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Thursday,
January 09, 2020 /08:40 AM / By The World Bank /
Header Image By World Bank
Global
economic growth is forecast to edge up to 2.5% in 2020 as investment and trade
gradually recover from last year's significant weakness but downward risks
persist, the World Bank says in its January 2020 Global Economic Prospects.
Growth
among advanced economies as a group is anticipated to slip to 1.4% in 2020 in
part due to continued softness in manufacturing. Growth in emerging market and
developing economies is expected to accelerate this year to 4.1%. This rebound
is not broad-based; instead, it assumes improved performance of a small group
of large economies, some of which are emerging from a period of substantial
weakness. About a third of emerging market and developing economies are
projected to decelerate this year due to weaker-than-expected exports and
investment.
"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," said World Bank
Group Vice President for Equitable Growth, Finance and Institutions, Ceyla
Pazarbasioglu. "Steps to improve the business climate, the rule of law, debt
management, and productivity can help achieve sustained growth."
U.S.
growth is forecast to slow to 1.8% this year, reflecting the negative impact of
earlier tariff increases and elevated uncertainty. Euro Area growth is
projected to slip to a downwardly revised 1% in 2020 amid weak industrial
activity.
Downside
risks to the global outlook predominate, and their materialization could slow
growth substantially. These risks include a re-escalation of trade tensions and
trade policy uncertainty, a sharper-than expected downturn in major economies,
and financial turmoil in emerging market and developing economies. Even if the
recovery in emerging and developing economy growth takes place as expected, per
capita growth would remain well below long-term averages and well below levels
necessary to achieve poverty alleviation goals.
"Low
global interest rates provide only a precarious protection against financial
crises," said World Bank Prospects Group Director Ayhan Kose. "The history of
past waves of debt accumulation shows that these waves tend to have unhappy
endings. In a fragile global environment, policy improvements are critical to
minimize the risks associated with the current debt wave."
Analytical
sections in this edition of Global Economic Prospects address key current
topics:
The
Fourth Wave: Recent Debt Buildup in Emerging and Developing Economies: There have been four waves of debt accumulation in the last 50 years.
The latest wave, which started in 2010, has seen the largest, fastest, and most
broad-based increase in debt among the four. While current low levels of
interest rates mitigate some of the risks associated with high debt, previous
waves of broad-based debt accumulation ended with widespread financial crises.
Policy options to reduce the likelihood of crises and lessen their impact
should they materialize include building resilient monetary and fiscal
frameworks, instituting robust supervisory and regulatory regimes, and
following transparent debt management practices.
Fading
Promise: How to Rekindle Productivity Growth:
Productivity growth, a primary source of income growth and driver of poverty
reduction, has slowed more broadly and steeply since the global financial
crisis than at any time in four decades. In emerging market and developing
economies, the slowdown has reflected weakness in investment and moderating
efficiency gains as well as dwindling resource reallocation between sectors.
The pace of improvements in many key drivers of labor productivity-including
education and institutions-has slowed or stagnated since the global financial
crisis.
Price
Controls: Good Intentions, Bad Outcomes:
The use of price controls is widespread in emerging market and developing
economies. While sometimes used as a tool for social policy, price controls can
dampen investment and growth, worsen poverty outcomes, cause countries to incur
heavy fiscal burdens, and complicate the effective conduct of monetary policy.
Replacing price controls with expanded and better-targeted social safety nets,
reforms to encourage competition and a sound regulatory environment can be
pro-poor and pro-growth.
Low
for How Much Longer? Inflation in Low-Income Countries: Inflation in low-income countries has tumbled to a median of 3% in
mid-2019 from 25% in 1994. The decline has been supported by more flexible
exchange rate regimes, greater central bank independence, lower government
debt, and a more benign external environment. However, to maintain low and
stable inflation amid mounting fiscal pressures and the risk of exchange rate
shocks, policymakers need to strengthen monetary policy frameworks and central
bank capacity and replace price controls with more efficient policies.
Regional Outlooks:
East
Asia and Pacific: Growth in the region is projected to
ease to 5.7% in 2020, reflecting a further moderate slowdown in China to 5.9%
this year amid continued domestic and external headwinds, including the
lingering impact of trade tensions. Regional growth excluding China is
projected to slightly recover to 4.9%, as domestic demand benefits from
generally supportive financial conditions amid low inflation and robust capital
flows in some countries (Cambodia, the Philippines, Thailand, and Vietnam), and
as large public infrastructure projects come onstream (the Philippines and
Thailand). Regional growth will also benefit from the reduced global trade
policy uncertainty and a moderate, even if still subdued, recovery of global
trade. Regional data.
