The State of the Global Economy
[Based on the opening remarks made at the Chief Economists’ Roundtable on “Growth and Inclusion in Turbulent Times”]
It is time for the annual Spring Meetings. Many of the world’s finance and development ministers, along with business and civil society leaders, are here is Washington and have been meeting with us at the World Bank this week to discuss what we can do to rise up to these challenging times. Most conversations have come to land on two important questions, namely: What is happening around the world in different regions? And: what can we do to stem the slowdown and disunity around the right policy way ahead?
To address those questions and share their experiences, officials in charge of designing and implementing national housing policies in eight countries (Argentina, Bolivia, Brazil, Chile, Colombia, Mexico, Paraguay, and Peru) recently met in Washington DC, along with representatives from the World Bank, Cities Alliance, the Urban Institute, and Wharton's International Housing Finance Program.
Finance ministers, auditors-general, and leaders of professional accounting organizations are meeting Tuesday in Nassau to discuss a topic that is often hidden from view, but is critical to quality of life in the Caribbean: Capacity and standards in public financial management.
How governments manage taxes, borrowing and spending is essential to economic growth, to poverty-reduction, and to ensuring that the region’s poorest can improve their lives. It is a core function of accountability in government. Improvements in this area could increase the health of small and medium-sized enterprises, create jobs, and bring in additional government revenues to spend on essential public services. Residents of Caribbean nations: this strategic dialogue will be about how the government manages your money.
The most recent International Women’s Day focused on accelerating gender parity, which makes it a perfect time to highlight the urgent need to boost women’s economic participation worldwide. One way of doing that is by tapping into the power of digital payments and digital financial services.
Now there’s a guy who really puts the full-scale dismal into “the dismal science” of economics – spurring optimists to quickly seek out more hopeful visions of the future.
Those seeking a glimmer of hope about the economic future were well-advised to keep their expectations low as they awaited the gloomy analysis by Prof. Robert J. Gordon, the esteemed economic historian from Northwestern University, who spoke at the World Bank Group’s Macrofiscal Seminar Series on March 31. As anticipated, Gordon’s expertly documented but relentlessly downbeat scenario, based on his latest book, “The Rise and Fall of American Growth,” persuasively made the case for a future of chronically sluggish growth in the world’s advanced economies.
Gordon’s chilling projections combine some of the darkest aspects of Lawrence Summers’ worries about “secular stagnation,” Christine Lagarde’s lamentations of a “New Mediocre” and private-sector leaders’ struggle to strategize for the “New Normal.” Gordon’s bleak thesis foresees “little growth” – although, significantly, not zero growth – as the developed world’s weary economies endure perhaps decades of drift.
Policymakers in the world’s largest economies are surely exasperated by the painstaking crawl out of the global financial crisis – yet they don’t have much positive news to look forward to, asserts Gordon. With “declining potential productivity growth” compounding the impact of declining population growth and a declining labor-force participation rate, there’s probably no technological deus ex machina that can soon propel the world’s advanced economies toward restored prosperity.
That viewpoint defies the techno-utopian visions that have been so eagerly peddled to anxious Western voters, who can only dream of a return to brisk late-1990s-style growth. Quipped the Macrofiscal seminar’s discussant, Deepak Mishra: Gordon “has made a career of busting the technology hype.”
Yet Gordon’s logic need not trigger total despair among the Bank’s poverty-fighting professionals and their counterparts at other development institutions. Gordon emphasized that his analysis is about the American economy, and, to some extent, about the mature economies of Western Europe. His book’s foreboding predictions, he said, do not extend to developing economies, which enjoy “great potential for growth.”
For can-do pragmatists who strive for stronger growth and sustained progress in developing economies, there’s a ready antidote to Gordon-style macroeconomic gloom. By happenstance, immediately after Gordon delivered his grim analysis in the Bank’s J Building auditorium, optimists seeking inspiration needed only to cross the street to the Bank’s Main Complex to hear an energetic appeal for greater hands-on activism.
With an update on the movement for Community-Led Development (CLD), a seminar sponsored by the Bank’s Community-Driven Development Global Solutions Group learned of the promise that CLD offers for inspiring inclusive, sustainable solutions that enlist citizens’ engagement and build community-level confidence in strong governance standards.
Moving from macro to micro – dispelling the dread of inexorable global forces and embracing positive citizen-centric action – the CLD leaders leapfrogged Gordon’s macro-level angst to highlight micro-level opportunity.
Today, over 80 million tons of CO2 will be emitted from economies around the world. Tomorrow will be the same, as will the day after that. The emitted amounts of CO2 will likely stay in the atmosphere for hundreds, if not thousands of years, further compounding the challenges in reversing the current and expected effects of climate change.
This past December, in Paris, leaders of 195 nations of the world agreed that this trend must be reversed, signaling a historic turning point in the global fight against climate change. The Paris Agreement ratified a global consensus to limit the global average temperature rise to ‘well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels.’ Developing nations were at the forefront of this agreement, with almost every one of them setting carbon reduction goals. While the public sector will play a major role in helping achieve the ambitious targets, the sheer volume of investment required to support low-carbon energy, transportation, and agriculture projects throughout the developing world leaves a gap of hundreds of billions of dollars that only the private sector is in a position to fill.
The private sector continues to be a critical driver of job creation and economic growth. However, several factors can undermine the private sector and, if left unaddressed, may impede development. Through rigorous face-to-face interviews with managers and owners of firms, the World Bank Group’s Enterprise Surveys benchmark the business environment based on actual experiences of firms.
This blog focuses on surveys conducted of 781 Kenyan firms across five regions (including Nairobi and Mombasa) and six business sectors—i) food, ii) textiles and garments, iii) chemicals, plastics and rubber, iv) other manufacturing, v) retail, and vi) other services.
Under Kenya’s new constitution, the country recently embarked on several major business reforms that promoted a more market-friendly environment. Some examples of positive benefits include boosts in public investment in infrastructure, increased interest from foreign investors, and lowered transaction costs from information technology improvements. The Kenya Enterprise Surveys sheds light on how the country’s private sector fared amidst these reforms.
More firms use financial services than before
According to the Kenya Enterprise Surveys (ES) data, the use of financial services has improved since 2007. On average, 44% and 41% of Kenyan firms use banks to finance investment and working capital, respectively. The corresponding figures in 2007 were much lower at 23% and 26%. Moreover, the percentage of Kenyan firms with a bank loan is 36%, which is on par with the global average yet higher than the average of countries in the same income group (do note that when this survey was conducted, Kenya was classified as a low income country, having since graduated to a lower middle income country).
When you think of online auctions, what products come to mind? Perhaps electronics, collectibles or concert tickets, but it’s unlikely that you think of climate finance. However, the Pilot Auction Facility for Methane and Climate Change Mitigation (PAF) recently combined the two, and for this, we are thrilled to be awarded Environmental Finance’s Carbon Deal of the Year 2016.