Despite recent softening, global economic growth will remain robust at 3.1 percent in 2018 before slowing gradually over the next two years, as advanced-economy growth decelerates and the recovery in major commodity-exporting emerging market and developing economies levels off, the World Bank said on Tuesday.
“If it can be sustained, the robust economic growth that we have seen this year could help lift millions out of poverty, particularly in the fast-growing economies of South Asia,” World Bank Group President Jim Yong Kim said. “But growth alone won’t be enough to address pockets of extreme poverty in other parts of the world. Policymakers need to focus on ways to support growth over the longer run—by boosting productivity and labor force participation—in order to accelerate progress toward ending poverty and boosting shared prosperity.”
Activity in advanced economies is expected to grow 2.2 percent in 2018 before easing to a 2 percent rate of expansion next year, as central banks gradually remove monetary stimulus, the June 2018 Global Economic Prospects says. Growth in emerging market and developing economies overall is projected to strengthen to 4.5 percent in 2018, before reaching 4.7 percent in 2019 as the recovery in commodity exporters matures and commodity prices level off following this year’s increase.
This outlook is subject to considerable downside risks. The possibility of disorderly financial market volatility has increased, and the vulnerability of some emerging market and developing economies to such disruption has risen. Trade protectionist sentiment has also mounted, while policy uncertainty and geopolitical risks remain elevated.
A Special Focus cautions that, over the long run, the anticipated slowdown in global commodity demand could put a cap on commodity price prospects and thus on future growth in commodity-exporting countries. Major emerging markets have accounted for a substantial share of the increase in global consumption of metals and energy over the past two decades, but growth of their demand for most commodities is expected to decelerate, the Special Focus section says.
“The projected decline in commodities’ consumption growth over the long run could create challenges for the two-thirds of developing countries that depend on commodity exports for revenues,” said World Bank Senior Director for Development Economics, Shantayanan Devarajan. “This reinforces the need for economic diversification and for strengthening fiscal and monetary frameworks.”
Another Special Focus finds that elevated corporate debt can heighten financial stability concerns and weigh on investment. Corporate debt—and, in some countries, foreign currency debt—has risen rapidly since the global financial crisis, making them more vulnerable to rising borrowing costs.
“Policymakers in emerging market and developing economies need to be prepared to cope with possible bouts of financial market volatility as advanced-economy monetary policy normalization gets into high gear,” said World Bank Development Economics Prospects Director Ayhan Kose. “Rising debt levels make countries more vulnerable to higher interest rates. This underlines the importance of rebuilding buffers against financial shocks.”
After many years of downgrades, consensus forecasts for long-term growth have stabilized, a possible signal the global economy is finally emerging from the shadow of the financial crisis a decade ago. However, long-term consensus forecasts are historically overly optimistic and may have overlooked weakening potential growth and structural drags on economic activity, the report cautions.
The report urges policymakers to implement reforms that lift long-term growth prospects. A rapidly changing technological landscape highlights the importance of supporting skill acquisition and boosting competitiveness and trade openness. Improving basic numeracy and literacy could yield substantial development dividends. Finally, promoting comprehensive trade agreements can bolster growth prospects.
East Asia and Pacific: Growth in the region is forecast to ease from 6.3 percent in 2018 to 6.1 in 2019, reflecting a slowdown in China that is partly offset by a pickup in the rest of the region. Growth in China is anticipated to slow from 6.5 percent in 2018 to 6.3 percent in 2019 as policy support eases and as fiscal policies turn less accommodative. Excluding China, growth in the region is forecast to moderate from 5.4 percent in 2018 to 5.3 percent in 2019 as a cyclical economic recovery matures. Indonesia’s economy is expected to grow 5.2 percent rate this year and 5.3 percent the next. Growth in Thailand is expected accelerate to 4.1 percent in 2018, before moderating slightly to a 3.8 percent rate in 2019. For both commodity exporting and importing economies of the region, capacity constraints and price pressures are expected to intensify over the next two years, leading to tighter monetary policy in an increasing number of countries.
Europe and Central Asia: Growth in the region is projected to moderate to an upwardly revised 3.2 percent in 2018 and edge down to 3.1 percent in 2019 as a modest recovery among commodity exporting economies is only partially offset by a slowdown among commodity importers. In Turkey, growth is forecast to slow to 4.5 percent in 2018 and to 4.0 percent in 2019 as delays in fiscal consolidation and the extension of the credit support program temper an anticipated slowdown following the strong recovery last year. Growth in Russia is anticipated to hold steady at a 1.5 percent rate this year and accelerate to 1.8 percent next year as the effects of rising oil prices and monetary policy easing are offset by oil production cuts and uncertainty around economic sanctions.
