(MENAFN- The Peninsula) Global economic growth is likely to pick up steam this year helped by many supportive factors. The growth will be driven by a buoyant US economy, supportive government policies, an improvement in global sentiment, a recovery in commodity prices and an upturn in the inventory cycle, QNB said yesterday in its report.
The International Monetary Fund (IMF) revised up its forecast for global growth for the first time for five years when it released its World Economic Outlook last week. The 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.
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. First, fiscal policy is expected to become more supportive of growth in 2017. The government response to the global financial crisis of 2008-09 and European sovereign debt crisis in 2011-12 was to implement more 'austere fiscal policy which dragged on growth right up to 2015, said the report.
'However, 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, it added.
China is providing considerable stimulus through public investment in infrastructure and real estate that has spill-overs to the rest of the world.
The report expect monetary policy in a number of economies 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.
'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. 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, said the report.
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. 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 Forward looking indicators of business and consumer confidence have picked up globally since the middle of 2016.
Despite the positive prognosis, the IMF also cautions against a number of risks that could upset growth.
'Growth may be picking up in 2017, but the recovery could easily be short lived with a return to the slow global growth rates of the recent past not a distant possibility, said the report.
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