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Tribune News Network
Doha
The International Monetary Fund (IMF) now expects global growth to pick up from 3.1 percent in 2016 to 3.5 percent in 2017, compared with its previous forecast of 3.4 percent for 2017.
A number of factors are expected to drive the acceleration in growth including a buoyant US economy, supportive government policies, an improvement in global sentiment, a recovery in commodity prices and an upturn in the inventory cycle, said a report by Qatar National Bank (QNB).
However, the IMF cautioned that a number of risks could upset the global recovery such as trade protectionism, geopolitics, rising debt and tighter-than-expected monetary policy.
A number of factors are expected to drive up global growth. The fiscal policy is expected to become more supportive of growth in 2017.
The IMF estimates that fiscal policy became mildly supportive of growth in 2016. The lagged effects of this change in stance and broadly neutral fiscal policy this year are likely to contribute to higher growth in 2017. In particular, China is providing considerable stimulus through public investment in infrastructure and real estate, the report said.
The monetary policy in a number of economies is expected to remain highly accommodative. The European Central Bank continues with negative interest rates and quantitative easing, which is pushing credit growth higher, and the Bank of Japan has introduced a policy to target 10-year yields of zero. Although, monetary policy may be tightened in the US, the IMF expects that this will be more than offset by easing elsewhere.
The higher commodity prices are expected to contribute to global growth. The IMF expects oil prices to rise from an average of $45 per barrel in 2016 to $56 per barrel in 2017, similar to the QNB forecasts. This will support global growth as higher revenue leads to a recovery in income and spending in commodity-exporting countries and as investment in the energy sector recovers, particularly in the US.
The inventory cycle is likely to contribute to growth in 2017.
In 2016, as growth proved slower than expected in a number of large economies, companies in the US and Europe pulled back on investment and drew on inventories to meet demand, which led to a drag of around 0.4 percentage points on GDP growth, the bank said.
However, since mid-2016, companies have started rebuilding inventories leading to higher investment, which is expected to continue in 2017 and should be an important contributor to growth in both the US and Europe.
Finally, consumer and business sentiment are also likely to be important contributors to higher global growth, particularly in the US.
The indicators of business and consumer confidence have picked up globally since the middle of 2016.
For example, US consumer confidence is the highest since the financial crisis and Germany's business climate index is the highest since 2011. As global growth gathers momentum from easier policy, rising commodity prices and the upswing in the inventory cycle leads to more confidence among businesses to invest.