Latin America and the Caribbean: Growth in the region is projected to accelerate to a downwardly revised 1.7 percent in 2018 and to 2.3 percent in 2019, spurred by private consumption and investment. The cyclical recovery underway in Brazil is projected to continue, with growth forecast to be 2.4 percent this year and 2.5 percent in 2019. In Mexico, growth is expected to strengthen moderately to 2.3 percent in 2018 and 2.5 percent in 2019 as investment picks up. Growth in Argentina is anticipated to slow to 1.7 percent this year as monetary and fiscal tightening and the effects of the drought dampen growth, and to remain subdued next year, at 1.8 percent. Growth in some Central American agricultural exporters is expected to pick up in 2018 and 2019, while growth among the commodity importers of that sub-region is expected to stabilize or slow. Economies of the Caribbean are forecast to see a lift to growth in 2018 from post-hurricane reconstruction, tourism, and supportive commodity prices.
Middle East and North Africa: Growth in the region is projected to strengthen to 3 percent in 2018 and to 3.3 percent in 2019, largely as oil exporters recover from the collapse of oil prices. Growth among members of the Gulf Cooperation Council (GCC) is anticipated to rise to 2.1 percent in 2018 and 2.7 percent in 2019, supported by higher fixed investment. Saudi Arabia is forecast to expand an upwardly revised 1.8 percent this year and 2.1 percent next year. Iran is anticipated to grow 4.1 percent in 2018 and by the same amount in 2019. Oil importing economies are forecast to see stronger growth as business and consumer confidence gets a lift from business climate reforms and improving external demand. Egypt is anticipated to grow 5 percent in Fiscal Year 2017/18 (July 1, 2017-June 30, 2018) and 5.5 percent the following fiscal year.
South Asia: Growth in the region is projected to strengthen to 6.9 percent in 2018 and to 7.1 percent in 2019, mainly as factors holding back growth in India fade. Growth in India is projected to advance 7.3 percent in Fiscal Year 2018/19 (April 1, 2018-March 31, 2019) and 7.5 percent in FY 2019/20, reflecting robust private consumption and strengthening investment. Pakistan is anticipated to expand by 5 percent in FY 2018/19 (July 1, 2018-June 30, 2019), reflecting tighter policies to improve macroeconomic stability. Bangladesh is expected to accelerate to 6.7 percent in FY 2018/19 (July 1, 2018-June 30, 2019).
Sub-Saharan Africa: Growth in the region is projected to strengthen to 3.1 percent in 2018 and to 3.5 percent in 2019, below its long-term average. Nigeria is anticipated to grow by 2.1 percent this year, as non-oil sector growth remains subdued due to low investment, and at a 2.2 percent pace next year. Angola is expected to grow by 1.7 percent in 2018 and 2.2 percent in 2019, reflecting an increased availability of foreign exchange due to higher oil prices, rising natural gas production, and improved business sentiment. South Africa is forecast to expand 1.4 percent in 2018 and 1.8 percent in 2019 as a pickup in business and consumer confidence supports stronger growth in investment and consumption expenditures. Rising mining output and stable metals prices are anticipated to boost activity in metals exporters. Growth in non-resource-intensive countries is expected to remain robust, supported by improving agricultural conditions and infrastructure investment
East Asian and Northern European countries are world leaders on idea creation and intensity
South Korea has been named the world’s most idea-intensive nation, with the top 20 dominated by East Asian and Northern European countries, according to PwC’s Global Economy Watch.
In particular, the Nordic countries punch above their weight in terms of patents granted per million population: Sweden, Finland and Denmark all appear in the top 10 while Norway is ranked 16th. European nations occupy 13 places among the top 20 with Germany and France ranked eighth and thirteenth respectively.
East Asia also performs strongly on the intensity index with Japan placed fourth and Singapore fourteenth. China appears in the top 20 for the first time and leads the way on the absolute number of patents granted.
The findings are based on PwC analysis of World Intellectual Property Organisation (WIPO) datasets regarding patents granted in 2017, with adjustments for population size. The analysis also demonstrates a strong correlation between idea intensity and R&D expenditure with the top 20 dominated by those nations spending the highest proportion of their GDP on research.
The UK has also broken into the top 20, with 311 patents granted per million population, but it still lags behind many European nations, including Ireland. In terms of absolute number of patents given it is ranked eighth in the world.
Jonathan Gillham, Director of Economic Modelling and Econometrics at PwC UK says,
‘Ideas power the global economy: generating innovative new products and services, strengthening competition, increasing productivity and raising living standards. Scoring highly on ideas intensity should be a source of considerable confidence in a country’s future economic growth prospects.
‘Our analysis highlights that there are a number of different factors that influence idea intensity. Specialisation and geography are important drivers: the prominence of Nordic countries is clearly linked to their investment in emerging fields of renewable technologies. Similarly, East Asian countries perform strongly across computer technology, electrical machinery and digital communication technologies.
‘Yet what is revealed so clearly here is the strong positive relationship between R&D expenditure and idea intensity. Over 100 countries were included in this analysis, and we estimate that around 70% of a change in a country’s idea intensity can be explained by a change in its research and development spending.
‘Our recommendation for governments is that combined public and private investment in R&D can deliver a real economic dividend and should be a key area of economic policy.’
