Where is the world economy heading?

By Zhang Liying
0 Comment(s)Print E-mail China.org.cn, January 17, 2019
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Chen Fengying (R), former director of the World Economy Institute at the China Institutes of Contemporary International Relations, speaks at a press salon held by the All-China Journalists Association on Jan. 15, 2019. [Photo by Zhang Liying / China.org.cn]

The world economy muddled through 2018 amid harrowing uncertainties caused by rising protectionism, a gradual tightening of global financial conditions and mounting trade tensions among major economies. Where is it heading in 2019?

Despite persistent complexities, the global economy is expected to continue its expansion with certainty, but at a slower pace, said Chen Fengying, former director of the World Economy Institute at the China Institutes of Contemporary International Relations, speaking at a press salon held by the All-China Journalists Association on Tuesday.

Continued, but slower growth

Chen said that although the World Bank warned of "darkening skies" for the world economy in its newly-released Global Economic Prospects report, its forecast of expansion at 2.9 percent is still above the average annual growth rate of about 2.5 percent in the past 40 to 60 years.

The Chinese researcher said she was sure of continued global growth, but also a slowdown, which will be mainly attributable to the United States and China.

The possibility of weaker economic circumstances in the world's two largest economies spell increasing downward pressure for global growth, Chen said.

Chen also said that the waning impact of U.S. tax cuts promises the country's economic slowdown after a strong performance in 2018, with its gross domestic product (GDP) growth hitting 3 percent, according to Federal Reserve statistics.

In December, the central bank's policy-setting board lowered its estimate for U.S. GDP in 2019 to 2.3 percent growth, down from a September projection of 2.5 percent.

The deceleration of China's economic growth is also unavoidable due to the country's determined efforts to deleverage, cut overcapacity and reduce excess inventory, Chen said, adding that the quality and sustainability of its development are being improved.

Greater certainty and stability

Chen forecast that the global economic situation will be more stable and predictable this year than in 2018, thanks to the temporary trade truce between the U.S. and China, as well as fewer rate hikes by the Fed.

She further said that the restart of Sino-U.S. trade negotiations, plus a return to rationality and sincerity on the part of the resolve of the two leaders, is expected to raise global economic certainty.

After its latest monetary policy meeting in December, the Fed raised the federal funds rate to the 2.25 to 2.5 percent range, adding that this was much closer to a neutral interest rate that will neither boost nor cool the economy.

The Fed raised the federal funds rate four times in 2018, and lowered its projections on the number of rate hikes in 2019 from 3 to 2 during the latest rate hike announcement.

Chen said that a steady U.S. Dollar Index will help calm the turmoil in emerging markets, whose currencies took a hit in 2018 due to a robust greenback.

New round of globalization

Chen said that despite new forms of backlash, globalization continued to gather momentum during the past year.

The deal to upgrade the North American Free Trade Agreement (NAFTA), the success of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the acceleration of the Regional Comprehensive Economic Partnership (RCEP) negotiation all heralded a new round of globalization, she said.

According to Chen, the reforms of the World Trade Organization (WTO) should be put at the top of the world's economic agenda for 2019.

She noted that globalization is irreversible and the WTO dispute settlement regime, which is at risk of paralysis, needs immediate amendment to uphold the rules-based multilateral trading system.

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