World Bank Trims 2020 Forecast Following Slow Recovery For Trade And Investment

On Wednesday (Jan 8th), the World Bank slightly trimmed its global growth forecasts for 2019 and 2020 following to a slower than expected recovery in trade and investment, even though trade tensions between the United States and China were gradually being resolved. The World Bank disclosed that 2019 marked the weakest economic expansion since the global financial crisis that occurred a decade ago, and 2020, a slight improvement notwithstanding, remained vulnerable to uncertainties over trade and geopolitical tensions. In the recent Global Economic Prospects report, the World Bank trimmed 0.2 percentage points from its growth for both years, with the 2019 global economic growth forecast at 2.4% and that of 2020 at 2.5%. 

The lead economic forecaster of World Bank, Ayhan Kose said, “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. We do expect an improvement, but overall, we also see a weaker growth outlook. While the tariff rate reduction will have a "rather small” effect on trade, the deal is expected to boost business confidence and investment prospects, contributing to a pickup in trade growth." 

The World Bank said global trade growth is expected to improve modestly in 2020 to 1.9% from 1.4% in 2019, which was the lowest since the 2008-2009 financial crisis, and according to its data, this remains well below the 5% average annual trade growth rate since 2010.

Both trade and overall economic growth prospects remain vulnerable to flare-ups in U.S.-China trade tensions as well as rising geopolitical tensions. Officials of World Bank said they were not able to estimate the growth effects of a wider U.S.-Iran conflict, but said this would increase uncertainty, which would hurt investment prospects.

According to Reuters, advanced economies and emerging markets and developing economies also show divergent prospects in the World Bank forecasts. Growth in the United States, the Euro area and Japan is expected to decline slightly to 1.4% in 2020 from 1.6% in 2019 ( a markdown of 0.1 percentage point for both years) due to continued softness in manufacturing and the lingering negative effects of U.S. tariffs and retaliatory measures. But emerging market economies are expected to see a pickup in growth to 4.3% in 2020 from 4.1% in 2019, although these are both a half percentage point lower than forecasts made in June.

World Bank further disclosed that the majority of the emerging market improvement is driven by eight countries. Argentina and Iran are expected to emerge from recessions in 2020, and prospects are expected to improve for six countries that struggled with slowdowns in 2019: Brazil, India, Mexico, Russia, Saudi Arabia, and Turkey. It also said China’s growth rate is projected to decelerate to 5.9% in 2020, a 0.2 percentage point reduction from the June forecast, as the world’s second-largest economy deals with the fallout from the U.S. tariffs. 

Even though it seems China’s outlook could worsen if trade tensions with Washington flare up again, or there is a disorderly unwinding of debt, Kose says China has sufficient policy buffers to cushion any deeper slowdown.