‘We will see this year whether this is permanent or temporary, but the good news is that we have pulled growth up and expect growth to continue steadily in the next two years,’ says Ayhan Kose
Global economic growth is expected to continue steadily over the next two years, supported by the better-than-expected performance of the US, Chinese and European economies, limited impact of tariff fluctuations, stagnating inflation and AI investments, the deputy chief economist of the World Bank Group and director of the World Bank’s Prospects Group said.
Evaluating the findings of the Global Economic Prospects Report, which was published by the World Bank on Jan. 13, Ayhan Kose described the upward revisions in global economic growth forecasts as “good news.”
Explaining the reasons for raising the bank’s global economic growth forecasts from 2.4% to 2.6% for this year and from 2.6% to 2.7% for next year, he told Anadolu that the American, Chinese and European economies performed better than expected.
He noted that the impact of fluctuations in customs tariffs and trade uncertainties on growth was less than expected, adding: “International supply chains turned out to be much more resilient than expected.”
Pointing out that financial conditions are in a much better state with the stagnation in inflation, Kose said that increasing investments in artificial intelligence (AI) in some countries also provided support for growth.
“We will see this year whether this is permanent or temporary, but the good news is that we have pulled growth up and expect growth to continue steadily in the next two years,” he said.
Frequent changes in customs tariffs remain a major risk
Touching upon the risks facing the world economy, he said the first of the three most important risks is the frequent changes in international trade, especially regarding customs tariffs, and the uncertainty this creates. The second is the expectation regarding the potential re-emergence of financial shocks, and the third is the serious debt problem in many countries which could lead to repayment issues if financial winds reverse.
Kose highlighted that there is a serious debt problem in developing countries and that this problem also exists in developed countries, but the debt-carrying capacity of developed countries is much higher compared to developing countries.
Pointing to the debt problem in low-income countries, he noted that there has been an acceleration in debt growth along with the problems brought by this, especially after the coronavirus pandemic.
Emphasizing the importance of countries creating a serious medium-term fiscal program against the debt problem, he said: “The most important thing is to put a serious medium-term fiscal program on the table; the revenue side of this program needs to be very strong, measures to increase revenues need to be taken, and on the other side, increasing efficiency in expenditures is very important.”
Stating that transparency is also important for the work to be carried out in an environment of trust, he noted that these fiscal programs should be supported by macro-prudential and financial policies.
Downward trend in inflation expected to continue
Regarding global inflation, the economist said: “We saw a slight downward trend in inflation around the world last year, and we expect this to continue.”
Mentioning the reasons for the slowdown in inflation, he stressed that while commodity prices are volatile, there is a decline in energy prices and softness in labor markets which puts reverse pressure on prices.
He added that monetary policy is still focused on fighting inflation in many countries, and while the permanence of the decline remains to be seen, it is crucial to adjust monetary policy seriously to respond to potential inflationary shocks.
Drawing attention to the fact that the next decade is very important for the labor market, he said that 1.2 billion young people between the ages of 15-24 are expected to join the workforce in developing countries during this process.
Noting that finding jobs for young people is very important for social peace, he said they need to contribute to production and advance in their careers.
He warned that the progress recorded in the speed of job creation in developing countries in the last 25 years has not been sufficient and that a major unemployment problem will be encountered if this speed continues in the same way in the next 10 years.
Explaining what needs to be done in this regard, he said: “We need to strengthen the investment environment, contribute to the growth of firms and work to ensure that those who will newly join the workforce are educated in a way that they can work in productive, high value-added areas and gain job qualifications.”
Pointing to developments in AI, he said it is difficult to evaluate AI in a shortcut way, as it can create new jobs while causing some jobs to disappear in the short term
“So government policies need to step in to establish digital infrastructure and ensure new generations join the business world by receiving necessary education,” he added.
