Global Economic Growth Anticipated to Increase by 2.5%: World Bank

The World Bank (WB) expects global economic growth to rise in 2020 by 2.5 percent, poised for a modest rebound this year, after its weakest performance since the global financial crisis.

According to the WB’s semi-annual Global Economic Prospects report, the projected rise is a small uptick from 2.4 percent in 2019, thanks to a gradual recovery in trade and investment.

The report anticipates advanced economies to slow down in growth as a group to 1.4 percent, down from 1.6 percent, reflecting a lingering weakness in manufacturing.

For emerging markets and developing economies, the report forecast their growth to accelerate to 4.1 percent, up from 3.5 percent in 2019, adding that the pickup is anticipated to come largely from a small number of large emerging economies shaking off economic doldrums or stabilising after recession or turbulence.

“For many other economies, growth is on track to decelerate as exports and investment remain weak,” the report stated.

Nevertheless, it pointed out that if the recovery in emerging and developing economies' growth takes place as expected, per capita growth will remain below long-term averages and will move slowely, disabling them from meeting poverty eradication goals, while income growth would be slowest in Sub-Saharan Africa, where 56 percent of the world’s poor reside.

“And even this modest rally could be disrupted by any number of threats.

Trade disputes could re-escalate. A sharper-than-expected growth slowdown in major economies such as China, the United States, or the Euro Area would similarly reverberate widely.

A resurgence of financial stress in large emerging markets, as was experienced in Argentina and Turkey in 2018, an escalation of geopolitical tensions, or a series of extreme weather events could all have adverse effects on economic activity around the world,” the report said.

The emerging markets and developing economies, as well, witnessed the largest and most-broad based debt accumulation over the past 50 years, as the total debt among these economies jumped to around 170 percent of GDP in 2018, up from 115 percent of GDP in 2010.

Debt has also surged among low-income countries after a sharp drop over 2000-2010.

The report touched upon the productivity growth, which witnessed a slowdown over the past 10 years.

The growth in productivity, which means output per worker, is a key factor for raising living standards and achieving development goals.

The report found that the average output per worker in emerging and developing economies is less than one-fifth that of a worker in an advanced economy, and in low-income economies that figure drops to two percent, which illustrates how the productivity slowdown has affected emerging and developing economies.

Price control and inflation prospects in low-income economies have affected these economies, according to the report.

While price control is sometimes a useful way to smooth price fluctuations of goods and services, such as energy and food, it can also harm investment and growth, worsen poverty outcomes, and lead to heavier fiscal burdens.

In this regard, the report proposed to replace such procedures with expanded and targeted social safety nets alongside catalysing competition and setting an effective regulatory environment, which can be beneficial to poverty eradication and growth enhancement.

On inflation, the report said that while it has declined sharply in low-income countries over the last 25 years, keeping it low and stable cannot be taken for granted.

“Low inflation is associated with more stable output and employment, higher investment, and falling poverty rates. However, rising debt levels and fiscal pressures could put some economies at risk of disruptions that could send prices sharply higher.

Strengthening central bank independence, making the monetary authority’s objectives clear, and cementing central bank credibility are essential to keep prices anchored,” the report stated.

While the global economic outlook for 2020 envisions a fragile upward path that could be upended, there is a high degree of uncertainty around the forecast given unpredictability around trade and other policies.

If policy-makers manage to mitigate tensions and settle issues in a number of areas, they could prove the forecast wrong by sending growth higher than anticipated.