Global growth to weaken to 2.6% in 2019, substantial risks seen; India seen rising to 7.5% – World Bank

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Global economic growth is forecast to ease to a weaker-than-expected 2.6% in 2019 before inching up to 2.7% in 2020, the World Bank said, adding that growth in emerging market and developing economies is expected to stabilize next year as some countries move past periods of financial strain, but economic momentum remains weak.

Emerging and developing economy growth is constrained by sluggish investment, and risks are tilted to the downside. These risks include rising trade barriers, renewed financial stress, and sharper-than-expected slowdowns in several major economies, the World Bank sid in its June 2019 Global Economic Prospects: Heightened Tensions, Subdued Investment. Structural problems that misallocate or discourage investment also weigh on the outlook.

The outlook for South Asia, however, is solid, with growth picking up to 7% in 2020 and 7.1% in 2021. Domestic demand growth is expected to remain robust with support from monetary and fiscal policy, in particular in India. Growth in India is projected to accelerate to 7.5% in FY 2019/20, which began April 1. Pakistan’s growth is expected to slow further to 2.7% in FY2019/20, which begins July 16.

“Current economic momentum remains weak, while heightened debt levels and subdued investment growth in developing economies are holding countries back from achieving their potential. It’s urgent that countries make significant structural reforms that improve the business climate and attract investment. They also need to make debt management and transparency a high priority so that new debt adds to growth and investment,” said World Bank Group President David Malpass.

According to the World Bank, growth among advanced economies as a group is anticipated to slow in 2019, especially in the Euro Area, due to weaker exports and investment. U.S. growth is forecast to ease to 2.5% this year and decelerate to 1.7% in 2020. Euro Area growth is projected to hover around 1.4% in 2020-21, with softness in trade and domestic demand weighing on activity despite continued support from monetary policy.

Growth among emerging market and developing economies is projected to fall to a four-year low of 4% in 2019 before recovering to 4.6% in 2020. A number of economies are coping with the impact of financial stress and political uncertainty. Those drags are anticipated to wane and global trade growth – which is projected to be the weakest in 2019 since the financial crisis a decade ago — is expected to recover somewhat.

See here: June 2019 Global Economic Prospects report.

“While almost every economy faces headwinds, the poorest countries face the most daunting challenges because of fragility, geographic isolation, and entrenched poverty,” said World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasioglu. “Unless they can get onto a faster growth trajectory, the goal of lowering extreme poverty under 3 percent by 2030 will remain unreachable.”

Key current topics:

  • Government debt has risen substantially in emerging and developing economies, as hard-won cuts in public debt ratios prior to the financial crisis have to a large extent been reversed. Emerging and developing economies need to strike a careful balance between borrowing to promote growth and avoiding risks associated with excessive borrowing.
  • Growth rates in low-income countries are expected to rise to 6% in 2020 from 5.4% in 2019, but that is still not enough to substantially reduce poverty. While a number of low-income countries progressed to middle income status between 2000 and 2018, the remaining low-income countries face steeper challenges to achieving similar progress. Many are poorer than the countries that made the leap to higher income levels and are fragile, disadvantaged by geography and heavily reliant on agriculture.
  • Investment growth among emerging and developing economies is expected to remain subdued and below historical averages, held back by sluggish global growth, limited fiscal space, and structural constraints. A sustained pickup in investment growth is necessary to meet key development goals. Business climate reforms can help encourage private investment.
  • Sharp currency depreciations are more common in emerging and developing economies than in advanced economies, and central banks are often required to respond to these fluctuations to maintain price stability. The exchange rate pass-through to inflation is more limited when central banks pursue credible inflation targets, operate within a flexible exchange rate regime, and are independent of the central government.
Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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