Recovery in a handful of countries will boost global growth slightly this year but the outlook is riddled with potential pitfalls that could derail this tepid upswing, the World Bank cautioned on Wednesday.
A renewal of trade tensions, which eased recently with the announcement of an initial agreement between the US and China, would erode the modest progress and could spread quickly beyond the two economic powers.
In its latest Global Economic Prospects report, the World Bank projects the global economy will grow by 2.4 per cent this year, just one tenth more than last year but slower than the 2020 forecast released in June.
Despite the positive spin, the report – titled Fragile, Handle With Care – cuts the forecasts for nearly every country except the US compared to the last edition in June.
And growth is still not fast enough to meet targets for pulling more people out of poverty.
Most major economies are poised to see sluggish growth this year.
The tenuous global rebound relies almost entirely on a few large emerging market economies that are expected to accelerate after a disappointing 2019, or in the case of Argentina, contract at a slower rate.
Major economies
The US and China together account for nearly 40 per cent of global gross domestic product (GDP) and nearly a quarter of global trade. But with an improvement in their nearly two-year old trade dispute, they will be less of a drag on growth even as both economies slow.
The US economy is projected to grow just 1.8 per cent after 2.3 per cent growth last year, the World Bank said.
China’s GDP will expand by less than six per cent for the first time since 1990, with an expected 5.9 per cent growth rate.
“Growth has decelerated more than previously expected amid cooling domestic demand and heightened trade tensions,” the report said.
The Euro Area, hit by a slowdown in Germany and the threat of Brexit, “has deteriorated significantly”, with several economies “on the verge of recession at some point last year”.
The expansion is set to slow further to just 1.0 per cent this year before picking up next year.
Japan also is “suffering from acute weakness in manufacturing and exports” and the economy will continue to slow with growth of just 0.7 per cent.
Emerging markets
Emerging market and developing economies (EMDEs) have been the boost to the global economy through the sluggish times but most face their own rocky road with a third projected to decelerate this year.
As a result the global uptick is not broad-based and “is largely predicated on a rebound in a small group of large EMDEs, most of which are emerging from deep recessions or sharp slowdowns”, the report said.
“Indeed, about 90 per cent of the pickup in EMDE growth in 2020 is accounted for by just eight countries – Argentina, Brazil, India, Iran, Mexico, Russia, Saudi Arabia and Turkey,” it said.
“Excluding these eight countries, aggregate EMDE growth would experience almost no acceleration.”
Argentina, which contracted 3.1 per cent last year, is projected to slow by 1.9 per cent this year while Brazil and Mexico should expand by 2.0 per cent and 1.2 per cent, respectively, far faster than last year.
India too is expected to gain traction, with growth of 5.8 per cent, while Turkey’s 3.0 per cent expansion will come after no growth last year, the report said.
In sub-Saharan Africa, the news is looking up, with a solid increase in GDP growth expected this year.
But the World Bank cautions that, even with the improvement, “per capita growth will remain well below long-term averages and far from sufficient to meet poverty alleviation goals”.
The Middle East is expected to see growth jump to 2.4 per cent this year after virtually no growth last year.
