, the Russian Federation and Nigeria as these economies overcome the recession also explain approximately one third of the increase in the global growth rate between 2016 and 2017. However, the economic benefits of The last few years continue to present an unequal distribution by countries and regions, and in many parts of the world the economy has not yet returned to growth at vigorous rates. The economic outlook remains bleak for many commodity exporters, underscoring the vulnerability to the cycles of expansion and contraction of countries that rely heavily on a small number of natural resources. In addition, the long-term global economic potential is dragging down the drag on the long period of low investment and weak productivity growth that followed the global financial crisis.
Conditions for investment have improved, but greater uncertainty about policies and rising levels of indebtedness could prevent a more widespread rebound in investment
In general, conditions for investment have improved in a context of low financial instability, less weakness in the banking sector, recovery of some commodity sectors and better global macroeconomic prospects. Financing costs are generally still low and spreads have decreased in many emerging markets as a result of lower risk premia. All this has contributed to increasing the inflow of capital flows into emerging markets, including the increase of cross-border loans, and to strengthening the expansion of credit in developed and developing economies.
The improvement of economic conditions has generated a modest reactivation of productive investment in some of the major economies. Around 60% of the acceleration of global economic activity in 2017 was due to gross fixed capital formation. This improvement is due to the fact that the starting point was very low, after two years of very weak growth in investment, and because world investment had been scarce for a prolonged period. The firm and wide recovery of investment activities, necessary to promote greater productivity growth and accelerate the achievement of the Sustainable Development Goals, could be hampered by the great uncertainty regarding trade policies and the repercussions of the adjustment of the balances of the main central banks, as well as the upward progression of indebtedness and longer-term financial weaknesses.
The rebound in world trade could diminish if protectionist tendencies increase
World trade rebounded in 2017. During the first eight months of the year, world merchandise trade grew at the fastest rate since the end of the crisis. This recovery is mainly due to the growth in demand for imports in East Asia, as domestic demand increased in the region, encouraged by accommodative policies. In several of the main developed economies, imports of capital goods have increased again thanks to the fact that companies have taken advantage of the best investment conditions.
Recent adjustments in some of the most important trade relations, such as the decisions of the United Kingdom of Great Britain and Northern Ireland to leave the European Union and the United States of America to renegotiate the North American Free Trade Agreement and the re-evaluating the provisions of their other trade agreements in force, have caused concern about the possible escalation of trade barriers and disputes. Also, trade barriers and disputes could intensify if other countries respond with retaliation. An increasingly restrictive business environment could reduce the growth prospects in the medium term, due to the interdependence that exists between trade, investment and productivity growth. In this context, policies should focus on defending and reactivating multilateral trade cooperation and highlighting the benefits that can be obtained from trade in services.
Progress towards the achievement of sustainable development
The weak increase in per capita income hinders the achievement of sustainable development goals in several regions
The uneven pace of the global economy recovery continues to raise concerns about the prospects of meeting the Sustainable Development Goals. Many countries have even suffered setbacks due to the decline in average incomes in four large developing regions in 2016.
For the period 2017-2019 more problems are expected and an insignificant growth of gross domestic product (GDP) per capita in Central, Southern and Western Africa, Western Asia and Latin America and the Caribbean. In all of these regions, 275 million people live in extreme poverty, which underscores the importance of addressing some of the longer-term structural problems that hinder progress towards achieving sustainable development, as well as not hinder the achievement of the goals of eradicating poverty and creating decent jobs for all. If these issues are not addressed, a quarter of the population of Africa could live in extreme poverty by 2030.
In order to boost the growth of LDCs, financial resources and progress are needed to correct institutional deficiencies and solve security problems.
It is expected that very few Least Developed Countries (LDCs) achieve the Sustainable Development Goal target for “at least 7%” GDP growth in the short term. To get closer to that goal, many LDCs will require higher levels of investment. The necessary financial resources can be obtained from various combinations of national and international, public and private funding sources. However, many LDCs do not achieve faster progress due to institutional and basic infrastructure deficiencies, high exposure to climate-related crises and natural disasters, and difficulties related to security and political uncertainty. These obstacles must be overcome in order to effectively channel available resources towards productive investment.
The acceleration of economic growth makes it more necessary to examine its relationship with environmental sustainability
The acceleration of economic growth also entails environmental costs. Climate-related crises are becoming more frequent, which underscores the urgency of building resilience to climate change and curbing environmental degradation. While they remained stable between 2013 and 2016, it is possible that global carbon emissions related to energy will increase now that GDP grows stronger again.
Emissions from international maritime and air transport, which fall outside the scope of the Paris Agreement, have increased more rapidly than those of road transport in the last 25 years and have grown steadily since 2013. Despite the fact that of air and maritime transport, measures against atmospheric pollution have been strengthened; it is not clear that current policies are sufficient to reduce emissions to levels that meet the objectives set in the Paris Agreement.
