World Economy on An Upward Trajectory

The world economy has been recover- ing since the first half of 2017, and has exhibited moderate growth after six years of slowing down. It is the first globally synchronized recovery for all areas and every major economy since the 2008 fi nancial crisis. However, the global economic environment is still highly uncertain due to the infl uence of Brexit negotiation, the Trump administration’s unpredictable policies and the U.S. Federal Reserve’s cycle of interest rate hikes. The surge in protectionism and global debt also casts shadows on the development of the world economy. In the future, structural adjustment, innovative growth and inclusive development are crucial to resumption of healthy develop- ment and sustained economic growth.

Synchronized recovery

Both advanced and emerging economies are picking up steam and show signs of cycli- cal expansion from the last half of 2016 to the first half of this year. Recently, interna- tional organizations upgraded their growth projections for the world economy in 2017 and 2018. According to forecasts by the International Monetary Fund (IMF), the world economy will grow 3.5 percent this year and 3.6 percent in the coming year, much higher than the average rate in recent years. What’s more remarkable is that this is the first instance of recovery throughout all areas in years.

The IMF also predicts that nations and regions covered by the Group of 20 (G20) will observe decent economic growth, which is of vital importance to trade and investment stability. The G20 economies account for 85 percent of global GDP and contribute 80 percent to the increase in world trade. China is conducting supply-side structural reform through technological innovation, indus- trial upgrading, economic transitioning and infrastructure construction under the Belt and Road Initiative. The U.S. Government issued a series of policies including tax cuts, infrastructure plans, deregulation and energy independence to achieve manufacturing renaissance. Every country is speeding up to adjust their economic structure and inno- vate. In this context trade and investment in the global economy have increased.

Steady recovery

Recently, economic recovery in developed countries has been on firmer footing. According to IMF estimates, growth in these countries would increase from 1.7 percent last year to 2 percent in this year and the next—moreover, the trend has been spot- ted in all developed countries.

The U.S. economy continues to gain momentum. Recently, U.S. home prices reached an all-time high, and the manu- facturing purchasing managers’ index (PMI) hit a 24-month high. Moreover, its unem- ployment rate fell to a historical low of 4.3 percent, infl ation is still below the targeted 2 percent, and the 1.2 percent economic growth in the first quarter is expected to increase to 3 percent in the second quar- ter. This data could bolster the Fed to make adjustments and increase interest rates. According to recent IMF estimates, the U.S. economy will grow by 2.1 percent in the next two years. Considering the size of the economy, which is more than $19 trillion, the estimated 2.1-percent growth is fairly impressive. The Organisation for Economic Co-operation and Development (OECD) claims that the Trump administration’ tax- cut policy and the $1-trillion infrastructure plan will contribute to the economic recov- ery, especially in 2018.

The eurozone economy is also show- ing signs of a steady recovery. European economy has remained unscathed from Brexit, the refugee crisis and terrorist at- tacks, and has now begun to rebound. The manufacturing PMI hit a 34-month high last November; more employment op- portunities have been made available; and consumption has gradually picked up. In the first quarter, the eurozone economy, mainly driven by domestic demand, ex- panded 1.9 percent. The IMF forecasts that the eurozone economy will grow by 1.7 percent and 1.6 percent respec- tively in the next two years. Although the British economy has slowed down due to Brexit, its long-term prospects are not pessimistic.

Late­mover advantage

Economic growth has been slowing down in emerging markets due to falling com- modity prices, continued depreciation of local currencies and capital flight, but it is still twice as high as that of developed economies. The IMF predicts that the economy will increase by 4.5 percent and 4.8 percent respectively in the next two years, which is higher than that of last year, and will rise to 5 percent in 2019 to 2022. The late comer advantages in emerging economies are still available.

Asia stands out in the world economy and remains the fastest-growing region, but will slow down due to China’s lower GDP growth prospects. The IMF predicts that the economic growth rate will level off at 6.4 percent in the next two years, which is still higher than that of the Middle East, Central and East Europe and Africa. South Asia’s eco- nomic growth has accelerated significantly. With the promotion of the Belt and Road Initiative, Asian countries are looking for pos- itive and interactive development through infrastructure construction to enhance interconnectivity and platform-building to advance regional economic and trade cooperation.

Emerging markets are still the major driver of global economic expansion. They have managed to tackle various unfa- vorable conditions by improving policy framework and implementing structural reform. The IMF believes that emerging economies, responsible for nearly 80 per- cent of global economic growth, are more than just manufacturing centers or trade hubs to pack up and transport goods to developed economies They are of increas- ing importance as the final destination of services and products.

Vital factors

The simultaneous expansion of manufactur- ing PMI in major countries is an important indication of world economy growth. The PMI of major manufacturing countries— China, the U.S., Japan, Germany, Britain and France—have begun expanding simultane- ously from the fourth quarter last year. That means the real economy has rid itself of the weak situation caused by the fi nancial crisis and has started the capital increase and ex- pansion period. This will drive international trade and global direct investment growth, create more jobs and stimulate consump- tion growth.

The resumption of growth in interna- tional trade and global direct investment underpins a sustained economic recovery. The IMF foresees a 3.8-percent growth in international trade this year, better than the average 2.9 percent since the financial crisis and much higher than the 2.6 percent seen in 2015 and 2.2 percent in 2016. The World Investment Report 2017 issued by the United Nations Conference on Trade and Development estimates foreign direct investment (FDI) will rise by 5 percent and reach $1.8 trillion, and will continue growing until 2018.

Lingering uncertainties

The spread of trade protectionism and the wave of anti-globalization have cast a shadow on the healthy development of the world economy. The wave of anti-global- ization implies that there are institutional problems in the West-dominated econom- ic order and also shows that globalization is at a crossroads. Rising protectionism could affect the growth of global trade and the uncertainties in policy may damage market confi dence and the willingness to invest.

The high global debt threatens the sustainable development of the global economy. On one hand, the quantitative easing policy implemented by central banks of the U.S., Europe and Japan led to rampant global liquidity The long-term low or even negative interest rates have re- duced the costs of fi nancing. On the other hand, the fiscal stimulus implemented by governments induced high global debt and threatened the stability of the global economy and international fi nance.

In conclusion, the global economy, in- ternational trade and FDI will show moderate and simultaneous growth in 2017. But there is still a long way to go for a complete recov- ery, and national macroeconomic policies still face uncertainties.