China can provide leadership for global economy

This week, policymakers, business leaders and top academics are gathering for the annual World Economic Forum in Davos, Switzerland. At this year's meeting, under the umbrella of "responsive and responsible leadership", participants will debate rising income inequality, economic anxiety, growing protectionism and the increasing opposition to globalization and the openness that has been a major engine of growth in the past decades, but which has also left large groups of people behind. The meeting takes place against a backdrop of elevated economic uncertainty fueled by policy incertitude in the wake of political changes in 2016 and this year's elections in Germany, France, and other countries, the economies of which together account for some 30 percent of global GDP.

In its recent Global Economic Prospects 2017, the World Bank estimates that global growth slowed in 2016 to a post-crisis low of 2.3 percent, as global trade stalled, investment slowed, and policy uncertainty spiked. A moderate recovery is projected for 2017, with global growth forecast to increase to 2.7 percent, mainly driven by emerging markets and developing economies, in particular the large commodity exporters such as Russia and Brazil.

China, with a projected growth rate of 6.5 percent for 2017, is set to remain one of the engines of global growth in 2017. Although its growth is projected to further moderate 6.3 percent in 2018-19, reflecting soft external demand, uncertainty about global trade prospects, and slower private investment. Macroeconomic policies are expected to continue supporting activity to help smooth the adjustment of output in overcapacity sectors. Policy support is likely to come increasingly from the fiscal side, as government action to reduce the risks of rising leverage take hold. Rebalancing from industry to services, and from investment to consumption, is expected to moderate, as the continued fiscal stimulus supports industry and the lower wage growth of recent months is being reflected in slower consumption growth.