Global economy not taking off

Though the World Bank warns that the recovery in the global economy is fragile, a number of economies from the developing side have been performing well. 

Congrats Ethiopia - the fastest-growing economy in 2017, according to the World Bank’s latest edition of Prospects. Ethiopia’s GDP is forecast to grow by 8.3 percent in 2017. By contrast, global growth is projected to be 2.7 percent. The East African country’s accelerating growth comes on the back of government spending on infrastructure. However, borrowing to fince Ethiopia’s large public infrastructure projects has led to a rise in public debt, which increased by more than 10 percent of GDP between 2014 and 2016, and now exceeds 50 percent of GDP.  However, worsening drought conditions could also affect Ethiopia’s growth, warns the report. 

What about the Biggies and Minnows?

Globally, growth is predicted to rise by 2.7 percent on the back of a pick-up in manufacturing and trade, improved market confidence and a recovery in commodity prices. Trade increased by around 4 percent in 2017, up from a post-crisis low of 2.4% in 2016. Although it is expected to remain below pre-fincial crisis levels. Many emerging market economies have high levels of public debt, and the World Bank says it is concerned about this because it could drag down growth.

So far as the fast performers are concerned Uzbekistan comes second. With projected growth of 7.6 percent  backed by rising oil prices, benign global fincing conditions, robust growth in the Euro Area, and generally supportive policies among governments of several large countries in the region. Nepal is next, with a 7.5 percent projection. Nepal’s growth has rebounded strongly following a good monsoon, reconstruction efforts after the 2015 earthquake and normalization of trade with India, says the Bank.

Rightly, India has been placed next - the fourth-fastest-growing economy with 7.2 percent projected growth, solidified by a rise in exports and an increase in government spending. Among the other top 10 performers are Djibouti and Laos with 7 per cent and Cambodia, the Philippines and Myanmar with 6.9 percent. Chi, despite experiencing a slowdown and an economic transition, was in 16th place with 6.5 percent expected growth, helped by robust consumption and a recovery of exports.

That is to say that much of Asia and Africa are experiencing rapid growth. Emerging-market and developing economies are anticipated to grow 4.1 percent – far faster than advanced economies. 

Advanced economies are improving too. As per WB forecast growth in advanced economies is expected to accelerate to 1.9 percent in 2017, according to the World Bank. Europe has experienced strong growth, and growth in the United States is expected to recover in 2017 and to continue at a moderate pace in 2018. Japan also saw robust growth at the start of 2017. 

The flip side: at the end of 2016, government debt exceeded its 2007 level by more than 10% of GDP in more than half of emerging market and developing economies. Fiscal balances – the ability of a country to cope with increases in costs of fincing – worsened from their 2007 levels by more than 5 percent of GDP in one-third of these countries, according to WB.  Mounting public debt is also of concern. Global government debt has risen by 12 percent of GDP since 2007, to 47percent of GDP by 2016. 

What About the Food Sector? 

Right now global food prices dipped, mainly as the prospect of bumper cereal harvests pushed up expectations for larger grain inventories. The FAO raised its forecast for global cereal production to a record 2,611 million tonnes. Worldwide stocks of cereals are also expected to reach an all-time high by the close of seasons in 2018, accordingly. The new estimates reflect larger anticipated wheat harvests, as improved production prospects in Russia more than offset downward revisions made for Cada and the United States, as well as higher maize and barley outputs in Brazil and Russia. Global rice production in 2017 is also now forecast to reach a record high.

The UN predicts that we must increase food production by 70 per cent by mid-century. This, in turn, will place additiol pressure on already stressed water resources, at a time when need is also there to allocate more water to satisfy global energy demand - which is expected to rise 60 per cent over the coming 30 years - and to generate electricity for the 1.3 billion people currently without it. It is crystal clear that there will not be enough water available on current croplands to produce food for the expected 9.0 billion populations in 2050 if current trends and changes towards diets common in western tions are any indication. Undoubtedly, with 70 per cent of all available water being in agriculture, growing more food to feed an additiol 2.0 billion people by 2050 will place greater pressure on available water and land. Competition for water between food production and other uses will intensify pressure on essential resources. What would happen to the world’s poor can be guessed if they remain at the mercy of fragile global food system.

Very importantly, the Intertiol Water Magement Institute (IWMI) said the best way for countries to protect millions of farmers from food insecurity in sub-Saharan Africa and south Asia was to help them invest in small pumps and simple technology, rather than to develop expensive, large-scale irrigation projects. Accordingly, “.....Farmers across the developing world are increasingly relying on and benefiting from small-scale, locally-relevant water solutions. [These] techniques could increase yields up to 300 per cent and add tens of billions of US dollars to household revenues across sub-Saharan Africa and south Asia.”

Silver Lining?

Though global trade is recovering at sil’s pace., yet investment remain weak. Rightly, WB opined that countries now need to undertake institutiol and market reforms in order to attract private investment, which, in turn, will help sustain growth in the long-term. To what extent shifting of priorities by WB for lending toward projects that can spur follow-on investment by the private sector would be successful remains a matter to be seen. 

The Big Question Remains : Is Not GDP a Poor Indicator of Progress? 

GDP has been  widely used over the years to measure economic progress. But many rightly argue that it’s not a useful indicator. Nobel Prize winning economist Joseph Stiglitz, IMF head Christine Lagarde and MIT professor Erik Brynjolfsson have all said GDP is a poor indicator of progress, and argued for a change to the way we measure economic and social development. Altertives could include measuring jobs, well-being and health. GDP also ignores the impact of important things like climate change. Time is here for rethinking before allowing GDP to run as it has been running till now!!

Keeping the Fingers Crossed

Filly, it is pertinent to note that a new United tions trade and development report, while noting that the world economy in 2017 “is picking up but not taking off,” has cautioned against fiscal austerity and harnessing fince to support job creation and infrastructure investment. Greater intertiol policy cooperation and fincial integration, in turn, calls for economic magement and better regulation - the Basel III reforms, local rules, stronger and more harmonised regulatory frameworks, inclusive of cross-border supervision and the like.

Dr Mukhopadhyay, a noted Magement Economist and an Intertiol Commentator on Business and Economic Affairs, can be located at m.bibhas@gmail.com