Oil Market Report: Taking a breather
The oil market focus recently has been on demand as growth weakens amidst uncertainty around the global economy, and particularly trade. In this month’s OMR, we maintain our growth estimate for 2019 at 1.1 mb/d, even though June data show that demand increased year-on-year by less than 0.2 mb/d. For the second half of 2019 we retain the view that with oil prices currently about 20% lower than a year ago there will be support for consumers. Early data for July suggest that global demand grew by 1.3 mb/d year on year.
In recent weeks, tensions in the Middle East Gulf have eased and oil industry operations appear to be normal. The major political event that has taken place is a personnel change in Saudi Arabia with the appointment as energy minister of Prince Abdulaziz bin Salman, who is a well-known and experienced figure. An early event for him is a meeting of the OPEC+ agreement monitoring committee that takes place in Abu Dhabi as we publish this Report. To date, support for the agreement rate has been high, but ahead of the meeting data for August show the compliance rate slipping to 116 per cent. In August, three major countries Russia, Nigeria and Iraq, produced 0.6 mb/d more than their allocations. Saudi Arabia, on the other hand, produced 0.6 mb/d less than allowed, and it is clearly the lynchpin of the whole deal. A reminder to the producers that competition for market share is getting tougher comes from preliminary data showing that in June the US momentarily overtook Saudi Arabia and Russia as the world’s number one gross oil exporter.
Our balances for 2H19 imply a stock draw of 0.8 mb/d, based on the assumption of flat OPEC production, stronger demand growth and weaker non-OPEC supply growth. However, this is only really a breather: the 2H19 non-OPEC growth, although modest by recent standards at “only” 1.3 mb/d, is measured against the high base set by the enormous production surge seen this time last year. So far in 2019, US crude oil production growth has stalled with June output only 45 kb/d higher than in December. Even so, output is still growing strongly on an annual basis, rising this year by 1.25 mb/d, with 1 mb/d of growth to come in 2020. In Norway, long-awaited projects are coming on stream earlier than expected and may ramp up to peak production ahead of schedule. Oil production in Brazil is growing fast, reaching 3 mb/d in August, 0.4 mb/d higher than just two months earlier.
While the relentless stock builds we have seen since early 2018 have halted, this is temporary. Soon, the OPEC+ producers will once again see surging non-OPEC oil production with the implied market balance returning to a signifcant surplus and placing pressure on prices. The challenge of market management remains a daunting one well into 2020.
Finally, in January the International Maritime Organisation’s new marine fuel regulations are being introduced. In Oil 2019, published in March, we concluded that markets will be generally prepared for the shift, assuming a certain initial level of non-compliance. In this Report, we have looked at the latest developments in demand and refining and we reaffirm our view of a relatively smooth start for the new rules. In line with this view, markets are not currently signalling significant increases in diesel prices, but this is an issue that will be monitored closely.
Climate finance for developing countries reached USD 71 billion in 2017
Climate finance provided and mobilised by developed countries for climate action in developing countries reached USD 71.2 billion in 2017, up from USD 58.6 billion in 2016, according to new estimates from the OECD.
While the 2016 and 2017 totals cannot be directly compared with earlier years due to improvements in data and methodology relating to private finance, Climate Finance Provided and Mobilised by Developed Countries in 2013-17 shows the overall trend is upwards.
“The goal to reach USD 100 billion in annual climate finance by 2020 is still attainable, but we must urgently step up our efforts to provide public climate finance and improve its effectiveness in mobilising private finance,” said OECD Secretary-General Angel Gurría.
The report gives estimates for mobilised private finance and public flows (estimates on public flows were already published in November 2018). It shows public climate finance is increasing again, after stalling in 2015, and is consistent with projections made by the OECD in 2016. Estimates of private finance in 2016-17 suggest that more needs to be done.
“Our estimates for 2013-2017 show that developed countries are making progress on climate finance and the indications are that this upward trend will continue. Multilateral development banks are reporting a significant rise in their climate finance outflows in 2018, which we will be analysing as soon as their activity-level data is available to us,” said Mr Gurría.
The amount of climate finance going to adaptation activities rose to USD 13.3 billion in 2017 from USD 9.1 billion in 2013, meaning adaptation now accounts for 19% of total climate finance, up from 17% in 2013. The share of climate finance going to mitigation activities was 73% in 2017, compared to 76% in 2013, with the rest going to crosscutting activities.
For public climate finance, the ratio of grants to loans was relatively stable over 2013-17. Grants made up over a third of bilateral and about 10% of multilateral finance, while loans represented 60% of bilateral and nearly 90% of multilateral finance. The share of grants in public climate finance in 2016-17 is higher for least-developed countries (36%) and small-island developing states (54%) than for developing countries as a whole (24%).
The private component of climate finance consists of private funding for climate projects mobilised by developed countries’ public climate finance instruments. These include investments in companies and special purpose vehicles, loan guarantees, credit lines, loan syndications and co-financing schemes. The public component consists of bilateral climate finance and multilateral climate finance attributable to developed countries. Officially supported climate-related export credits are accounted for as a separate component.
Climate finance will be among the issues discussed at the upcoming UN Climate Summit in New York and in the run-up to the COP25 climate talks in Santiago de Chile.
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