World Bank gloomy in spite of easing US-China tensions
Chris Giles
Jan 9, 2020 — 1.49pm
London | The easing of trade tensions between the US and China is unlikely to lead to a rapid improvement in the global economy, the World Bank has said as it released a gloomy set of forecasts.
The development bank downgraded the growth outlook for most countries over the next three years compared with six months ago and said it expects only a minor pick-up in global fortunes this year following the "feeblest performance since the global financial crisis" in 2019.
The trade war has weighed on China's growth. AP
A stronger recovery in 2020 is only likely if the recent trade rapprochement between presidents Donald Trump of the US and Xi Jinping of China leads to "a sustained reduction in policy uncertainty", according to Ceyla Pazarbasioglu, the vice-president in change of equitable growth at the World Bank.
The cautious forecasts contrast with financial markets, which have been buoyed since late last year as they anticipated a rapid improvement in global economic prospects after the US and China reached a phase one agreement that is expected to be signed next week.
The World Bank's predictions show global growth picking up from 2.4 per cent last year to 2.5 per cent in 2020 and rising gradually to 2.7 per cent in 2022. In each year, these growth rates are 0.2 percentage points lower than the equivalent forecasts that it made last June.
Advanced economies are likely to endure a tough year, the World Bank predicted, with the US growth rate slipping from 2.3 per cent in 2019 to 1.8 per cent in 2020, undermining Mr Trump's hope that he would be able to seek re-election this year with an economic expansion rate of over 3 per cent a year.
The World Bank said the US outlook had "decelerated", with rising tariffs "increasing trade costs" and the uncertainty over its economic relations with other countries weighing "on investment and confidence".
Europe's outlook is even weaker, with the eurozone set to grow by just 1 per cent in 2020 and its industrial sector hit hard.
The World Bank expects China's growth rate to slip below 6 per cent this year for the first time since 1990, with further deterioration expected in the years ahead. In its report, the World Bank said: "A permanent and lasting resolution of trade disputes with the US that builds upon recent progress could bolster China's growth prospects and reduce reliance on policy support."
Ms Pazarbasioglu said the few improvements in the outlook for 2020 came from "a handful of large emerging economies stabilising after deep recessions or sharp slowdowns". These included Turkey, Brazil, Mexico and Russia.
The World Bank's headline figures are calculated at prevailing exchange rates and are inconsistent with most other global indicators, which weight different countries based on the amount of goods and services produced.
On the latter basis, which gives greater weight to poorer countries, the forecasts show a slightly larger pick-up in global growth, from 2.9 per cent in 2019 to 3.2 per cent in 2020. However the downgrades are also higher because performance in emerging economies has been more disappointing in recent years than in advanced economies.
These estimates are weaker than equivalent predictions from the IMF last October, which anticipated that growth would pick up from 3 per cent last year to 3.4 per cent in 2020.
Ms Pazarbasioglu called for action in emerging economies to improve the business climate, rule of law, debt management and productivity and stem the persistent performance disappointments they face.
"With growth in emerging and developing economies likely to remain slow, policymakers should seize the opportunity to undertake structural reforms that boost broad-based growth, which is essential to poverty reduction," she said.
The longer-term outlook is little better, the World Bank suggested, because emerging and developing economies suffer from a suite of problems that threaten their prospects over the years ahead.
Debt has built up faster since 2010 than in any other wave over the past 50 years, raising fears of emerging market financial crises. Meanwhile productivity growth has been persistently disappointing, reducing the ease of repaying debt.
All of this threatens an end to the era of low inflation in emerging economies, the World Bank warned.
Trump diplomacy
Trump's America
Most Viewed In Policy
The path to zero emissions is expensive - but not impossible
Four ways you can save the planet
No need for super to go up to 12 per cent: ANU academics
Albanese backs Australian coal exports
Morrison can't fly above the energy storm