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Global Economy to Edge Up to 3.1 percent in 2018 but Future Potential Growth a Concern

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The World Bank forecasts global economic growth to edge up to 3.1 percent in 2018 after a much stronger-than-expected 2017, as the recovery in investment, manufacturing, and trade continues, and as commodity-exporting developing economies benefit from firming commodity prices.

However, this is largely seen as a short-term upswing. Over the longer term, slowing potential growth—a measure of how fast an economy can expand when labor and capital are fully employed—puts at risk gains in improving living standards and reducing poverty around the world, the World Bank warns in its January 2018 Global Economic Prospects.

Growth in advanced economies is expected to moderate slightly to 2.2 percent in 2018, as central banks gradually remove their post-crisis accommodation and as an upturn in investment levels off. Growth in emerging market and developing economies as a whole is projected to strengthen to 4.5 percent in 2018, as activity in commodity exporters continues to recover.

“The broad-based recovery in global growth is encouraging, but this is no time for complacency,” World Bank Group President Jim Yong Kim said. “This is a great opportunity to invest in human and physical capital. If policy makers around the world focus on these key investments, they can increase their countries’ productivity, boost workforce participation, and move closer to the goals of ending extreme poverty and boosting shared prosperity.”

2018 is on track to be the first year since the financial crisis that the global economy will be operating at or near full capacity. With slack in the economy expected to dissipate, policymakers will need to look beyond monetary and fiscal policy tools to stimulate short-term growth and consider initiatives more likely to boost long-term potential.

The slowdown in potential growth is the result of years of softening productivity growth, weak investment, and the aging of the global labor force. The deceleration is widespread, affecting economies that account for more than 65 percent of global GDP. Without efforts to revitalize potential growth, the decline may extend into the next decade, and could slow average global growth by a quarter percentage point and average growth in emerging market and developing economies by half a percentage point over that period.

“An analysis of the drivers of the slowdown in potential growth underscores the point that we are not helpless in the face of it,” said World Bank Senior Director for Development Economics, Shantayanan Devarajan. “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.  Yet, some of these reforms will be resisted by politically powerful groups, which is why making this information about their development benefits transparent and publicly available is so important.”

Risks to the outlook remain tilted to the downside. An abrupt tightening of global financing conditions could derail the expansion. Escalating trade restrictions and rising geopolitical tensions could dampen confidence and activity. On the other hand, stronger-than-anticipated growth could also materialize in several large economies, further extending the global upturn.

“With unemployment rates returning to pre-crisis levels and the economic picture brighter in advanced economies and the developing world alike, policymakers will need to consider new approaches to sustain the growth momentum,” said World Bank Development Economics Prospects Director Ayhan Kose. “Specifically, productivity-enhancing reforms have become urgent as the pressures on potential growth from aging populations intensify.”

In addition to exploring developments at the global and regional levels, the January 2018 Global Economic Prospects takes a close look at the outlook for potential growth in each of the six global regions; lessons from the 2014-2016 oil price collapse; and the connection between higher levels of skill and education and lower levels of  inequality in emerging market and developing economies.

Regional Summaries

East Asia and Pacific: Growth in the region is forecast to slip to 6.2 percent in 2018 from an estimated 6.4 percent in 2017. A structural slowdown in China is seen offsetting a modest cyclical pickup in the rest of the region. Risks to the outlook have become more balanced. Stronger-than-expected growth among advanced economies could lead to faster-than-anticipated growth in the region. On the downside, rising geopolitical tension, increased global protectionism, an unexpectedly abrupt tightening of global financial conditions, and steeper-than-expected slowdown in major economies, including China, pose downside risks to the regional outlook. Growth in China is forecast to moderate to 6.4 percent in 2018 from 6.8 percent in 2017. Indonesia is forecast to accelerate to 5.3 percent in 2018 from 5.1 percent in 2017.

