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World Bank warns of ‘darkening skies’ for global economy

Andrew Walker @PeopleDailyKE

The World Bank is warning of increasing risks, or what it calls “darkening skies”, for the world economy. In its annual assessment of global prospects predicts continued, though somewhat slower, global growth this year and next.

The Bank’s forecast for the global economy is an expansion this year of 2.9 per cent and 2.8 per cent in 2020. But overhanging the broadly favourable outlook are raising concerns that could mean economic performance falls short.

There is certainly some good news in this report. While the global economy is slowing down it’s likely to be what the Bank’s economists call a “soft landing”. The slowdown started in the middle of last year and it has so far been “orderly”.

Rich countries

The predicted slowdown is focused on the rich countries, particularly the US, although it will continue to expand more rapidly than either the Eurozone or Japan according to the Bank’s forecasts.

The US slowdown is the result of the fading impact of President Trump’s tax cuts and by 2021 its growth will have almost halved — to 1.6 per cent compared with 2.9 per cent last year.

On the other hand, growth in emerging markets and developing economies is likely to gather pace somewhat despite the continued cooling down in China — a process which began at the start of the decade.

By 2021 growth in China is expected to be 6 per cent, which is still pretty strong, but it is a marked change of gear for an economy that expanded by an average of 10 per cent annually between 1980 and 2010.

Franziska Ohnsorge, a World Bank economist and lead author of the report said in a BBC interview: “In China, it’s policy engineered, a very deliberate slowdown towards more stable long term growth.”

Few years

That is what the Bank thinks is the likely performance of the world economy over the next few years. But there are risks that could mean that it doesn’t work out so well.

That is reflected in the title of this year’s report: “Darkening Skies”. International commerce is already weakening, and conflict over trade, especially between the US and China, is one of the major risks.

These are the two largest national economies on the planet. The bank has calculated that 2.5 per cent of global trade is affected by the new tariffs — trade taxes — that were imposed last year, and it would be double that if the further tariffs that have been discussed were implemented. —BBC

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