World Bank Revises Global Economic Growth Downward To 2.9%

by Ike Obudulu Posted on January 9th, 2019

Global economic growth is projected to slow to 2.9% in 2019 from a downwardly revised 3% in 2018 amid rising downside risks, the World Bank said on Tuesday.

In its newly-released Global Economic Prospects report, the World Bank said the outlook for the global economy “has darkened” as global financing conditions have tightened, trade tensions “have intensified,” and some large emerging market and developing economies have experienced significant financial market stress.

“Faced with these headwinds, the recovery in emerging market and developing economies has lost momentum,” the report said, expecting emerging market and developing economies to grow at 4.2 percent in 2019, 0.5 percentage points lower than previously projected in June.

Growth in advanced economies is estimated to slow to 2 percent in 2019 from 2.2 percent in 2018, as major central banks continue to withdraw monetary policy accommodation, according to the report.

“Downside risks have become more acute and include the possibility of disorderly financial market movements and an escalation of trade disputes,” the report said, warning that intensifying trade tensions could result in weaker global growth and disrupt globally interconnected value chains.

The World Bank expects GDP growth to ease globally and in major economies.

Rising borrowing costs and the trade war between the U.S. and China have dimmed the outlook for global growth and unnerved investors. U.S. stocks suffered the worst December rout since the Great Depression. Former U.S. Treasury Secretary Larry Summers encouraged policy makers this week to prepare for a recession in the world’s largest economy.

“We are facing a more difficult period for the global economy and the volatility in the financial markets certainly gave us that signal recently,” World Bank Chief Executive Officer Kristalina Georgieva told reporters Tuesday on a conference call.

Georgieva will take over interim leadership of the entire World Bank Group next month after President Jim Yong Kim abruptly announced on Monday that he will resign to take a job in the private sector. The transition comes at a busy time for the World Bank, which may face growing demand for its loans as emerging markets grapple with rising U.S. interest rates.

Conceived during the Second World War to fund Europe’s reconstruction, the World Bank now focuses on alleviating poverty around the world. It committed nearly $64 billion in loans in the fiscal year ended June 30 last year.

The World Bank kept its forecast for U.S. growth unchanged, at 2.5 percent this year. The development lender expects the euro zone to expand 1.6 percent this year, down 0.1 point from its forecast in June.

Japan’s economy will grow 0.9 percent this year, up 0.1 point from six months ago. The bank cut its forecast for growth in China by 0.1 point to 6.2 percent this year.

Central banks need to be flexible and “pragmatic” amid the financial volatility, Ayhan Kose, director of the World Bank’s development prospects group, told reporters. While recent weak data is troubling, it remains to be seen if it’s a sign of a deeper slowdown, he said.

“That is the big question, what these financial markets are telling us,” Kose said.

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