AUDIT OF EFFICIENCY OF ACTIVITY OF OBJECTS OF THE STATE AUDIT
Ibrayeva Tolganay Ibraiqyzy
University of Warsaw,Poland.
Supervisor- Bekbolsynova A.S.
Global trends of economic development
Global Economic Trends refer to current issues of the global economy that are shaping our future, in the next three months as well as in the next three, five years. Global Economic Trends are not a prediction of what is going to happen; it is a statement about what is currently happening. Global Economic Trends are currently used by organizations and governments to make choices about international competitiveness, new product launch, economic efficiency choices, and strategies for better economic efficiency and market competition.
At the IMD World Competitiveness Center, and through a long-standing research project, they have identified the 13 most important Global Economic Trends. These are encompassed within the following headlines: Economic Power, Geopolitical Institutions, Society, Stakeholders, Triple Bottom Line, Consumers, Markets, Industries, Capital, Natural Resources, Technology, Information & Knowledge, and Labour. For each of them, they can isolate the most important facts surrounding them, and ask our executives and participants: "What do these global trends mean for you and your organization."
Why is a general assessment of the global economy relevant? Why do not we think that looking ahead into the future is more relevant for governments and organizations? Simply because we start by acknowledging that predicting the future, even three months ahead, is fundamentally impossible and faulty. What is the competitive advantage of nations is; what will be the best economy in the world in say three years; what will shape the global competitiveness in the next year… These are all task that, based on historical evidence, become impossible because of the natural impossibility of accurately predicting the future.
The world economy continues to expand but there are signs that growth has peaked as the US, European and Asian economies slow. We expect trade tensions between the US and China to persist well into next year with higher tariffs creating a more stagflationary environment of lower growth and higher inflation.
Global GDP growth to slow. Our forecast is for global economic growth to slow to 2.9% in 2019 from an estimated 3.3% in 2018. This is below consensus (3.1%) and largely reflects our more pessimistic view on the US. We see US GDP growth at 2.4% in 2019, as the boost from tax cuts fades while interest rates move higher and the effects of a prolonged trade war with China are felt. While the recent 90-day truce is welcome, we remain sceptical on the prospects for a longer-term agreement on issues such as intellectual property rights. We see a further slowdown in global growth to 2.5% for 2020.
In the euro zone, we forecast growth to slow further in the first half of 2019 due to the effects of the trade war between the US and China. Our forecast has GDP growth slowing from 1.9% in 2018 to 1.6% in 2019. Assuming Brexit goes smoothly, the UK should see an improvement in growth in 2019; we forecast GDP growth of 1.4%.
For Japan, we see GDP growth of 1% in 2019, little changed from 2018. The start of the year looks set to be robust, helped by reconstruction spending after the damaging earthquakes, floods and typhoons of 2018. However, VAT is due to rise to 10% from 8% in October and previous VAT hikes have had a significant impact on economic activity.
China and the wider Asian economies under pressure from trade tensions and lower demand in the technology sector. We forecast Chinese growth to slow to 6.2% in 2019 from 6.6% in 2018. Latin America may be a bright spot within the emerging markets as Brazil’s economy looks set to strengthen now the elections are over.
Inflation on the up, driven by emerging markets. Despite cooler economic growth and lower oil prices, our global inflation forecast has increased to 2.9% for 2019. This is a result of higher inflation in the emerging markets, where currency weakness is pushing up import prices.
In the advanced economies, we have trimmed our inflation forecast as a result of downgrades to Japan and the UK. For Japan, the lower forecast includes special factors such as a 20% cut in mobile phone charges. For the UK, we forecast inflation to fall from 2.5% in 2018 to 1.8% in 2019. This is due to softer oil prices as well as expectations that sterling will strengthen against most currencies in the event of an orderly Brexit.
For the US, we see inflation remaining elevated in 2019 at 2.7%. Our projection reflects the tighter capacity typical of this late stage in the economic cycle as well as higher import tariffs as the trade war continues.
US rates to peak in mid-2019. We anticipate three more interest rate increases from the US Federal Reserve (Fed), taking the Fed funds policy rate to a peak of 3% in June 2019. We assume that the Fed will “look through” above-target inflation in 2019 and will pause to take account of the effects of slower growth on future price rises. We then expect rate cuts in 2020 as the US economy cools further.
