Politics and economy of the world

Muhammad Arif

New Year has appeared. How it would proceed for 365 days is a thinkable question for all. 2018 world over would be regarded election year for various countries. 16 countries in Africa including Egypt, Libya, Zimbabwe would go to elections. In Asia, 11 countries including Afghanistan, Malaysia, Pakistan, South Korea, Thailand would go to elections. In Middle East, 4 countries including Israel and Iraq would go to elections. In Europe, 21 countries including Russia, Sweden, Hungary, Finland, Ireland, Czech Republic, Hungary, Italy would go to elections. In North America, 11 countries and States including Cuba and Mexico would go under elctions. In South America Brazil, Venezuela, Columbia would go to elections. In Oceania, 6 countries including Fiji Island, Tasmania and some states of Australia would go to elections.
2018 would likely be recalled as a period of stark contrast in the developed world, with many economies experiencing growth acceleration, alongside political fragmentation, polarization, and tension, both domestically and internationally.
One exception can be the United Kingdom, which now faces a messy and divisive Brexit process. Elsewhere in Europe, Franco-German relations are going to matter. Many in France would look toward Germany with a sense of admiration, mixed with a certain amount of envy. How do the Germans do it? With export surplus, widespread contentment, sense of social calm they always do it. What Macron is hoping to achieve in France is pretty much the definition of the German “Sozialen Marktwirtschaft,” or social market economy. Hence concepts of free market or social market economy would continue standing against each other. None of this is good for the UK or the rest of Europe in 2018 which desperately needs France and Germany to work together to reform the European Union. With several elections already out of the way in Europe, Italy now presents the biggest political risk in 2018 for markets and investors.
In USA again and again, Donald Trump has proven himself to be a figure outside the norms of politics, diplomacy, and human decency. Yet, 2018 would be the year to prove whether he can transform himself to be a true US president but the chances are slim. This trend would continue in 2018. 2018 is going to be a very good year for Democrats.
In Asia, Chinese President Xi Jinping is in a stronger position than ever, suggesting that effective management of imbalances and more consumption- and innovation-driven growth can be expected. India also appears set to sustain its growth and reform momentum. As these economies grow, so will others throughout the region and beyond. Going into 2018, there will be noticeably more politics in the Chinese operations of foreign businesses, whether via the influence of Communist Party workplace committees transmitting Beijing mood music – or potentially something more onerous – or new regulations capriciously enforced.
Increasingly hostile statements by U.S. President Donald Trump and North Korean leader Kim Jong would continue raising fears of a miscalculation that could lead to war, particularly since Pyongyang conducted its sixth and most powerful nuclear test on Sept. 3 2017.
In Zimbave (Africa) Mugabe, 93, the world’s oldest living leader, was overthrown by the Military in 2017. This move would have implications in other African countries in 2018 denting despotic regimes further.
The world economy’s acceleration so far in 2018 would remain stronger than earlier estimates, with an upswing under way across nearly all the world’s major economies, the International Monetary Fund says.
In its flagship report, known as the World Economic Outlook, the IMF raised its forecast for growth to 3.7% in 2018. That is up 0.1 percentage point in each year from the most recent round of forecasts, released in July.
The upturn has been heralded by many policy makers and economists. The IMF agreed that in the short-term, the global economy has achieved a degree of momentum that has eluded the world for many years.
The current global acceleration is also notable because it is broad-based – more so than at any time since the start of this decade,” said the IMF’s chief economist, Maurice Obstfeld.
But the organization also cautioned that recovery from the financial crisis of 2007-09 remains incomplete, and that latent risks could return within a few years.
The improvements are looking very large, but have been witnessed nearly everywhere, with increases of 0.1 or 0.2 percentage points in the U.S., euro area, Japan and China. Canada’s growth forecast has notched up 0.5 points, and other advanced economies are up 0.3 points.
2018 could be the strongest year for growth since 2011, when the world was enjoying a strong but fleeting snapback from the financial crisis, according to IMF projections.
Despite this portrait of a widely improving global economy, the IMF kept its report focused on lingering risks.
