World Bank gets more pessimistic about global growth

THE World Bank is warning of increasing risks, or what it calls “darkening skies”, for the world economy. It said on Tuesday the growth of the global economy is expected to slow to 2.9 percent in 2019 compared with 3 percent in 2018, citing elevated trade tensions and international trade moderation.

“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,” World Bank Chief Executive Officer Kristalina Georgieva said in the semi-annual Global Economic Prospects report here.

The World Bank outlook comes as the United States and China have been engaged in a bitter trade dispute, which has jolted financial markets across the world for months. The two economies have imposed tit-for-tat duties on each otherís goods, although there were signs of progress on Tuesday as the two countries prepared to enter a third day of talks in Beijing.

Growth in the United States is likely to slow to 2.5 percent this year from 2.9 percent in 2018, while China is expected to grow at 6.2 percent in the year compared with 6.5 percent in 2018, according to the World Bank.

Emerging market economies are expected to grow at 4.2 percent this year, with advanced economies expected to grow at 2 percent, the World Bank said in the report. In a 200-page report issued Tuesday, the international financial institution laid out evidence that emerging markets have been stagnating, as trade has contracted and financing conditions have worsened.

It blamed the downgrade on the global economy’s more-sudden-than-expected deceleration since the institution’s last forecast in June. And the situation could deteriorate further ó confirming Wall Street’s concerns about next year being a difficult one for American companies with significant business abroad.

“Downside risks have become more acute,” the Bank’s report reads. “Disorderly financial market developments could disrupt activity in the affected economies and lead to contagion effects. Trade disputes could escalate or become more widespread, denting activity in the economies involved and leading to negative global spillovers.”

The United States is still among the best performing economies in the world, but its growth streak could run out soon, as the effects of the tax cuts and government spending wear off, and the era of easy money fades further into the distance as the Federal Reserve raises interest rates.

Although a recession isn’t obviously around the corner, a volatile political environment and mounting corporate debt loads are a toxic cocktail. “The policy mix in the United States will shift from expansionary to contractionary during the forecast horizon, with monetary, fiscal, and trade policies all expected to become a drag on activity within the next couple of years,” the authors write.

“In this context, relatively small negative shocks have the potential to abruptly end the current expansion.” Still, the implications of an economic crunch are probably worse for low-income countries, many of which haven’t managed to raise per-capita incomes enough to keep closing the gap with the developed world.

Although absolute poverty has been declining in places like India, progress has stalled in Sub- Saharan Africa, which the World Bank projects could hold as much as 87 per cent of the planet’s poor people by 2030.

In order to keep the global economy on an even keel, the bank recommends that countries invest more in developing their residents’ skills, ease restrictions on investment, and reduce barriers to trade ó rather than raise them, as the United States has recently done by imposing tariffs on 12 per cent of its goods imports.

The World Bank is going through its own difficult transition, with President Jim Yong Kim unexpectedly resigning on Monday, three years ahead of schedule.

President Donald Trump will now need to appoint a successor, since the United States is the bank’s largest shareholder.

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Author: Washington, Wednesday

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