Global growth to slow to 2.9% in 2019 as trade, investment weaken—World Bank

The World Bank has said that global economic growth is projected to soften from a downwardly revised 3 per cent in 2018 to 2.9 per cent in 2019 amid rising downside risks to the outlook. It said that International trade and manufacturing activity have softened, trade tensions remain elevated, and some large emerging markets have experienced substantial financial market pressures.

According to the multilateral financial institution’s January 2019 Global Economic Prospects growth among advanced economies is forecast to drop to 2 per cent this year. Slowing external demand, rising borrowing costs, and persistent policy uncertainties are expected to weigh on the outlook for emerging market and developing economies. Growth for this group is anticipated to hold steady at a weaker-than-expected 4.2 per cent this year. World Bank Chief Executive Officer Kristalina Georgieva said “At the beginning of 2018 the global economy was firing on all cylinders, but it lost speed during the year and the ride could get even bumpier in the year ahead. As economic and financial headwinds intensify for emerging and developing countries, the world’s progress in reducing extreme poverty could be jeopardised. To keep the momentum, countries need to invest in people, foster inclusive growth, and build resilient societies.”

The upswing in commodity exporters has stagnated, while activity in commodity importers is decelerating. Per capita growth will be insufficient to narrow the income gap with advanced economies in about 35 percent of emerging market and developing economies in 2019, with the share increasing to 60 percent in countries affected by fragility, conflict, and violence. A number of developments could act as a further brake on activity. A sharper tightening in borrowing costs could depress capital inflows and lead to slower growth in many emerging market and developing economies. Past increases in public and private debt could heighten vulnerability to swings in financing conditions and market sentiment. Intensifying trade tensions could result in weaker global growth and disrupt globally interconnected value chains. 

Trade war between the world’s two largest economic powers already is inflicting collateral damage and threatens to do yet more harm to the global economy,  the World Bank warned. And the global slowdown is beginning as government and corporate debt rise, especially among the poorest countries, while mounting interest rates increase borrowing costs, the bank said in its semi-annual Global Economic Prospects report. The report was markedly more pessimistic than a year ago — when the outlook was for synchronised global growth — and peppered with exhortations to take “urgent,” “imperative” or “critical” action. “Risks are rising,” senior World Bank economist Ayhan Kose told AFP. “The global economy is going through a difficult period. Skies are darkening and we see the global economy slowing.” 

China’s economy also is slowing amid the trade dispute, and growth should slip to 6.2 percent this year and next. Kose, who heads the World Bank’s Development Prospects Group — which twice a year produces the global economic forecasts — said he hoped for a resolution but meanwhile urged governments to prepare for a difficult road ahead. “Global growth is still robust but whether a storm will hit or it will clear highly depends on how policymakers are going to react,” he said. Though the bank sees a low probability of recession in the United States, even a small slowdown has an outsize effect. And if the United States and China slow by a full percentage point, it will cut global growth by nearly the same amount, with dire consequences for many countries. “Trade tensions are already affecting activity around the world,” Kose said, and it could get worse. The report sharply downgraded the growth forecasts for key emerging market economies like Mexico, South Africa and Russia, as well as for crisis-struck countries Turkey and Argentina. So far India and Indonesia have escaped that fate. But the United States and China together account for about a third of global GDP and 20 percent of global trade. “How they resolve their differences is going to be very important how global economy is going to shape this year,” said Kose. Trade is an engine of growth and has been “a driving force in terms of poverty reduction,” he said. “Our hope is that these differences are going to be resolved.” But the sharp decline in global equities markets at the end of last year showed the uncertainty generated by the trade conflict undermines business confidence and slows investment, Kose said.

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