The Economy

World Bank Cuts 2020 Growth Forecast to 2.5%

“While growth could be stronger if reduced trade tensions lead to a sustained reduction in uncertainty, the balance of risks is to the downside."
Matthew HellerJanuary 9, 2020

The World Bank has lowered its global economic growth forecast again, citing downside risks including a re-escalation of global trade tensions, conflict in the Middle East, and debt levels in emerging economies.

In its latest half-yearly Global Economic Prospects report, the bank predicted growth of 2.5% this year, with a 4.1% improvement in emerging economies offset by a 1.4% drop in advanced economies.

The forecast indicates a modest recovery from the 2.4% estimate for 2019 but is a downward revision from the 2.7% growth forecast in June.

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“For even that modest uptick to occur, many things have to go right,” the report said, noting that “the pickup is anticipated to come largely from a handful of large emerging economies stabilizing after deep recessions or sharp slowdowns.”

India, for one, is predicted to rebound after a marked slowdown in growth last year.

The report warned that “Even this tepid global rally could be disrupted by any number of threats,” including a re-escalation of the trade war between the U.S. and China, a resurgence of financial stress in large emerging markets, an escalation of geopolitical tensions, or a series of extreme weather events.

“While growth could be stronger if reduced trade tensions lead to a sustained reduction in uncertainty, the balance of risks to the outlook is to the downside,” the World Bank said.

The bank attributed the 2019 slowdown in part to “continued weakness in global trade and investment,” with trade in contraction for a significant part of the year and manufacturing activity slowing markedly. The 2.4% growth rate was the lowest since the global financial crisis.

For 2020, the World Bank is predicting that global trade growth — which fell last year to 1.4% from 4% in 2018 — will improve to 1.9%, “assuming trade tensions do not re-escalate.”

The report also expressed concern about the risk of a fresh global debt crisis, spurred by the “largest, fastest, and most broad-based accumulation of debt since the 1970s.” In 2018, global debt climbed to a record high of around 230% of GDP.