The inflation outlook has softened. The IMF has lowered inflation forecasts to 1.7% in advanced economies over the next two years. The report cautioned that wage growth is likely to remain weak around the world in 2018.
The report have cited two key political risks, though it didn’t dwell on them: The risk of “an inward shift of policies” in the form of protectionism that might reduce international trade, and the risk of “noneconomic factors” including geopolitical tensions and domestic political discord, among others. Both could be interpreted as references to fears about U.S. policy.
“I’m very optimistic for 2018” said Adam Posen, the president of the Peterson Institute for International Economics, in an interview before the IMF’s report was released. “There’s no reason we can’t have continued balanced growth in the majority of the world’s economies.”
In speeches IMF managing director Christine Lagarde and World Bank President Jim Yong Kim urged countries that being outside of a major crisis presents a rare moment for action.
“The set of policies currently in place may be ones that boost the stock market, but not necessarily the real economy,” Cornell University’s Eswar Prasad, said in an interview. The monetary and fiscal policies that many countries have relied on over the past decade “are useful at propping things in the short-run, but not at fixing things that are wrong with these economies in the long-run.”
However growth would go down for several countries in Southeast Asia including Myanmar and the Philippines, while forecasts for Malaysia and Thailand are upward.
The arithmetic works out to a substantial drop in the personal savings rate, from six percent two years ago to 3.7 % in 2018. It’s unlikely that consumers will continue to grow their spending so much faster than their incomes are rising.
Interest rates for consumers would remain low and will only edge up a little. Credit availability would remain good.
Crude oil prices will average $57/b in 2018. Commodities traders also predict the price of oil in their futures contracts. They predict the price could be anywhere from $48/b to $68/b by March 2018.
The outlook for Business capital spending in 2018 says of small growth, with 2019 looking better.
Economic growth in the Middle East, North Africa is likely to rebound in 2018 after losing momentum in 2017, weighed down by geopolitical risks and a slowdown in Iran’s economy. However political changes in GCC particularly in Saudi Arabia and Pakistan can bring them upward or downward
The UAE’s economy, which is more developed and diversified than most others in the Menap region, is expected to grow 3.4 per cent in 2018 mostly reflecting stronger domestic demand in oil importers and a rebound of oil production in oil exporters.
Iran’s economic growth will slide to 3.8 per cent in 2018. Saudi Arabia, the region’s biggest economy, is projected to grow by 1.1 per cent in 2018 against -1.03 % in 2017. Meanwhile, the pace of economic growth in Kuwait is expected to recover in 2018, growing at 4.1 per cent against 2.5% in 2017. Egypt, which is recovering from years of political and economic turmoil in the aftermath of the 2011 uprising that toppled Hosni Mubarak, is estimated to grow by 4.5 per cent in 2018 from 3.4% in 2017.
Federal Reserve current rate has gone up to 1.5% in the last week of December 2017, EU central Bank rate is 0.0%, Bank of England current rate is 0.50, Bank of Japan current rate is -0.10, central bank of Russia interest rate is 8.25%, reserve Bank of India interest rate is 6.0% China central Bank rate is 4.35%.
As the world heats up there are further disturbances to the structure of the Earth with many more earthquakes and volcanic eruptions in the next few years including 2018. The weather will worsen generally with an increase in lightning strikes, whirlwinds and hurricanes.
2018 would remain a year with election tussle going on. It would further be revealed that all political parties including PML-N, PPP, PTI, JI or others are regional parties with influence on different communities, region and linguistic divide. But in fact elites constituting 1% of population would remain in control of these parties. The complexity of balancing with establishment would continue in 2018 either on the side of establishment or civil with no strong leadership to represent 99% population of Pakistan.
Religious leadership with sectarian divide would continue their activities either in Madrsahs, Masajid or now on media. This would create confusion on fight against Tehreek-e-Taliban Pakistan TTP, al Qaeda and ISIS on the minds of a true Muslim who is supposed to oppose all kind of terrorism.
However the bright side is that some reports of commissions including Hamoodur Rehman, Abbottbad, Model Colony Lahore, Baldia Karachi and some other incidents may appear in the public on increase of pressure. This would further highlight the role of our current and past leadership paving way for the appearance of some kind of true leadership for the public.