The transition to sustainable energy remains gradual
The transition to sustainable energy is advancing slowly. Renewable energies represent more than half of all recently installed energy capacity, but they only account for around 11% of the energy generated worldwide. China maintains its global leadership in investment in renewable energy, a sector in which investment will be reinforced in 2018 through the execution of giant wind energy projects in Germany, Australia, China, the United States, Mexico and the United Kingdom. In the current context, in which many countries, especially in Africa, continue to suffer serious shortages of energy supply, there is a great opportunity to lay the foundations for environmentally sustainable growth in the future through appropriate policies and investments.
Uncertainties and risks
The economic outlook remains dependent on changes in trade policies, the sudden deterioration of global financial conditions and the growing geopolitical tensions
Although many of the weaknesses derived from the global financial crisis are less vehement, some uncertainties and risks hover over the horizon. The high political uncertainty continues to overshadow the prospects for global trade, development assistance, migration and climate goals, and could delay the broader rebound in global investment and productivity. Growing geopolitical tensions could sharpen the trend towards more unilateral and isolationist policies. Likewise, the prolonged period of abundant liquidity and low cost of indebtedness has contributed to an additional increase in global indebtedness and rising financial imbalances, and is also linked to current asset prices, which are high and suggest an undervaluation of the risk.
Many developing economies, especially those whose capital markets are more open, remain vulnerable to the sudden increase in risk aversion, the disorderly tightening of liquidity conditions worldwide and the unexpected exit of capital. The normalization of the monetary policies of the developed economies could provoke this situation. At present, the central banks of the developed economies operate in an almost unknown terrain, since they lack historical precedents that serve as a guide. In this situation, any adjustment in financial markets is less predictable than in previous recovery periods and multiplies the risks associated with policy errors.
The challenges related to policies and the way forward
The simultaneous recovery of major economies, the stability of financial markets and the lack of significant negative events provide opportunities to reorient policies
Although some risks and uncertainties persist, the outstanding features of the current environment of the economy are a greater simultaneity of the economic cycles of the main economies, the stability of financial market conditions and the absence of negative events, such as the large changes in the prices of basic products.
As the conditions favoring the more generalized stability of the world economy consolidate, the need to focus policy measures on the consequences of the economic crisis and short-term macroeconomic stabilization diminishes. Together with the improvement of the conditions for investment, this fact broadens the room for maneuver to reorient policies towards longer-term issues, such as improving the environmental quality of economic growth, making it more inclusive, and remedying the institutional deficiencies that impede development.
Reorienting policies to address these challenges and maximizing the complementary benefits among development objectives can boost investment and job creation, and also generate more sustainable economic growth in the medium term. Current investment in areas such as education, expanding access to health care, fostering resilience to climate change, improving the quality of institutions and promoting financial and digital inclusion will favor economic growth and the creation of short-term employment. It will also accelerate progress towards the achievement of social and environmental objectives and increase the chances of achieving sustainable growth in the longer term.
The reorientation of policies should be developed along four specific axes, namely, increasing economic diversification, reducing inequality, strengthening the financial architecture and remedying institutional deficiencies.
Policymakers should take advantage of the current macroeconomic context to focus on four concrete axes. In the first place, it can not be stressed enough that it has been necessary for a long time to diversify the economy of countries that continue to depend in excess of a small number of basic products. This is confirmed by the large economic costs associated with recent readjustments in world commodity prices.
Stopping and correcting the increase in inequality is also vital for growth to be balanced and sustainable from now on. This requires combining short-term policies aimed at raising the standard of living of the most disadvantaged with longer-term policies designed to combat inequality of opportunities, such as investment in early childhood development, expanding access to assistance health and education, and investment in rural roads and electrification.
The third fundamental axis is to harmonize the global financial architecture with the 2030 Agenda for Sustainable Development and the Addis Ababa Action Agenda. To do this, it is necessary to create a new framework for sustainable financing and gradually move from focusing on the short-term benefit to prioritizing the goal of creating long-term value, in a socially and environmentally responsible way. Macro-prudential policies well coordinated with monetary, fiscal and exchange-rate policies can help to achieve these objectives by promoting financial stability and avoiding the increase of financial risks.
Finally, weak governance and political instability continue to pose serious obstacles to the implementation of the 2030 Agenda for Sustainable Development. At the same time, the strengthening of world economic growth alone is of little help to those suffering from conflict situations, in which there is little room for considerable progress towards sustainable development. Policy priorities should encompass the intensification of efforts to help prevent and resolve conflicts and repair the institutional deficiencies that underpin many of these obstacles.
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