Europe and Central Asia: Growth in the region is anticipated to ease to 2.9 percent in 2018 from an estimated 3.7 percent in 2017. Recovery is expected to continue in the east of the region, driven by commodity exporting economies, counterbalanced by a gradual slowdown in the western part as a result of moderating economic activity in the Euro Area. Increased policy uncertainty and a renewed decline in oil prices present risks of lower-than-anticipated growth. Russia is expected to expand by 1.7 percent in 2018, unchanged from its estimated growth rate in 2017. Turkey is projected to moderate to 3.5 percent this year from 6.7 percent in the year just ended.

Latin America and the Caribbean: Growth in the region is projected to advance to 2 percent in 2018, from an estimated 0.9 percent in 2017. Growth momentum is expected to gather as private consumption and investment strengthen, particularly among commodity-exporting economies. Additional policy uncertainty, natural disasters, a rise in trade protectionism in the United States, or further deterioration of domestic fiscal conditions could throw growth off course.  Brazil is expected to pick up to 2 percent in 2018, from an estimated 1 percent in 2017. Mexico is anticipated to accelerate to 2.1 percent this year, from an estimated 1.9 percent last year.

Middle East and North Africa: Growth in the region is expected to jump to 3 percent in 2018 from 1.8 percent in 2017. Reforms across the region are expected to gain momentum, fiscal constraints are expected to ease as oil prices stay firm, and improved tourism is anticipated to support growth among economies that are not dependent on oil exports. Continued geopolitical conflicts and oil price weakness could set back economic growth. Growth in Saudi Arabia is forecast to accelerate to 1.2 percent in 2018 from 0.3 percent in 2017, while growth is anticipated to pick up to 4.5 percent in the Arab Republic of Egypt in FY 2018 from 4.2 percent last year.

South Asia: Growth in the region is forecast to accelerate to 6.9 percent in 2018 from an estimated 6.5 percent in 2017. Consumption is expected to stay strong, exports are anticipated to recover, and investment is on track to revive as a result of policy reforms and infrastructure upgrades. Setbacks to reform efforts, natural disasters, or an upswing in global financial volatility could slow growth. India is expected to pick up to a 7.3 percent rate in fiscal year 2018/19, which begins April 1, from 6.7 percent in FY 2017/18. Pakistan is anticipated to accelerate to 5.8 percent in FY 2018/19, which begins July 1, from 5.5 percent in FY 2017/18.

Sub-Saharan Africa: Growth in the region is anticipated to pick up to 3.2 percent in 2018 from 2.4 percent in 2017. Stronger growth will depend on a firming of commodity prices and implementation of reforms. A drop in commodity prices, steeper-than-anticipated global interest rate increases, and inadequate efforts to ameliorate debt dynamics could set back economic growth. South Africa is forecast to tick up to 1.1 percent growth in 2018 from 0.8 percent in 2017. Nigeria is anticipated to accelerate to a 2.5 percent expansion this year from 1 percent in the year just ended.

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Radiation Processing Enables Small Businesses to Enter Global Value Chains in Malaysia

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Photo: M. Gaspar/IAEA

In today’s globalized world, becoming part of an international supply chain is key to the prospering of small businesses and their ability to create jobs. Meeting the quality requirements set by the multinationals that head these value chains is often tough for small and medium sized businesses (SMEs) operating on shoestring budgets. The country’s nuclear agency, Nuklear Malaysia, is doing its bit to help.

Thanks to the support of the Nuklear Malaysia, Wonderful Ebeam Cable has become the first SME in the country to supply cables to Malaysia’s booming automotive sector. “By using radiation technology, we have been able to improve our product line and meet the requirements of the car manufacturers,” said Managing Director Ir Chan Chang Choy. “This has allowed me to grow my business and increase the workforce.”

Due to the high temperature in engines, cables used in the engine compartment of vehicles need to be heat and flame resistant to make sure they, and the car, do not catch on fire. To improve the heat resistance and flame retardance of the insulation of copper wires, their polymers need to be crosslinked, forming an extremely tightly packed network of interconnected polymer chains. Crosslinked insulation material increases the service temperature of cable for instance from 75⁰C in the case of normal PVC to 100⁰C for crosslinked PVC.

