World Bank warns of darkening prospects for global economy

WASHINGTON – Agence France-Presse

Trade conflict 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 on Jan. 8.

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 synchronized global growth - and peppered with exhortations to take “urgent,” “imperative” or “critical” action.

“Risks are rising,” senior World Bank economist Ayhan Köse told AFP. “The global economy is going through a difficult period. Skies are darkening and we see the global economy slowing.”        

Growth of the world economy is expected to slow to 2.9 percent this year, and 2.8 percent in 2020, slightly below the previous forecast, and the estimates for nearly all regions and countries were downgraded.

At the center of the turmoil, US economic growth is expected to slow this year by four tenths of a point, falling to 2.5 percent down from 2.9 percent in 2018, and to slow even further next year to 1.7 percent.

China’s economy also is slowing amid the trade dispute, and growth should slip to 6.2 percent this year and next.

Köse, 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 still 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,” Köse 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 Köse.