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World Bank warns brewing trade storm jeopardizes global economy
WASHINGTON, Jan 9, 2019 (BSS/AFP) – 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 Tuesday.
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 Kose 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.
Kose, 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.
– Trade war damage –
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.
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“Trade tensions are already affecting activity around the world,” Kose
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 Kose.
Trade is an engine of growth and has been “a driving force in terms of
poverty reduction,” he said. “Our hope is that these differences are going to
be resolved.”
But the sharp decline in global equities markets at the end of last year
showed the uncertainty generated by the trade conflict undermines business
confidence and slows investment, Kose said.
Looking at the data, “you definitely see that in 2018 manufacturing has
slowed; (and) export orders have slowed.”
After rising in 2018, confidence is ebbing and “this is cause for
concern.”
– Policy buffers –
With growing risks dominating the outlook, the World Bank urged member
countries to prepare themselves, with changes in spending, investment and
borrowing to establish “policy buffers” against coming headwinds.
“The sense of urgency has to be there,” Kose said. “Ultimately a robust
policy framework is the most important insurance when you have a slowing
economy and rising risks.”
That is especially true with rising debt levels, as interest rates are
moving higher.
The report highlights with concern a big jump in borrowing by the poorest
nations, debt that increasingly coming from lenders that unlike the World
Bank do not provide concessional terms.
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