Crosslinking can be achieved using chemicals, but the process requires higher temperatures. The alternative, the irradiation of polymers, leads to the formation of permanent bonds between the polymer chains at room temperature – which requires lower operating costs.

No SME in Malaysia has the technology in place to carry out such irradiation, and banks are reluctant to provide loans for the purchase of irradiation equipment, Chang Choy said. “These machines are expensive, and the banks do not accept the equipment itself as collateral, because there is no second hand market for irradiation equipment, so the banks cannot sell it if my company were to go bankrupt.” Also, their safe use requires extensive shielding, which can make up half the installation cost. And shielding cannot be removed and sold.

Enter Nuklear Malaysia, which irradiates the products of small businesses like Chang Choy’s for a small fee.

“The automotive industry has long been recognised as one of the key contributing factors towards the realisation of Malaysia’s aspiration to become an industrialised nation by 2020,” said Zulkafli Ghazali, Director of Radiation Processing Technology at Nuklear Malaysia. “This requires domestic capacity in cable manufacturing.” Through this support, the agency is doing its part to support the Government’s SME Masterplan to accelerate the growth of SMEs and increase their contribution to the economy from 32% of GDP to 41% by 2020.

Wonderful Ebeam Cable ships its products to Nuklear Malaysia’s irradiation facility in the centre of the country, some 300 kilometres to the north, three times a week. After a few days, the cables are returned, ready for the car companies.

Nuklear Malaysia is working with several SMEs in different areas of radiation processing – using ionizing radiation such as gamma radiation and  electron beam to change the physical, chemical or biological characteristics of materials to increase their usefulness and value or to reduce their impact on the environment. It is most widely used in the modification of plastic and rubber materials, the sterilization of medical devices and consumer items, the preservation of food and the reduction of environmental pollution. Nuklear Malaysia’s scientists have benefitted from a number of IAEA Technical Cooperation and Collaborative Research Projects, through which they were able to perfect the technologies used in radiation processing by working with experts from around the world. “The IAEA helps turn global expertise into local expertise,” Ghazali said.

The IAEA helps Member States strengthen capacities in adopting radiation-based techniques that support cleaner and safer industrial processes. Nuklear Malaysia has participated in several such projects and has been recognized, since 2006, as an IAEA Collaborating Centre for radiation processing of natural polymers and nano-materials.

This could come particularly handy in a few years’ time, he added. “If the country decides to build a nuclear power plant, we would need a lot more of cross-linked cables and other products manufactured using radiation processing technology.”

First published in International Atomic Energy Agency

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55 New Financial Inclusion Metrics For World’s 2 Billion Unbanked

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Today the World Economic Forum and 15 of its partners launched a new financial inclusion measurement framework. It defines the metrics that are crucial to understanding and improving how hundreds of millions of people access and use financial products like digital payments, savings accounts, and loans in the developing world.

The report complements ongoing efforts to quantify how financial services are being used, and their impact on people’s lives. “More nuanced metrics provide businesses and governments with the necessary inputs to offer customer-centric strategies that increase access and usage of financial services in a sustainable manner,” said Cheryl Martin, Managing Director, Head of Industries, World Economic Forum.

The findings, summarized in Advancing Financial Inclusion Metrics: Shifting from access to economic empowerment, proposes specific metrics to analyze the maturity of payments, credit, savings services and the overall regulatory environment. Greater visibility into these inputs is vital to financially include those left out of the formal economy whether in India or Mexico, Tunisia or Zimbabwe.

The initiative’s 15 core partners include financial providers, consulting companies, foundations, and consumer goods companies who together reach the majority of the world’s population, including the estimated 2 billion who currently don’t have bank accounts, debit or credit cards, or access to loans. They are Alliance for Financial Inclusion, BBVA, Bill and Melinda Gates Foundation, Credit Suisse, International Finance Corporation, Mastercard, Mercy Corps, MTN Group, PayPal, SWIFT, Tata Consultancy Services, Telenor Group, Unilever, UNSGSA, and the World Bank.

Paul Polman, Chief Executive Officer, Unilever said: “Data is critical to better understand the relationship between financial inclusion and greater wellbeing. By digitizing the processes of buying supplies and selling goods, small and micro businesses in emerging markets can gain access to appropriate low-interest credit, further boosting business growth.”