According to State Bank of Pakistan (SBP) the real GDP growth is projected to come close to the 6.0 percent target for FY18. This is coupled with expectations of the expansion in economic activity to maintain the momentum. Inflation is also likely to remain within the target, said SBP.
The real economic activity is expected to continue to benefit from accommodative macroeconomic policies, activity related to CPEC, and consistently improving domestic energy supply and security situation. However in 2018 in wake of election activities employment, health and education sector would remain ignored and the focus would remain on electables.
On the flip side, the external and fiscal accounts may remain under pressure. This pressure is coming from likely elevated import demand and increase in public spending, by provincial governments in particular. The increased spending by the government is to complete development projects before the upcoming general elections in the country.
The current account deficit is projected to remain around last year’s level, that is, in the range of 4.0 to 5.0 percent of GDP, SBP report says.
The FY18 budget envisages fiscal deficit at 4.1 percent of GDP. Achieving this target may be challenging, given the capital spending requirement of the government for completing various projects under CPEC and likely increase in provincial spending during the election year. Moreover, any shortfall in revenue may keep the fiscal deficit close to FY17 level.
Thus, the current account is likely to settle between $12 billion to $15 billion and fiscal deficit will remain between $5 billion to $6 billion.
The agriculture sector is expected to repeat its performance from last year, with major contribution expected from the crop sector, especially cotton and rice. Notwithstanding a fall in the area under cotton by 12 percent against the target, cotton output is expected to remain higher compared to 2017.
The industry (largely LSM, construction and electricity generation and electricity and gas distribution) will continue to benefit from the ongoing work on infrastructure and energy related CPEC projects. Thus, the expected improved performance of the agriculture and industrial sectors will spill over to the services sector in FY18 as well.
With real economic activity gaining further attraction, the import demand, both for machinery and raw materials as well as consumer goods, is expected to remain strong during FY18 as well.
On the other hand, growth in exports and workers’ remittances is expected to recover. The exports are expected to benefit from a recovery in global commodity prices and ease in energy constraints. This is particularly indicated by a double-digit growth in exports recorded during the first two months of FY18.
In case of workers’ remittances, the initiatives under PRI could help in attracting more receipts through official channel. The key initiatives includes new products for Diaspora, extending the tie-up arrangements as practiced in case of GCC and UK to other sources of remittances like Malaysia, South Africa and New Zealand, and plans to further reduce the cost of fund transfers. Incorporating these developments, workers’ remittances are projected to remain in the range of US$ 19-20 billion during FY18.
Notwithstanding the expected increase in domestic demand, the average CPI inflation rate is projected to remain in the range of 4.5 to 5.5 percent during FY18.
Sufficient food stocks (wheat, rice, and sugar) in the country mixed with rising domestic oil prices and a volatile exchange rate are expected to impact further rise or fall in domestic demand.
Moreover, as per IMF projections, the commodity prices, palm oil and sugar, are also likely to fall in the international market over the next few months.
The economy is likely to continue to expand with low and stable inflation in FY18. Encouraging trends in private sector credit indicate underlying dynamics in real economic activity. However, maintaining this momentum going forward would largely depend on addressing emerging challenges in external and fiscal accounts, the report added.
Pakistan’s annual current account deficit is forecast widening to 7 percent of the economy in 2018.The gap is more than 4 times deficits compared with 1.5 percent in India and 1.9 percent in Indonesia, according to IMF estimates.
The government won’t seek another IMF bailout package and is poised to introduce “radical” tax reforms based on levying tax on those who are already paying tax. Secondly government is expected to fill up the gap through issuance of Sukuk or bonds in the international market.
To be brief “The economy is all about cycles, ying and yang. Pakistan is just a bit yang at present,” said Stephen Bailey-Smith, an investment strategist at Kolding, Denmark-based Global Evolution Fonds “We do not see it improving during elections.”

Chairman Centre of Advisory Services for Islamic Banking and Finance (CAIF), former Head of FSCD SBP, former Head of Research Arif Habib Investments and Member IFSB Task Force for development of Islamic Money Market, former Member of Access to Justice Fund Supreme Court of Pakistan.

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