Statsguru: World economy experiencing recovery with investment activity

The world economy is experiencing a broad-based cyclical recovery with investment activity and trade rebounding, the World Bank said.  

Growth has perked up to three per cent in 2017, with both emerging and advanced economies growing at a faster clip (Chart 1). There are reasons to be cautiously optimistic about the prospects of growth across major regions. 

In the US, while employment growth has slowed (Chart 2), the slack in the labour market is diminishing and the economy is moving towards full employment. But, though productivity has improved recently (Chart 3), it does remain a major constraint to growth. 

In the euro zone, spurred by policy stimulus and strengthening global demand, both domestic demand and export growth have been quite robust (Chart 4). 

In China, where rebalancing continues, both public and private investment activity has fallen sharply (Chart 5). But exports have revived (Chart 6) on the back of stronger world growth. The World Bank expects global trade growth to average roughly at four per cent in the coming years (Chart 7), boosting prospects of major exporting regions. 

On the issue of oil prices, the decline in prices between 2014 and 2016 was triggered by a combination of receding geopolitical risks, weaker global growth prospects and the surge in US shale oil production, the report said. The latter is one of the main drivers of global oil supply glut (Chart 8). 

Now, falling production costs and efficiency gains have lowered the break-even price for the shale oil industry to less than $50 per bbl (chart 9). Some argue that even at $30 per barrel, about 50 per cent of the US shale reserves are viable, suggesting little headroom for oil prices to move up.

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Source: Global Economic Prospects, World Bank, JANUARY 2018 ; Compiled by BS Research Bureau