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Global Economy to Expand by 3.1 percent in 2018, Slower Growth Seen Ahead

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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.

Regional Summaries:

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

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Post-COVID-19, regaining citizen’s trust should be a priority for governments

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coronavirus people

The COVID-19 crisis has demonstrated governments’ ability to respond to a major global crisis with extraordinary flexibility, innovation and determination. However, emerging evidence suggests that much more could have been done in advance to bolster resilience and many actions may have undermined trust and transparency between governments and their citizens, according to a new OECD report.

Government at a Glance 2021 says that one of the biggest lessons of the pandemic is that governments will need to respond to future crises at speed and scale while safeguarding trust and transparency. “Looking forward, we must focus simultaneously on promoting the economic recovery and avoiding democratic decline” said OECD Director of Public Governance Elsa Pilichowski. “Reinforcing democracy should be one of our highest priorities.”

 Countries have introduced thousands of emergency regulations, often on a fast track. Some alleviation of standards is inevitable in an emergency, but must be limited in scope and time to avoid damaging citizen perceptions of the competence, openness, transparency, and fairness of government.

 Governments should step up their efforts in three areas to boost trust and transparency and reinforce democracy:

 Tackling misinformation is key. Even with a boost in trust in government sparked by the pandemic in 2020, on average only 51% of people in OECD countries for which data is available trusted their government. There is a risk that some people and groups may be dissociating themselves from traditional democratic processes.

 It is crucial to enhance representation and participation in a fair and transparent manner. Governments must seek to promote inclusion and diversity, support the representation of young people, women and other under-represented groups in public life and policy consultation. Fine-tuning consultation and engagement practices could improve transparency and trust in public institutions, says the report. Governments must also level the playing field in lobbying. Less than half of countries have transparency requirements covering most of the actors that regularly engage in lobbying.

 Strengthening governance must be prioritised to tackle global challenges while harnessing the potential of new technologies. In 2018, only half of OECD countries had a specific government institution tasked with identifying novel, unforeseen or complex crises. To be fit for the future, and secure the foundations of democracy, governments must be ready to act at speed and scale while safeguarding trust and transparency.

 Governments must also learn to spend better, according to Government at a Glance 2021. OECD countries are providing large amounts of support to citizens and businesses during this crisis: measures ongoing or announced as of March 2021 represented, roughly, 16.4% of GDP in additional spending or foregone revenues, and up to 10.5% of GDP via other means. Governments will need to review public spending to increase efficiency, ensure that spending priorities match people’s needs, and improve the quality of public services.

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Sweden: Invest in skills and the digital economy to bolster the recovery from COVID-19

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Sweden’s economy is on the road to recovery from the shock of the COVID-19 crisis, yet risks remain. Moving ahead with a labour reform to facilitate adaptation in a fast-changing economic environment, and investing in digital skills and infrastructure, will be crucial to revive employment and build a sustainable recovery, according to the latest OECD Economic Survey of Sweden.

The pandemic triggered a severe recession in Sweden, despite mild distancing measures and swift government action to protect people and businesses. GDP fell by less than in many other European economies in 2020, thanks to reinforced short-time work, compensation to firms for lost revenue and measures to prop up the financial system, but unemployment still rose sharply. Solid public finances provided room for further stimulus in 2021 to buttress the recovery.

 The Survey recommends maintaining targeted support to people and firms until the pandemic subsides, then focusing on strengthening vocational training and skills and increasing investment in areas like high-speed internet and low-carbon transport. Addressing regional inequality, which is low but rising, should also be a priority as the recovery takes hold.

 The Survey shows that Sweden has been among the most resilient OECD countries in the face of a historic shock. Yet, like other economies, it faces challenges from demographic changes and the shift to green, digital economies. Investments in education and training, and labour reforms along the lines negotiated by the social partners, will support job creation and strengthen economic resilience. Building on Sweden’s leadership in digital innovation and diffusion will also be key for driving productivity.

 After a 3% contraction in 2020, interrupting several years of growth, the Survey projects a rebound in activity with 3.9% growth in 2021 and 3.4% in 2022 as industrial production resumes and exports recover. The recovery in world trade is bolstering the Swedish economy, however the country remains vulnerable to potential disruptions in global value chains.  

The pandemic has aggravated a mismatch in Sweden’s job market, with unfilled vacancies for highly qualified workers coinciding with high unemployment for low-skilled workers and immigrants. The public employment service needs strengthening to provide better support to jobseekers, including immigrants and women, and labour policies should strike the right balance between supporting businesses and workers and supporting transitions away from declining businesses towards growing sectors.

A rising share of youths and older people in the population, especially in remote areas, is affecting the finances of local governments, which provide the bulk of welfare services. Strengthening local government budgets and ensuring equal welfare provision across the country will require providing tax income to poorer regions more efficiently and raising the economic growth potential across regions through investments in innovation. Improving coordination between government entities and reinforcing the role of universities in local economic networks would help achieve that aim.

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Fewer women than men will regain work during COVID-19 recovery

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Generations of progress stands to be lost on women and girls' empowerment during the COVID-19 pandemic. Photo: ILO

Fewer women will regain jobs lost to the COVID-19 pandemic during the recovery period, than men, according to a new study released on Monday by the UN’s labour agency.  

In Building Forward Fairer: Women’s rights to work and at work at the core of the COVID-19 recovery, the International Labour Organization (ILO) highlights that between 2019 and 2020, women’s employment declined by 4.2 per cent globally, representing 54 million jobs, while men suffered a three per cent decline, or 60 million jobs. 

This means that there will be 13 million fewer women in employment this year compared to 2019, but the number of men in work will likely recover to levels seen two years ago. 

This means that only 43 per cent of the world’s working-age women will be employed in 2021, compared to 69 per cent of their male counterparts. 

The ILO paper suggests that women have seen disproportionate job and income losses because they are over-represented in the sectors hit hardest by lockdowns, such as accommodation, food services and manufacturing. 

Regional differences 

Not all regions have been affected in the same way. For example, the study revealed that women’s employment was hit hardest in the Americas, falling by more than nine per cent.  

This was followed by the Arab States at just over four per cent, then Asia-Pacific at 3.8 per cent, Europe at 2.5 per cent and Central Asia at 1.9 per cent. 

In Africa, men’s employment dropped by just 0.1 per cent between 2019 and 2020, while women’s employment decreased by 1.9 per cent. 

Mitigation efforts 

Throughout the pandemic, women faired considerably better in countries that took measures to prevent them from losing their jobs and allowed them to get back into the workforce as early as possible. 

In Chile and Colombia, for example, wage subsidies were applied to new hires, with higher subsidy rates for women.  

And Colombia and Senegal were among those nations which created or strengthened support for women entrepreneurs.  

Meanwhile, in Mexico and Kenya quotas were established to guarantee that women benefited from public employment programmes. 

Building forward 

To address these imbalances, gender-responsive strategies must be at the core of recovery efforts, says the agency. 

It is essential to invest in the care economy because the health, social work and education sectors are important job generators, especially for women, according to ILO. 

Moreover, care leave policies and flexible working arrangements can also encourage a more even division of work at home between women and men. 

The current gender gap can also be tackled by working towards universal access to comprehensive, adequate and sustainable social protection. 

Promoting equal pay for work of equal value is also a potentially decisive and important step. 

Domestic violence and work-related gender-based violence and harassment has worsened during the pandemic – further undermining women’s ability to be in the workforce – and the report highlights the need to eliminate the scourge immediately. 

Promoting women’s participation in decision-making bodies, and more effective social dialogue, would also make a major difference, said ILO. 

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