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World Bank: A Pickup in Trade and Manufacturing Will Fuel Economic Growth This Year

In the face of all the dismal trade news, the World Bank seems to still have an upbeat outlook.

On Sunday, the World Bank said it forecasts that global economic growth will strengthen to 2.7% this year, coming up from a post-crisis low 2.4% last year. This growth will come thanks to a pickup in manufacturing and trade, rising market confidence and stabilizing commodity prices, according to the World Bank’s June 2017 Global Economic Prospects.

“The reassuring news is that trade is recovering,” World Bank chief economist Paul Romer said. “The concern is that investment remains weak. In response, we are shifting our priorities for lending toward projects that can spur follow-on investment by the private sector.”

Trade growth has recovered to 4 percent after coming in at just 2.5% last year, but the report said trading through outsourcing channels has slowed more sharply than intra-firm trade, highlighting the need for a “healthy” global trading network for companies that are less integrated than others.

According to the World Bank’s outlook, advanced economies should see growth accelerate to 1.9% this year (up from 1.7% last year), which should also benefit these economies’ trading partners. Growth in emerging markets and developing economies will ramp up to 4.1% this year from 3.5% in 2016.

“After a prolonged slowdown, recent acceleration in activity in some of the largest emerging markets is a welcome development for growth in their regions and for the global economy,” said World Bank development economics prospects director Ayhan Kose. “Now is the time for emerging market and developing economies to assess their vulnerabilities and strengthen policy buffers against adverse shocks.”

But reining in the positives, World Bank said “substantial” risks could cloud the outlook.

“New trade restrictions could derail the welcome rebound in global trade,” the report noted. “Persistent policy uncertainty could dampen confidence and investment.”

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(Read more about how policy uncertainty is affecting global trade: Trump’s Paris Agreement Exit Could Incite Trade War—What it Might Mean for Sourcing)

Longer term, World Bank said persistent weak productivity and investment growth could hamper long-term growth prospects in emerging and developing markets.

Regional outlooks

East Asia and Pacific: Growth in the East Asia and Pacific region will likely ease to 6.2% in 2017, and then 6.1% in 2018, after coming in at 6.3% last year, owed largely to a slowdown in China. Growth in China will slow to 6.5% this year and 6.3% next year.

“Excluding China, the region is seen advancing at a more rapid 5.1% rate in 2017 and 5.2% in 2018,” World Bank said.

Europe and Central Asia: Europe and Central Asia may fare better in coming years, with growth this year expected to reach 2.5% (up from just 1.5% last year), and to climb to 2.7% in 2018.

This outlook comes thanks to a “continued recovery among commodity exporters and unwinding of geopolitical risks and domestic policy uncertainty in major economies in the region,” according to World Bank.

Latin America and the Caribbean: Growth in this region will strengthen to 0.8% this year, up from a -1.4% decline last year, as Brazil and Argentina work their way out of recession, and rising commodity prices are expected to provide a boost too.

Brazil should see growth expand to 0.3% this year and then 1.8% next year, while Argentina’s growth will reach 2.7% this year. Growth in Mexico will moderate to 1.8% this year, primarily due to shrinking investment in the face of uncertainty about U.S. economic policy.

Middle East and North Africa: This year won’t be a great one for the Middle East and North Africa as growth is projected to drop to 2.1% from last year’s 3.2% thanks to production cuts for oil exporters. But things may be looking OK for Egypt.

“Egypt’s economy is forecast to moderate in the current fiscal year before steadily improving over the medium-term, supported by the implementation of business climate reforms and improved competitiveness,” World Bank said.

South Asia: South Asia, it seems, will see perhaps the highest rate of growth, reaching 6.8% this year and 7.1% in 2018 (from 6.7% last year), as domestic demand and exports expand.

“Excluding India, regional growth is anticipated to hold steady at 5.7%, rising to 5.8%, with growth accelerating in Bhutan, Pakistan, and Sri Lanka but easing in Bangladesh and Nepal. India is expected to accelerate to 7.2% in fiscal 2017 (April 1, 2017 – March 31, 2018) and 7.5% in next fiscal year,” according to World Bank.

Sub-Saharan Africa: As commodity prices rise and governments institute reforms to address macroeconomic imbalances, growth in Sub-Saharan Africa should pick up to 2.6% this year and 3.2% in 2018 (up from a much lower 1.3% last year).

“Growth in non-resource-intensive countries is anticipated to remain solid, supported by infrastructure investment, resilient services sectors, and the recovery of agricultural production. Ethiopia is forecast to expand by 8.3% in 2017, Tanzania by 7.2%, Côte d’Ivoire by 6.8%, and Senegal by 6.7%,” World Bank said.