For the Bank of England, we look for two rate rises next year, although this is dependent on a smooth exit from the EU with a transition period for the economy.
Meanwhile, the European Central Bank (ECB) is expected to end its asset purchase programme in January 2019 and to raise interest rates in September. This would be the first increase during ECB President Draghi's tenure and would also be his last given he steps down from the post in October. Although eurozone growth is expected to be weaker next year, it will still be above trend and sufficient for a central bank keen to start raising interest rates from ultra-low levels.
According to the article as part of the World Economic Forum Annual Meeting there are top 10 economic forecasts for 2019.
- The US economy will remain above trend
Based on estimates about sustainable growth in the labour force and productivity, we assess the trend, or potential, growth in the US economy to be around 2.0%. In 2018, US growth was well above trend at 2.9%, though the acceleration was almost entirely due to a large dose of fiscal stimulus in the form of tax cuts and spending increases. The impact of this stimulus will still be felt in 2019, but will diminish as the year progresses. As a result, we expect growth of 2.6% in 2019 - less than in 2018, but still above trend.
- Europe’s expansion will slow even more
Eurozone growth peaked in the second half of 2017, and has declined steadily since then. IHS Markit predicts a further decline to 1.5% in 2019. Political uncertainty, including Brexit, challenges to Emmanuel Macron's government, and the winding down of Angela Merkel’s chancellorship, are contributing to a decline in business sentiment. Economic factors such as the tightening of credit conditions and heightened trade tensions are also driving the deceleration in growth.
- Japan’s recovery will remain weak, and its economy will grow less than 1% in 2019
Japan’s economy is expected to expand by 0.8% in 2018, with this rate increasing only slightly in 2019 to 0.9%. The slowdown in China’s economy and the fallout from trade tensions between the US and China are drags on growth. Monetary policy will continue to be ultra-accommodative next year. The cyclical decline in Japan’s growth is occurring in an environment of very weak long-term growth. Adverse demographics - specifically a declining labour force - are not being offset by strong enough productivity growth. The “third arrow” of Abenomics, which was supposed to implement significant structural reforms and boost productivity, has been slow to materialize
- China’s economy will keep decelerating
The quarterly rate of Chinese growth has been steadily edging down since the beginning of 2017, hitting its lowest level in 10 years in the third quarter of 2018. On an annual basis, the pace of expansion has slowed from 6.9% in 2017 to 6.6% in 2018, and will fall further to 6.3% in 2019. In response to recent economic shocks - including the impact of US tariffs, which has so far been limited - policy-makers have unleashed a series of monetary and fiscal measures to help support growth and stabilize financial markets.
However, these measures are likely to remain modest. Credit growth will continue to be constrained by the massive debt overhang and the government’s commitment to deleveraging, at least in the medium to long term. On the other hand, the government’s stimulus efforts may well become more aggressive if trade tensions with the US (re)escalate and growth is seriously damaged.
- Emerging market growth will decelerate to 4.6% in 2019
Some economies, including Brazil, India and Russia, experienced a mild pickup in growth in 2018, while others, such as Argentina, South Africa and Turkey, came under intense financial pressure and suffered recessions or near-recessions. Going forward, emerging markets face a number of headwinds, including slowing growth in advanced economies and in the pace of world trade; the strong US dollar; tightening financial conditions; and rising political uncertainty in countries such as Brazil and Mexico. A few countries will be able to buck these trends, especially dynamic economies with low levels of debt, notably in Asia.
- Commodities markets could be in for another rollercoaster ride in 2019
Demand growth next year still looks strong enough to provide commodity markets with support, making the kind of price collapse seen during 2015 unlikely. However, volatility in commodity markets will continue in 2019, particularly in oil markets. We predict oil prices will rise a bit in the near term and average around $70.0 per barrel over the coming year, compared with an average $71.0 in 2018. That said, the risks to prices of oil and other commodities are predominantly on the downside, given slowing demand growth and rising supply. Despite volatility, we predict that by the end of 2019, prices will be little different from their current readings.
