WASHINGTON: The Interna­tional Monetary Fund (IMF) projected on Monday that the global economy, especially emerging and developing markets, will pick up pace in 2017 and 2018.

Global growth is projected to be 3.4 per cent in 2017 and 3.6pc in 2018, a noticeable increase from the estimated 3.1pc growth for 2016.

The growth forecast for the greater Middle East region, which includes both Pakistan and Afghanistan, is 3.1pc for 2017 and 3.5pc for 2018. The projection for 2017 is 0.3pc less than 3.4pc estimated in October 2016. In 2018, the region’s growth will be 0.1pc less than the IMF’s October 2016 estimate for 2018.

The IMF report also projects a firming of oil prices following an agreement among major oil-producing countries to reduce supply. This will have a major impact on countries like Pakistan, which benefitted from low oil prices that, at one point, fell by more than 70pc.

The IMF has predicted that oil prices will increase gradually from an average of $43 a barrel in 2016 to above $50 a barrel in 2017.

The January 2017 update of the IMF World Economic Outlook warns that the policies of the incoming Trump administration in the United States can also affect its projections.

“There is a wide dispersion of possible outcomes around the projections, given uncertainty surrounding the policy stance of the incoming US administration and its global ramifications,” the report adds.

The IMF has trimmed its growth forecast for India in the current and next fiscal years by one percentage point and 0.4 percentage points, respectively. This is primarily due to the temporary negative consumption shock induced by cash shortages and payment disruptions associated with the recent currency note withdrawal and exchange initiative.

But for China, the IMF has raised its 2017 growth forecast to 6.5pc, 0.3 percentage points above the October projection. The report, however, warns that China’s continued reliance on policy stimulus measures, with rapid expansion of credit and slow progress in addressing corporate debt, raises the risk of a sharper slowdown or a disruptive adjustment. These risks can be exacerbated by capital outflow pressures, especially in a more unsettled external environment.

In the Middle East, growth in Saudi Arabia is expected to be weaker than the earlier forecast for 2017 as oil production is cut back in line with the recent Opec agreement, while civil strife continues to take a heavy toll on other countries in the region.

In Turkey, growth in 2016 was weaker than expected as it faced a sharp contraction in tourism revenues due to recent terrorist attacks.

The IMF cites the projected growth pickup in Emerging Market and Development Economies (EMDE) as the primary factor behind the strengthening global outlook over 2017-18. Global growth is also backed by a gradual normalisation of conditions in large economies that are currently experiencing macroeconomic strains.

EMDE growth was estimated at 4.1pc in 2016, and is projected to reach 4.5pc for 2017, around 0.1 percentage point weaker than the October forecast. A further pickup in growth to 4.8pc is projected for 2018.

Risks

The IMF warns potential widening of global imbalances coupled with sharp exchange rate movements could intensify protectionist pressures. Increased restrictions on global trade and migration would hurt productivity and incomes, and take an immediate toll on market sentiment.

In advanced economies, an extended shortfall in private demand and inadequate progress on reforms could lead to permanently lower growth and inflation, with negative implications for debt dynamics.

In many low-income economies, low commodity prices and expansionary policies have eroded fiscal buffers and led in some cases to a precarious economic situation, heightening their vulnerability to further external shocks.

Other risks include civil war and domestic conflict in the Middle East and Africa, the tragic plight of refugees and migrants in neighbouring countries and in Europe, acts of terror worldwide, the protracted effects of a drought in eastern and southern Africa and the spread of the Zika virus.

“Increased geopolitical tensions and terrorism could also take a large toll on global market sentiment and economic confidence,” the report warns.

Policies

In advanced economies, monetary policy must remain accommodative, relying on unconventional strategies as needed.

Policies protecting the vulnerable and lifting medium-term growth prospects remain essential for generating momentum.

Fiscal adjustment should be calibrated to minimise the drag on output.

Accommodative macroeconomic policies must support structural reforms that can boost labour force participation, encourage investments in skills, improve the matching process in labour markets, liberalise entry into closed professions, increase dynamism and innovation in product and service markets, and promote business investment, including in research and development.

Emerging market and developing economies must enhance financial resilience to reduce their vulnerability to a tightening of global financial conditions, sharp currency movements, and the risk of capital flow reversals.

Economies with large and rising nonfinancial debt, unhedged foreign liabilities, or heavy reliance on short-term borrowing to fund longer-term investments must adopt stronger risk management practices and contain balance sheet mismatches.

Over the longer term, countries highly dependent on one or a few commodity products should work to diversify their export bases.

A stronger global safety is needed to protect economies that are vulnerable to cross-border contagion and spillovers.

Multilateral cooperation is needed to address longer-term global challenges, such as meeting the 2015 Sustainable Development Goals, mitigating and coping with climate change, and preventing the spread of global epidemics.

Published in Dawn, January 17th, 2017