Global economic growth seems to pick up steam this 2017, thanks to several supportive factors. This growth is going to be made possible by the buoyant economy of the United States, an improved global sentiment, supportive policies of the government, an upturn in the recovery cycle, and a recovery in prices of commodities.
The IMF or International Monetary Fund has made changes on its forecast on global growth for the very first time in 5 years when it released a recent World Economic Outlook. Right now, the IMF expects that there will be a remarkable pick up of 3.5% this year from last year’s 3.1% in global growth. This is different from the earlier 2017 forecast of 3.4%.
But, the IMF added that numerous risks could easily tip off this expected global recovery such as geopolitics, trade protectionism, tighter than expected monetary policy and rising debt.
Based on the report, there are several factors which are anticipated to drive up international growth. The first on the list is having a more growth supportive fiscal policy. The response of the government to the 2008 to 2009’s global financial crisis and the 2001 to 2012 European sovereign debt was to create a more austere fiscal policy that pulled down growth until 2015.
The IMF, however, also claims that fiscal policy gave mild support to growth in 2016. The change’s lagged effects in broadly neutral and stance fiscal policy this year will most likely contribute to improved growth this 2017.
The country of China provides a considerable stimulus by way of public investment in real estate and infrastructure which spilled over to other parts of the world.
IMF’s report expects monetary policy in several economies to stay highly accommodative. European Central Bank continues with quantitative easing and negative interest rates which push credit growth further and Bank of Japan introduced a policy for targeting 10-year zero yields.
Higher prices of commodities are believed to further add to global growth. The IMF is expecting that oil prices will increase from an average price of $45 for every barrel last year to per barrel price of $56 this 2017. This is going to support global growth since higher revenue can lead to income recovery and spending in countries that export commodities and with the recovery of energy sector investment.
The cycle of inventory is also likely to boost the 2017 growth. Last year, as growth was slower than what was expected in most of the large economies, companies in Europe and the United States pulled back on their investments and drew on the inventors in order to meet the demand, paving way for a drag of about 0.4 percentage points on the GDP growth. But since the middle part of 2016, companies started to rebuild inventories which lead to higher investment which is believed to continue this year and should serve as a crucial contributor to growth in both Europe and the US.
While IMF’s reports seem to be very promising, again, it is important to note that potential risks can always upset this expected growth.