- Global inflation rates will remain close to 3.0%
Most of the rise in consumer price inflation between 2015 and 2018 - from 2.0% to 3.0% - was due to a transition in the developed world from deflationary, or near deflationary, conditions to inflation rates that are close to central banks’ targets of 2.0%. Over the near term, we expect global inflation and developed economy inflation to remain close to 3.0% and 2.0%, respectively.
While there will be upward pressures in many economies as output gaps close and unemployment rates fall - in some cases to multi-decade lows - there are downward pressures as well. Outside the US, growth is weakening. Moreover, relative to 2018, commodity prices will be relatively flat on average in 2019. Finally, with the trade war in a “temporary truce”, the upward push from tariff increases will be on hold.
- The Fed will raise rates, and a few other central banks may follow
With the world’s key economies at different points in the business cycle, it is not surprising that central banks are moving at different speeds and in different directions. However, given weaker growth and muted inflationary pressures, the pace of removing accommodation is likely to be even more modest than previously expected.
The US Federal Reserve is likely to raise rates three times in 2019. Other central banks, including the Bank of England (depending on the Brexit process), the Bank of Canada, and a few emerging market central banks - such as those in Brazil, India and Russia - may also raise rates.
The European Central Bank will not hike rates until early 2020. Similarly, we do not believe the Bank of Japan will end its negative interest rate policy until 2021. The People’s Bank of China is the one major central bank moving in the opposite direction; worried about growth, it is providing modest stimulus.
- The US dollar will hold at current elevated levels for much of 2019
Continued above-trend US growth and more rate hikes by the Fed are the primary reasons for this anticipated strength. Given the recent relative calm in forex markets, especially relative to emerging market currencies, another big appreciation of the US dollar seems unlikely.
Nevertheless, the potential for volatility remains very high. Political uncertainty in Europe could be very negative for the euro and sterling; we expect that the euro/dollar rate will end 2019 at around $1.10, compared with $1.14 at the end of 2018. At the same time, we predict that the renminbi/dollar rate will hold fairly steady just below the psychological level of 7.0 - the result of the Chinese government’s desire for financial stability.
- The risks of policy shocks have risen, but probably not enough to trigger a recession in 2019
Policy mistakes remain the biggest threats to global growth in 2019 and beyond. The simmering trade conflicts are dangerous, not because they have done damage so far - they haven’t - but because they could easily escalate and get out of control. In addition, rising budget deficits in the US, high debt levels in the US, Europe and Japan, and potential missteps by key central banks all pose threats to the global economy.
The good news is that the probability of such policy mistakes seriously hurting global growth in 2019 is still relatively low. However, IHS Markit believes that the risks of damage from policy mistakes will rise in 2020 and beyond, as growth slows further.
In our previous edition of Global Economy Watch, which included our predictions for the world economy in 2019, we suggested that around 40 countries would see their labour forces shrink this year, owing to a combination of low birth rates and ageing populations. Interestingly, the country most closely associated with unfavourable demographics– Japan–was not among them. At present, the Japanese labour market is pulling off a neat trick. Although both the whole population and the working-age population are declining every year, the number of Japanese in the workforce is growing, and expanding at a rate that outperforms many other younger and more vibrant advanced economies. We explain how this is happening and assess whether it is sustainable in our feature article.
We also consider what the weakening global economy means for the central banks of the three largest advanced economies. Barring a major, immediate adjustment to monetary policy, the Federal Reserve’s shrinking of its balance sheet, combined with the end of quantitative easing by the European Central Bank, means that these central banks will begin to drain liquidity from the global economy for the first time since the global financial crisis by the middle of this year. The combination of de facto monetary policy tightening at the same time as global growth continues to slow could generate some volatility in financial markets during 2019. We note that the Fed is still determining the level of assets it wishes to hold and expect it to end the process with a significantly larger balance sheet than it held before the financial crisis.
Finally, we continue to watch the effects of the trade conflict between the US and China. Not for the first time, hopes have been raised at the time of writing that a deal is imminent that would prevent another escalating round of tariffs. That would be propitious. The effects of the trade war have not been especially clear in the data so far, with some initial stockpiling inflating volumes. However, this temporary boost has now passed and the tariffs could begin to impede trade growth in early 2019. Unless that is, the world’s two largest economies can agree that trade barriers are not in their interest.
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