The health of the world economy is in much better shape than it has been in the decade. Keeping their fingers crossed, economists and experts cautiously wait for periodic reviews of International Monetary Fund (IMF) to know the pulse of the global economy.
They heaved a sigh of relief this time as the 189-member IMF, in its latest World Economic Outlook, raised its forecast for global growth to 3.6 percent this year and 3.7 percent in 2018. The world economy grew 3.2 percent in 2016.
For both years, the outlook is up 0.1 percentage point from the IMF’s previous forecast in July and marks the fastest growth since 2010. Forecasts for euro zone, Japan, China, emerging market Europe and Russia were all revised upwards.
These growing numbers are not enough to declare victory over risks to the global economy which is still licking its wounds inflicted on it by the global financial crisis of 2008.
It is always good to fix the roof while the sun is shining, so rather than being complacent, this phase of recovery should be used as an opportunity for reforms by the policymakers and governments.
It is the time for countries to carry out structural reforms to boost productivity. Such bold moves may cause pains in the short term, but will be beneficial for the countries in the medium and long term.
There are several risks that could derail global growth. Geopolitical risks are rising, including the war of words between the US and North Korea over Pyongyang’s nuclear weapons programme is still making headlines in the global news.
The widening gap between the rich and poor has emerged as one of the biggest threats to the global economy. The income gap between rich and poor is growing, fueling political discontent with the free trade and global cooperation that the IMF and World Bank promote.
According to a risk report released by the World Economic Forum, income inequality has been declining for the last 30 years on a global level as countries in Asia and elsewhere play catch-up with more developed economies.
However, in large countries like the US, UK, Canada, Ireland and Australia, the 1 percent have disproportionately benefited from economic growth.
Another risk for the world economy is ramifications of rising interest rates in the US, the world biggest economy. So far the reaction to interest rate rises in the US had been benign in emerging markets, but it remains a risk for the fragile recovery.
The ongoing recovery is a window of opportunity for the policy makers to push for reforms. Failing this will prove a burden which will be difficult for the coming generations to bear.
