World flags (2)

There is good news from the World Bank today on the prospects for the global economy, there is also a warning.

2018 is set to be a good ‘un, says the World Bank, as it projects an acceleration of the global economy this year – it projects 3.1 per cent growth in 2018, from three per cent in 2017. So that is only a difference of 0.1 percentage points, but, 2017 wasn’t a bad year either.

It was an especially good year for the euro area, and if the latest purchasing managers indexes are to be believed, 2018 will be better still. The US looks nicely poised, too

But 2017 also saw Russia, Brazil and Nigeria pull out of recession and the World Bank expects emerging markets to enjoy a good year too.

It cites global trade gaining momentum and benign conditions for global financing as reasons to be optimistic about the year ahead.

But when it looks further ahead, the World Bank turns all gloomy.

It expects growth in the developed world to slow from 2.3 per cent in 2017 to 1.7 per cent by 2020, and also expects a slowdown in the emerging world.

And its rationale is quite worrisome – it partly puts the blame on demographics, the ageing population across not just the developed world, but in countries such as Russia and China – and there ain’t much you can do about that.

Recently, China passed what is called the Lewis Turning point, when the available supply of labour in rural areas to migrate to cities was less than demand.

The world Bank also frets about the risk of rising protectionism, and the weak growth in productivity of recent years.

It also fears that rising interest rates will hit the global economy, but that given unemployment rates are so low in regions such as the US and UK, rate increases are inevitable as these economies hit the buffers.

The world Bank said “If there is an economic or financial crisis in the next decade, as is historically the norm, the already weakening outlook for potential growth would degrade even further. This highlights the urgency of pursuing structural reforms that boost long-term growth. A sustained policy push may even lift potential output above current levels, and could offset the effects of a crisis should one materialise.”

But what the global economy really needs is more investment – this is what has been lacking in recent years, only this can