World Bank tips 4.7% economic growth for SL this year

The World Bank is forecasting Sri Lanka’s economy to grow by 4.7% this year and by 5% next year though the estimate is far lower than the South Asian average.

Releasing its June 2017 Global Economic Prospects, the World Bank said growth in the South Asian region is forecast to pick up to 6.8% in 2017 and accelerate to 7.1% in 2018, reflecting a solid expansion of domestic demand and exports. 

Excluding India, regional growth is anticipated to hold steady at 5.7%, rising to 5.8%, with growth accelerating in Bhutan, Pakistan and Sri Lanka but easing in Bangladesh and Nepal. 

India is expected to accelerate to 7.2% in fiscal 2017 (1 April 2017-31 March 2018) and 7.5% in the next fiscal year. Pakistan is expected to pick up to a 5.2% rate in fiscal 2017 (1 July 2016-30 June 2017) and to 5.5% in the next fiscal year, reflecting an upturn in private investment, increased energy supply and improved security. 

“Sri Lanka’s growth is forecast to accelerate to a 4.7% rate in 2017 and 5% in 2018, as international financial institution programs support economic reforms and boost private sector competitiveness,” the World Bank said in its report. 

However, given the worst ever natural disaster since 2003 owing to monsoonal floods and landslides with 212 killed and nearly 100 missing with over a half a million displaced, Sri Lanka’s growth prospects for 2017 are likely to be downgraded, according to local analysts.  

The 4.7% GDP growth estimate of the World Bank, however, is lower than the Central Bank’s original forecast of 5% this year. 

Focusing on the international outlook, the World Bank forecasts that global economic growth will strengthen to 2.7% in 2017 as a pickup in manufacturing and trade, rising market confidence and stabilising commodity prices allow growth to resume in the commodity-exporting emerging market and developing economies.  

It said growth in advanced economies is expected to accelerate to 1.9% in 2017, which will also benefit the trading partners of these countries. Global financing conditions remain favourable and commodity prices have stabilised. Against this improving international backdrop, growth in the emerging market and developing economies as a whole will pick up to 4.1% this year from 3.5% in 2016.

Growth among the world’s seven largest emerging market economies is forecast to increase and exceed its long-term average by 2018. Recovering activity in these economies should have significant positive effects for growth in other emerging and developing economies and globally.  

Nevertheless, substantial risks cloud the outlook. New trade restrictions could derail the welcome rebound in global trade. Persistent policy uncertainty could dampen confidence and investment. Amid exceptionally low financial market volatility, a sudden market reassessment of policy-related risks or of the pace of advanced-economy monetary policy normalisation could provoke financial turbulence. 

Over the longer term, persistently weak productivity and investment growth could erode long-term growth prospects in the emerging market and developing economies that are key to poverty reduction.

“For too long, we’ve seen low growth hold back progress in the fight against poverty, so it is encouraging to see signs that the global economy is gaining firmer footing,” World Bank Group President Jim Yong Kim said. 

“With a fragile but real recovery now underway, countries should seize this moment to undertake institutional and market reforms that can attract private investment to help sustain growth in the long term. Countries must also continue to invest in people and build resilience against overlapping challenges, including climate change, conflict, forced displacement, famine and disease.”

The report highlights concern about mounting debt and deficits among emerging markets and developing economies, raising the prospect that an abrupt rise in interest rates or tougher borrowing conditions might be damaging. At the end of 2016, Government debt exceeded its 2007 level by more than 10 percentage points of GDP in more than half of emerging market and developing economies and fiscal balances worsened from their 2007 levels by more than 5 percentage points of GDP in one-third of these countries.

“The reassuring news is that trade is recovering,” said World Bank Chief Economist Paul Romer. “The concern is that investment remains weak. In response, we are shifting our priorities for lending toward projects that can spur follow-on investment by the private sector.”

A bright spot in the outlook is a recovery in trade growth to 4% after a post-financial crisis low of 2.5% last year. The report highlights a key area of weakness in global trade, trade among firms not linked through ownership. 

Such trade through outsourcing channels has slowed much more sharply than intra-firm trade in recent years. This is a reminder of the importance of a healthy global trading network for the less integrated firms that account for the majority of enterprises.

“After a prolonged slowdown, recent acceleration in activity in some of the largest emerging markets is a welcome development for growth in their regions and for the global economy,” said World Bank Development Economics Prospects Director Ayhan Kose. “Now is the time for emerging market and developing economies to assess their vulnerabilities and strengthen policy buffers against adverse shocks.”