Academic journal article ASBM Journal of Management

Global Economy : Prospects, Divergences and Risks

Academic journal article ASBM Journal of Management

Global Economy : Prospects, Divergences and Risks

Article excerpt

Introduction

In today's globalised economic environment, there is a need for analysis of the international economic developments and the outlook for growth with a focus on the emerging markets and developing economies (EMDEs) as the various economies face wide and diverse macroeconomic, financial and structural policy challenges. The report on 'Global Economic Prospects 2016' of World Bank focuses on these issues in a detailed manner. The emerging markets and developing economies had an extremely challenging period in the early 1990s. Unfortunately, many of today's difficulties appear to be a repetition of 1991. Today, rising uncertainties from different, yet related, directions portend difficulties to come. Individually, none of these dark economic clouds would be sufficient to dampen the shortterm prospects for the world economy. Together they present compelling evidence that the world economy is in for a turbulent period in the short term. The impact of external circumstances on developing countries will depend crucially on how individual countries manage these contingencies. Policies in industrial countries will need to be sensitive to the concerns of emerging and developing countries and make it easier for them to restore momentum to growth process. This would be especially important for low-income countries that have relatively few strategic options open to them for sustained development. The world economy was projected to expand at 2.4 percent in 2016, roughly at the same insipid pace that was experienced last year. On the advantage side, commodity will maintain their relatively high growth, as the low prices become stable. On the other hand, commodity exporters will continue to face challenges, though even in these economies there should be a slow positive upturn, as commodity prices stabilize and they slowly begin to diversify their economy. Although global growth is projected to accelerate gradually, a wide range of risks threaten to derail the recovery, including a sharper-than-expected slowdown in major emerging markets, sudden escalation of financial market volatility, heightened geopolitical tensions, slowing activity in advanced economies, and diminished confidence in the effectiveness of policies to spur growth. These risks are compounded by the fact that for many countries policy buffers have eroded substantially, particularly in commodity exporting emerging and developing countries. Against this backdrop of weak growth, pronounced risks and limited policy space, policy makers in emerging and developing economies should put a premium on enacting reforms, which, even if they seem difficult in the short run, foster stronger growth in the medium and the long run. Among these measures, efforts to invest in infrastructure and education, health and other human skills and well-being, as well as initiatives to promote economic diversification and liberalize trade, will boost growth prospects and improve standards of living. The international community has an important role to play in the pursuit of these goals.

Global Outlook: Divergences and risks

Growth prospects have weakened throughout the world economy. Global growth for 2016 was projected at 2.4 percent, unchanged from the disappointing pace of 2015. The emerging markets and developing economies (EMDEs) are facing stronger headwinds, including weaker growth among advanced economies and persistently low commodity prices, as well as lack-lustre global trade and capital flows. Divergences between commodity exporters and importers persist. Conditions remain markedly challenging for commodity exporters, which continue to struggle to adjust to the new era of depressed prices. In contrast, commodity importers are showing greater resilience to headwinds, although the expected growth windfall from low energy prices has been surprisingly modest. Global growth is projected to pick up slowly to 3.0 percent by 2018, as stabilizing commodity prices provide support to commodity exporting EMDEs. …

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