Skies darkening over the global economy: World Bank

The World Bank on Tuesday projected moderation of global growth from three per cent last year to 2.9 per cent this year, as one of its top officials described the current situation of the world economy as "darkening of the skies".

"Global growth is slowing and risks are rising. We think that skies are darkening over the global economy," World Bank Prospects Group Director Ayhan Kose told PTI on the occasion of release of its Global Economic Prospects.

According to the report, global economic growth is projected to soften from a downwardly revised 3 per cent in 2018 to 2.9 per cent in 2019 amid rising downside risks to the outlook.

International trade and manufacturing activity have softened, trade tensions remain elevated, and some large emerging markets have experienced substantial financial market pressures, it said.

The World Bank said growth among advanced economies is forecast to drop to two per cent this year. Slowing external demand, rising borrowing costs, and persistent policy uncertainties are expected to weigh on the outlook for emerging market and developing economies.

Growth for this group is anticipated to hold steady at a weaker-than-expected 4.2 per cent this year.

The January 2019 edition of the report "Darkening Skies", highlights how precarious the current economic juncture is. "In a nutshell, growth has weakened, trade tensions remain high, several developing economies have experienced financial stress, and risks to the outlook have increased," said Shantayanan Devarajan, senior director, Development Economics Vice Presidency, the World Bank Group.

Observing that the outlook for the global economy has darkened, the report said global financing conditions have tightened, industrial production has moderated, trade tensions have intensified, and some large emerging market and developing economies have experienced significant financial market stress.

"Faced with these headwinds, the recovery in emerging market and developing economies has lost momentum. Downside risks have become more acute and include the possibility of disorderly financial market movements and an escalation of trade disputes. Debt vulnerabilities in emerging market and developing economies, particularly low-income countries, have increased,” it said.

Noting that a number of developments could act as a further brake on activity, the report said a sharper tightening in borrowing costs could depress capital inflows and lead to slower growth in many emerging market and developing economies.

Past increases in public and private debt could heighten vulnerability to swings in financing conditions and market sentiment. Intensifying trade tensions could result in weaker global growth and disrupt globally interconnected value chains, it said.

"Robust economic growth is essential to reducing poverty and boosting shared prosperity," said World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasioglu.

"As the outlook for the global economy has darkened, strengthening contingency planning, facilitating trade, and improving access to finance will be crucial to navigate current uncertainties and invigorate growth," said the official.

"Designing tax and social policies to level the playing field for formal and informal sectors as well as strengthening domestic revenue mobilization and debt management will be important priorities for policymakers to overcome the challenges associated with informality in developing economies," said Kose.

"As the economic outlook dims, such efforts become even more important," he added.