World Bank trims 2020 growth forecast to 2.5%

US farmer Don Bloss checking on the operation of an auger transferring corn on his farm in Pawnee City, Nebraska, in this 2018 file photo. Trade tensions between the United States and China cooled with the announcement of a so-called phase one trade
US farmer Don Bloss checking on the operation of an auger transferring corn on his farm in Pawnee City, Nebraska, in this 2018 file photo. Trade tensions between the United States and China cooled with the announcement of a so-called phase one trade deal. PHOTO: ASSOCIATED PRESS

WASHINGTON • The World Bank on Wednesday trimmed its global growth forecasts for last year and this year due to a slower-than-expected recovery in trade and investment, despite cooler trade tensions between the United States and China.

The development bank said that last year marked the weakest economic expansion since the global financial crisis a decade ago, and this year, while a slight improvement, remained vulnerable to uncertainties over trade and geopolitical tensions.

In its latest Global Economic Prospects report, the World Bank shaved off 0.2 percentage point for both years, with the 2019 global economic growth estimated at 2.4 per cent and this year's at 2.5 per cent.

"This modest increase in global growth marks the end of the slowdown that started in 2018 and took a heavy toll on global activity, trade and investment, especially last year," said the World Bank's lead economic forecaster Ayhan Kose. "We do expect an improvement, but overall, we also see a weaker growth outlook."

The latest World Bank forecasts take into account the so-called phase one trade deal announced by the US and China, which suspended new US tariffs on Chinese consumer goods scheduled for Dec 15 and reduced the tariff rate on some other goods.

While the rate reduction will have a "rather small" effect on trade, the deal is expected to boost business confidence and investment prospects, contributing to a pick-up in trade growth, Mr Kose said.

Global trade growth is expected to improve modestly this year to 1.9 per cent from 1.4 per cent last year, which was the lowest since the 2008-2009 financial crisis, the World Bank said. This remains well below the 5 per cent average annual trade growth rate since 2010, according to World Bank data.

But both trade and overall economic growth prospects remain vulnerable to flare-ups in US-China trade tensions as well as rising geopolitical tensions.

World Bank officials said they were not able to estimate the growth effects of a wider US-Iran conflict, but believed this would increase uncertainty, which would hurt investment prospects.

 
 
 
 

Advanced economies and emerging markets and developing economies also show divergent prospects in the World Bank forecasts. Growth in the US, the euro zone and Japan is expected to decline slightly to 1.4 per cent this year from 1.6 per cent last year - a markdown of 0.1 percentage point for both years - due to continued softness in manufacturing and the lingering negative effects of US tariffs and retaliatory measures.

But emerging market economies are expected to see a pickup in growth to 4.3 per cent this year from 4.1 per cent last year, although these are both a half percentage point lower than forecasts made in June.

Much of the emerging market improvement is driven by eight countries, the World Bank said. Argentina and Iran are expected to emerge from recession this year, and prospects are expected to improve for six countries that struggled with slowdowns last year: Brazil, India, Mexico, Russia, Saudi Arabia and Turkey.

China's growth rate is projected to decelerate to 5.9 per cent this year, a 0.2 percentage point reduction from the June forecast, as the world's second-largest economy deals with fallout from US tariffs, the World Bank said.

Mr Kose said the trade war hit China's manufacturing and exports hard last year, holding growth to 6.1 per cent, a 0.1 percentage point reduction from the World Bank's June forecast. Tighter regulations on China's shadow banking sector also dented investment.

China's outlook could worsen if trade tensions with Washington flare up again, or there is a disorderly unwinding of debt. But Mr Kose said China had sufficient policy buffers to cushion any deeper slowdown.

REUTERS

 
A version of this article appeared in the print edition of The Straits Times on January 10, 2020, with the headline 'World Bank trims 2020 growth forecast to 2.5%'. Print Edition | Subscribe