Stronger growth expected for global economy in 2018

A number of international organisations have forecast stronger growth for the year ahead.
A number of international organisations have forecast stronger growth for the year ahead.PHOTO: ST FILE

Pickup in investment, manufacturing, trade a boost for Asia's trade-reliant economies

Global economic sentiment has become far more upbeat this year - an assessment endorsed by most international organisations.

The broad recovery in investment, manufacturing and trade is good news for Asia's trade-dependent economies - including Singapore - which have benefited from strengthening global demand.

While there are short-term risks, including financial stress and rising geopolitical tensions, the key question now is how long this pickup will last. Concerns linger over longer-term challenges like flagging productivity and ageing populations.

A number of international organisations have forecast stronger growth for the year ahead.

In a report earlier this month, the World Bank said it expects the global economy to grow by a stronger than expected 3.1 per cent this year as more than half of the economies accelerated.

Since its last report in June, the World Bank has upgraded nearly all of its forecasts. The brighter outlook comes as "the global economy is experiencing a cyclical recovery, reflecting a rebound in investment, manufacturing activity and trade", the report said.

This means 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, the World Bank noted. It expects growth to hit 3 per cent next year.

Separately, the International Monetary Fund forecast in October that the world economy will grow 3.7 per cent this year, the fastest pace since 2011. It will update its forecasts at the Davos gathering of world leaders later this month.

The positive outlook is bolstered by the latest data from the world's largest economy, which reported last Friday that Americans racked up enormous personal spending in the last two months of last year. US retail sales rose to US$691.9 billion (S$915 billion) in November and December, a 5.5 per cent increase.

This is good news for Asia, a big manufacturer and exporter of goods to the United States.

Last month, the Asian Development Bank upgraded its 2017 growth forecast to 6 per cent, 0.1 percentage point higher than a September estimate. This came on the back of stronger than expected exports and domestic consumption.

Its 2018 regional growth forecast remained unchanged at 5.8 per cent.


A report from ANZ research said the region's export prospects remain bright. "Identifiable new risks to the global trade cycle are few and far between at this stage," it said, adding that solid growth in the US, Japan and the European Union is countering the lingering threat of trade protectionism.

In addition, risks of a significant slowdown in China have faded and the electronics cycle "is set to chug along nicely", the report noted.

According to the Semiconductor Industry Association, global semiconductor sales are forecast to rise 4.3 per cent this year. This comes on top of the 17.5 per cent growth estimated for last year.

A Morgan Stanley report said the global recovery could run until 2020, barring serious geopolitical shocks, financial volatility or sharp oil price spikes. "In our view, the risk of the global economy or any of its major constituents running too hot over the next 12 months is still very much contained," the report said.

But longer-term challenges remain, the World Bank noted.

These include subdued productivity and potential growth, as well as the ageing of the global workforce.

"Without efforts to revitalise 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," said the Washington-based lender.

A version of this article appeared in the print edition of The Straits Times on January 15, 2018, with the headline 'Stronger growth expected for global economy in 2018'. Print Edition | Subscribe