World Bank expects big economic growth in 2018

WASHINGTON — A rebound in trade growth from postcrisis lows should help perk up the global economy next year to its fastest pace in nearly seven years, the World Bank said Sunday.

But a host of risks threaten a recovery in major emerging markets and an accelerating expansion in rich economies, the bank said in its flagship report.

The development institution forecasts global growth will hit 2.9% in 2018, up from 2.7% this year. Stabilized commodity prices are allowing Brazil, Russia, Nigeria and other major emerging markets to pull out of a two-year funk. Growth in the U.S. and Europe is also picking up as many of the world’s most powerful economies finally show signs of escaping the legacies of the global financial crisis.

Healthier industrial activity, investment and commodity prices fueled a revival in global trade growth to 4% this year, up from 2.5% last year, the bank said.

But it cautioned that downside risks dominate the outlook.

A buildup of emerging-market debt, notably in China, the world’s second-largest economy, risks jeopardizing growth around the globe. The problem is particularly acute in the corporate sector. But it could quickly hit the financial sector and state balance sheets, trigger a plunge in cross-border orders and spur capital flight, the bank warns. While China’s credit boom is the focal point of global worries, Turkey and major commodity exporters are also vulnerable to debt-driven disruption.

Trade-war fears are also dogging the global economy. Bank economists still see a risk the Trump administration’s “America First” policies could trigger a tit-for-tat escalation in tariffs and other trade barriers in the U.S., China and other countries.

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“An upward spiral in beggar-thy-neighbor protectionist measures would put into reverse the process of trade liberalization that has been a major contributor to deepening trade in past decades,” the bank said. Widening trade agreements and the growing number of World Trade Organization members have added nearly a percentage point to global trade growth each year, it said. “The unwinding of such agreements would likely put downward pressure on trade prospects and jeopardize the effectiveness and viability of the multilateral trading system.”

Such an outcome could spark cascading costs through global trade, causing widespread welfare losses, the development institution warned.

The bank also said President Donald Trump’s tax plan would boost the economy, but likely widen the budget deficit, even taking into account faster growth. It estimates the White House’s proposed corporate-tax and income-tax cuts could boost near-term gross domestic product by nearly 2 percentage points after two years. It currently forecasts a 2.2% rate in 2018, up from 2.1% this year.

But those cuts would also likely widen the budget deficit by up to 2.4 percentage points of GDP over the same period.

Write to Ian Talley at ian.talley@wsj.com

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