The report highlights that much of the required consumer data is already available. However, expanded data collection is needed in certain cases. In India, for instance, a country with 251 million people without access to financial services, only 11% of consumers used debit cards for payments over the course of a twelve month period 1.

This statistic is interesting, but fails to tell the whole story. Going several levels deeper, the application of more granular metrics would provide insights into the actual percentage of registered and unregistered businesses accepting digital payments; the barriers preventing both men and women from using digital financial services , alternative payment methods used (e.g., account direct transfer, card top-up), and the types of purchases made (e.g., groceries, utilities, healthcare, etc.). Understanding the customer at this level of detail would allow for more targeted solutions for increasing debit card acceptance.

As emphasized by H.M. Queen Máxima of the Netherlands, United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development, “I always emphasize the importance of data. Without good data, we cannot map potential demand for financial services, track progress, and develop customer-centric products and services for the excluded, including women. The knowledge data provides, in turn, will help shape effective policies and generate the strong political will needed to achieve full financial inclusion.”

The report was launched ahead of the Annual Meeting of the World Economic Forum, which takes place January 22-26 in Davos, Switzerland, and brings together governments, international organizations, business, civil society, cultural leaders, media, foremost experts and the young generation from all over the world.

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Economics Students Unite in Bangladesh to Explore Paths Toward One South Asia

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The 14th  South Asia Economic Students’ Meet (SAESM) commences in Chittagong, Bangladesh today, embracing the arrival of over 110 top economics undergraduates and faculties from seven countries in South Asia towards the realization of a more integrated South Asia.

Rising economists from Afghanistan, Bangladesh, Bhutan, India, Nepal, Pakistan, and Sri Lanka will engage in vigorous academic competitions and research presentations on South Asia’s development opportunities under the theme of regional integration in South Asia. The meet will also include discussions by professors and World Bank experts on how greater regional integration in South Asia can help countries achieve the Sustainable Development Goals (SDGs).

“South Asia is a region with immense potential and youthful energy waiting to thrive,” said Selim Raihan, SAESM Organizer for Bangladesh and Executive Director for the South Asia Network on Economic Modeling (SANEM). “Building trust among neighbors through students can help lay the foundation for lasting relationships that will benefit growth, poverty reduction and prosperity in the future.”

SAESM Chittagong will include essay presentations and defense by students on their essays submitted for SAESM, a quiz on economic knowledge, as well as a ‘budding economist competition’’ that selects the brightest young economist through the best written and oral defense. Hosted this year by SANEM, participants come from a variety of South Asian universities including Dhaka University (Bangladesh), Delhi University (India), Lahore University of Management Sciences (Pakistan), University of Kabul (Afghanistan), Royal Thimphu College (Bhutan), and Tribhuvan University (Nepal).

Recognizing its unparalleled efforts in facilitating regional academic and cultural exchange, the World Bank Group has supported SAESM for many years in the forms of financing, logistical support, external communications as well as speeches and competitions.

“Regional Integration in South Asia is a work in progress, but there are many grounds for optimism, including the growing realization that most of the gains from regional integration remain under-exploited.  To help realize some of these gains, the WBG is supporting country governments in South Asia to deepen cooperation with their neighbors in several areas including energy, trade and investment, and connectivity,” said Sanjay Kathuria, Lead Economist for the World Bank. “Gains are likely to be incremental because this is a complex and long-term agenda. Youth can bring a business-like, uncluttered approach to provide greater momentum to the process of creating One South Asia.”

Since SAESM was piloted in New Delhi, India in 2004 by a group of university professors, it has been hosted rotationally by organizers in India, Bangladesh, Nepal, Pakistan, Sri Lanka, and Bhutan. Afghanistan sent its first batch of delegates in 2014.

“When we started SAESM, our objective was to bring together brilliant young economists from across South Asia and engage them in intensive academic exchange. Over the years SAESM has itself ‘graduated’ numerous dazzling talents and sent them worldwide,” said Raihan.

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