Europe
and Central Asia: Regional growth is expected to firm
to 2.6% in 2020, assuming stabilization of key commodity prices and Euro Area
growth and recovery in Turkey (to 3%) and Russia (to 1.6%). Economies in
Central Europe are anticipated to slow to 3.4% as fiscal support wanes and as
demographic pressures persist, while countries in Central Asia are projected to
grow at a robust pace on the back of structural reform progress. Growth is
projected to firm in the Western Balkans to 3.6% -- although the aftermath of
devastating earthquakes could weigh on the outlook -- and decelerate in the
South Caucasus to 3.1%. Regional data.
Latin
America and the Caribbean: Regional growth is
expected to rise to 1.8% in 2020, as growth in the largest economies
strengthens and domestic demand picks up at the regional level. In Brazil, more
robust investor confidence, together with a gradual easing of lending and labor
market conditions, is expected to support an acceleration in growth to 2%.
Growth in Mexico is seen rising to 1.2% as less policy uncertainty contributes
to a pickup in investment, while Argentina is anticipated to contract by a
slower 1.3%. In Colombia, progress on infrastructure projects is forecast to
help support a rise in growth to 3.6%. Growth in Central America is projected
to firm to 3% thanks to easing credit conditions in Costa Rica and relief from
setbacks to construction projects in Panama. Growth in the Caribbean is expected
to accelerate to 5.6%, predominantly due to offshore oil production
developments in Guyana. Regional data.
Middle
East and North Africa: Regional growth is
projected to accelerate to a modest 2.4% in 2020, largely on higher investment
and stronger business climates. Among oil exporters, growth is expected to pick
up to 2%. Infrastructure investment and business climate reforms are seen advancing
growth among the Gulf Cooperation Council economies to 2.2%. Iran's economy is
expected to stabilize after a contractionary year as the impact of US sanctions
tapers and oil production and exports stabilize, while Algeria's growth is
anticipated to rise to 1.9% as policy uncertainty abates and investment picks
up. Growth in oil importers is expected to rise to 4.4%. Higher investment and
private consumption are expected to support a rise to 5.8% in FY2020 growth in
Egypt. Regional data.
South
Asia: Growth in the region is expected to rise to 5.5% in
2020, assuming a modest rebound in domestic demand and as economic activity
benefits from policy accommodation in India and Sri Lanka and improved business
confidence and support from infrastructure investments in Afghanistan,
Bangladesh, and Pakistan. In India, where weakness in credit from non-bank
financial companies is expected to linger, growth is projected to slow to 5% in
FY 2019/20, which ends March 31 and recover to 5.8% the following fiscal year.
In Pakistan's growth is expected to rise to 3% in the next fiscal year after
bottoming out at 2.4% in FY2019/20, which ends June 30. In Bangladesh, growth
is expected to ease to 7.2% in FY2019/2020, which ends June 30, and edge up to
7.3% the following fiscal year. Growth in Sri Lanka is forecast to rise to
3.3%. Regional data.
Sub-Saharan
Africa: Regional growth is expected to pick up to 2.9% in
2020, assuming investor confidence improves in some large economies, energy
bottlenecks ease, a pickup in oil production contributes to recovery in oil
exporters and robust growth continues among agricultural commodity exporters.
The forecast is weaker than previously expected reflecting softer demand from
key trading partners, lower commodity prices, and adverse domestic developments
in several countries. In South Africa, growth is expected to pick up to 0.9%,
assuming the new administration's reform agenda gathers pace, policy
uncertainty wanes, and investment gradually recovers. Growth in Nigeria
expected to edge up to 2.1% as the macroeconomic framework is not conducive to
confidence. Growth in Angola is anticipated to accelerate to 1.5%, assuming
that ongoing reforms provide greater macroeconomic stability, improve the
business environment, and bolster private investment. In the West African
Economic and Monetary Union, growth is expected to hold steady at 6.4%. In
Kenya, growth is seen edging up to 6%. Regional data.
Download Here - January 2020
Global Economic Prospects Report
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