Growth in world’s richest countries set to slow, World Bank warns

Poorer nations predicted to see ‘fragile’ recovery

The World Bank headquarters building in Washington DC (Reuters)

Hopes that the richest economies would enjoy a synchronised recovery this year that would lift the world out of its decade-long malaise have been dashed by a downbeat forecast from the World Bank that slashed its outlook for growth in the US and Europe.

Growth in the world’s most advanced economies is set to slow to 1.4 per cent in 2020 from 1.6 per cent last year, and below its previous forecast of 1.5 per cent.

The US, eurozone and Japanese economies will all suffer a slowdown, the bank said on Wednesday.

The American economy will be hit by the negative impact of the tariffs ordered by Donald Trump as part of his trade war with China, while the industrial recession in the eurozone will be the main drag on the single currency zone.

This will be offset by a “fragile” recovery in growth among emerging markets and developing economies (EMDEs) to 4.1 per cent from 3.5 per cent in 2019, taking global growth to 2.5 per cent from 2.4 per cent in 2019 – the weakest since the global financial crisis.

“It has been a decade of disappointment,” said Franziska Ohnsorge, manager of the bank’s development prospects group.

But even that meagre acceleration depends on stronger performance by eight countries that suffered severe downturns in 2019.

These include Argentina, Brazil, India, Iran, Mexico, Russia, Saudi Arabia, Turkey that between them represent a third of the EMDE economy. “The pick-up in 2020 is subject to big downside risks,” Ms Ohnsorge said.

The World Bank also warned there was a risk of a deeper global downturn if global trade tensions re-emerged, uncertainty over government policies persisted or if the rich economies suffered a significant deterioration in growth.

The bank, which a year ago predicted the British economy would grow 1.4 per cent as long as a Brexit deal was agreed, has stopped publishing forecasts for the UK. Ms Ohnsorge said the UK did not pose a sufficiently significant spillover risk to emerging markets to justify issuing a forecast.

But she added: “It remains a risk that something in the Brexit process – or transition process now – goes wrong and surprises [us] and that could then derail growth in the euro area.”

She said a drop in eurozone growth would have “repercussions” on countries in eastern Europe, the Middle East and north Africa and sub-Saharan Africa.

The bank urged countries to take steps to improve their business climate, rule of law and debt management to achieve sustained growth.

“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 Ceyla Pazarbasioglu, the bank’s vice president for equitable growth, finance and institutions.

In a separate chapter, the bank warned that the build-up of debt by rich and poor economies since 2010, which now amounts to a record $130 trillion or 264 per cent of GDP, had raised the risk of a financial crisis.

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, it said.