Global economic growth will remain relatively weak in 2017 after reaching 3% in 2016.

No Fast Economic Growth Ahead

The World Bank wants to tell you some unpleasant truths – the world economic growth is slow and the pace of economic recovery is just as slow. Projections for global growth in 2016 were cut down to 2.4 percent with emerging market and developing economies (EMDEs), which usually contribute most the global pace of growth, experiencing continuing economic constraints due to low commodity prices and weakened global trade and capital flows.

Established commodity exporters are yet to adjust to a long term period of low commodity prices, and commodity importers show no signs they are able to benefit markedly from lower energy prices.

Only 3% Global Growth in 2016

Forecast global growth is set at 3.0 percent in 2018 but this figure can easily go down due to growing geopolitical uncertainties and growing private sector debt in some large emerging markets. The monetary normalization in the United States is too slowly implemented while the effectiveness of monetary policy stimulus in some advanced economies is doubtful.

World annual GDP growth will be below 3% in 2016.
The world is set for modest economic growth in 2016 and 2017.

In 2016, advanced economies will add only 1.7 percent, which is largely disappointing and continues the weak economic development during 2015. The World Bank does not expect any positive development in these economies, and instead forecasts flat growth rates throughout the world advanced economies.

Emerging Markets to Grow Disappointing 3.5%

EMDE growth will reach 3.5 percent in 2016 although energy exporters will witness a meager growth of only 0.4 percent annual growth during the period. Important emerging markets and developing economies, including China, Russia and Brazil, are in process of rebalancing or recession, which adds further pressure to the global pace of economic pace. Russia is suffering from low commodity and energy prices while China is experiencing industrial activity slowdown.

Fuel exports as percentage of merchandise exports are constantly declining.
Energy-exporting countries will continue to experience difficulties in 2017.


The fastest growing country group in this segment are commodity importing EMDEs, which are expected to experience steady growth of 5.8 percent in 2016, proving that they are more flexible in taking advantage of depressed commodity prices compared to advanced economies. Nonetheless, a large number of commodity exporting EMDEs witness their foreign reserves shrinking, which makes them unable to adopt proper fiscal buffers preventing economic slowdown.

Constraints and Risks

The main constraints and risks that prevent faster pace of global economic growth include rising political and geopolitical uncertainties as well as eroding confidence in policy effectiveness. Other risks are associated with eventual protectionist measures that would be adopted in case of prolonged stagnation across advanced economies. An example of such measures is the ongoing dispute over China’s steel exports, which triggered adoption or protective measures by the EU and the United States.


Stable but Flat Growth in the United States

Not exports but private consumption is the main engine of growth in 2016, thanks to rising real disposable income resulting from strong job creation figures and falling energy prices. The U.S. exports are stagnating because of the weak demand from emerging markets and strong greenback.

The private consumption would be stimulated further by expected wage growth but the long-term prospects are hampered by low levels of corporate investments, employment growth that is mainly in the services sector, and slowed pace of growth across the IT sector. Thus, the U.S. will experience GDP growth of just 1.9 percent in 2016 contributing only modestly to the global economic growth.

Unchanged Growth in Euro Area

The Euro Area is performing relatively well in 2016 by adopting an exceptional level of monetary policy accommodation. Expansionary fiscal policy and low energy prices contributed to the economic stability although no marked GDP growth is in sight.

Growth is expected to remain flat at 1.6 percent during 2016-2018, experiencing continuing pressure from weak external demand, renewed domestic uncertainties and broader geopolitical risks.

Japan Is Stagnating

Japan’s economy is expected to add only 0.5 percent in 2016, continuing to witness repetitive periods of modest growth and contraction. The exports are weak due to lower external demand and the private consumption is unable to support growth despite the real income gains.

Manufacturing employment is declining continuously but the effects are offset by gains in the service sector employment.

Global trends

Financial market conditions are expected to remain stable in 2017 but capital flows to emerging and developing economies remain vulnerable to market sentiments related to the willingness of investors to take risks. Global financial markets are still prone to sudden trend shifts due to fragile liquidity conditions that will drive the market mood in 2017.

World foreign direct investment will depend on the market mood in 2017.
World FDI are recovering but still cannot reach the levels of the early 2000s, mainly become of global uncertainties.

Cyclical and structural factors will slow down global trade in 2017, including lower revenues from oil. Global merchandise trade growth is yet to get momentum after reaching a post-crisis low in 2015, and remaining relatively flat in 2016. Cyclical headwinds accounted for about two thirds of the observed deceleration in global trade last year.

Banks managed to offset the negative effects of low interest rates in 2016 by adopting lower credit risk provisions, increasing fees, and lending more.  Nonetheless, sustained low or negative policy rates in the Euro Area and Japan may reduce markedly bank profits, resulting in decreasing banking ability to support private business undertakings.

Credit risks of EMDE borrowers, a market-making segment of the global lending markets, are still under intensive pressure. Some large energy and commodity exporters like Bahrain, Brazil, Kazakhstan, Oman, and Saudi Arabia saw their credit ratings downgraded in 2016 and the credit rating agencies will be busy reassessing EMDEs ratings throughout 2017.

Overall, your should expect modest growth in 2017, which is quite in line with the expectations following a financial crisis. The bad news is that the long-term growth prospects remain weak due to geopolitical uncertainties and constant political turbulence in many parts of the world.




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