Financial Outlook of the OIC Member Countries 2017

1. RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

In 2016, the world economy expanded by 2.4 percent, the slowest rate of growth since the

Great Recession of 2009. The main reasons of the sluggish growth in the global economy are

the weak pace of global investment, declining world trade growth, weakening productivity

growth and high levels of debt. Low commodity prices have exacerbated these factors in many

commodity-exporting countries since mid-2014, while conflict and geopolitical tensions

continue to weigh on economic prospects in several regions. While the world economy is

estimated to grow by 2.7 percent in 2017, Emerging Markets and Developing Economies

(EMDE) are expected to expand by 4.1 percent in this year. Commodity exporters in

developing countries are also expected to see some slight increase in growth, as commodity

prices stabilize and inflationary pressures driven by sharp exchange rate depreciations ease.

East and South Asia will continue to grow more rapidly than other regions, benefiting from

robust domestic demand and space for more accommodative macroeconomic policy.

Weak investment is at the foundation of the slowdown in global growth. Investment growth

has slowed significantly in many of the major developed and developing economies. Protracted

weak global demand has reduced incentives for firms to invest, while economic and political

uncertainties have also weighed on investment. Lack of access to finance has also acted as a

constraint in some cases, especially in countries where banks remain undercapitalized or

where financial markets are under-developed. Since mid-2014, Governments in many

commodity-exporting countries have also curtailed much-needed investment in infrastructure

and social services, in response to the sharp loss of commodity revenue.

Global economic prospects remain subject to significant uncertainties and risks that are

weighted on the downside for the upcoming years. Some of these risks stem from monetary

policy actions in major developed economies. The impact of introducing untested monetary

policy instruments — such as the negative interest rate policies in Japan and Europe —

remains unclear. The timing of interest rate rises in the United States is another area of

uncertainty. As interest rate differentials relative to other developed economies widen, this

has the potential to trigger financial volatility, reversal of capital inflows to developing

economies, and abrupt adjustments in exchange rates. Such volatility would exacerbate

vulnerabilities associated with high levels of debt and rising default rates in a number of

developing countries, with the potential to push up borrowing costs, raise deleveraging

pressures, and increase banking sector stress.

Under these circumstances, world economy has been projected to grow at 2.7 percent in 2017

and 2.9 in 2018 according to the World Bank. After a modest growth of 1.6 percent in 2016,

advanced economies are expected to pick up slightly for the years 2017 and 2018 and

projected to grow 1.9 and 1.8 percent respectively. On the other hand, growth performances of

the EMDE are expected to reach 4.1 and 4.5 percent respectively for the years 2017 and 2018

after performing 3.5 percent growth in 2016.

World Bank Global Economic Prospects, June 2017

UN World Economic Situation and Prospects 2017

World Bank Global Economic Prospects, June 2017