Factors such as declining investment rates and the ageing global workforce are likely to contribute to a slowdown of growth in the long-term.

By Daniel Herborn

Posted on January 10, 2018

Released on Tuesday, the January 2018 Global Economic Prospectus predicts economic growth of 3.1% across the world economy this year, to be followed by a slight slowing.

The biannual report notes that in each of the major economic regions in the world, the economy is growing, following a stronger than expected 2017. This marks the first time since the 2008 global financial crisis that every region is rising.

Much of this growth will occur across emerging and developing economies, where growth is forecast to increase to 4.5% in 2018. In advanced economies, growth is predicted to rise by 2.2% as post-GFC measures are wound back.

The report states: “The upturn is broad-based, with growth increasing in more than half the world’s economies.”

The fastest growth is expected in South Asia (6.9%) and East Asia and Pacific, which will moderate to 6.2%, after growing at an estimated 6.4% in 2017. The region’s largest economy, China, is forecast to slow slightly to 6.4%.

The world’s largest economy, the US, is predicted to have a small growth upgrade of 2.2% for 2018, up slightly from 2.1% last year.

The report only offers optimism for the short-term, however, as it states that total factor productivity (TFP) and investment have continued to decline. TFP growth has been credited with raising living standards.

Factors such as declining investment rates and the ageing global workforce are likely to contribute to a slowdown of growth in the long-term, the report concludes.

World Bank Group President Jim Yong Kin says the prospectus should not be the basis for complacency. “This is a great opportunity to invest in human and physical capital. If policymakers 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.”

World Bank Development Economics Prospects Director Ayhan Kose also stresses the need for governments to pursue ongoing economic reform. In a press release from the World Bank, he said: “With unemployment rates returning to pre-crisis levels and the developing world alike, policymakers will need to consider new approaches to sustain the growth momentum.”

Shanta Devarajan, Senior Director for Development Economics at the World Bank, told The Finanical Times that the predicted growth needed to be understood in context. “While the growth is real and welcome, the potential growth of the global economy is going to be somewhat limited in the future.”

Image: World Bank