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Developing economies’ growth to pick up to 4.1% in 2020 but rebound is not broad-based – World Bank 2020 view

Developing economies’ growth to pick up to 4.1% in 2020 but rebound is not broad-based – World Bank 2020 view

Washington, 08 January 2020 — Global economic growth is forecast to edge up to 2.5% in 2020 as investment and trade gradually recover from last year’s significant weakness but downward risks persist, the World Bank states in its January 2020 Global Economic Prospects.

Growth among advanced economies as a group is anticipated to slip to 1.4% in 2020 in part due to continued softness in manufacturing.

Growth in emerging market and developing economies is expected to accelerate this year to 4.1%. This rebound is not broad-based; instead, it assumes improved performance of a small group of large economies, some of which are emerging from a period of substantial weakness.

About a third of emerging market and developing economies are projected to decelerate this year due to weaker than expected exports and investment.

“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 World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasioglu, adding that steps to improve the business climate, the rule of law, debt management, and productivity can help achieve sustained growth.

U.S. growth is forecast to slow to 1.8% this year, reflecting the negative impact of earlier tariff increases and elevated uncertainty.

Euro Area growth is projected to slip to a downwardly revised 1% in 2020 amid weak industrial activity.

Downside risks to the global outlook predominate. Even if the recovery in emerging and developing economy growth takes place as expected, per capita growth would remain well below long-term averages and well below levels necessary to achieve poverty alleviation goals.

“Low global interest rates provide only a precarious protection against financial crises,” said World Bank Prospects Group Director Ayhan Kose. “The history of past waves of debt accumulation shows that these waves tend to have unhappy endings. In a fragile global environment, policy improvements are critical to minimize the risks associated with the current debt wave.”

The recent debt build-up in emerging and developing economies, which started in 2010, has seen the largest, fastest, and most broad-based increase in debt over the past 50 years. While current low interest rates mitigate some of the risks associated with high debt, previous waves of broad-based debt accumulation ended with widespread financial crises.

Regional Outlook:

Sub-Sahara Africa: Regional growth is expected to pick up to 2.9% in 2020, assuming investor confidence improves in some large economies, energy bottlenecks ease, a pick-up in oil production contributes to recovery in oil exporters and robust growth continues among agricultural commodity exporters. The forecast is weaker than previously expected reflecting softer demand from key trading partners, lower commodity prices, and adverse domestic developments in several countries.

In South Africa, growth is expected to pick up to 0.9%, assuming the new administration’s reform agenda gathers pace, policy uncertainty wanes, and investment gradually recovers.

Growth in Angola is anticipated to accelerate to 1.5%, assuming that ongoing reforms provide greater macroeconomic stability, improve the business environment, and bolster private investment.

East Asia and Pacific: Growth in the region is projected to ease to 5.7% in 2020, reflecting a further moderate slowdown in China to 5.9% this year amid continued domestic and external headwinds, including the lingering impact of trade tensions. Regional growth excluding China is projected to recover slightly to 4.9%, as domestic demand benefits from generally supportive financial conditions amid low inflation and robust capital flows

Europe and Central Asia: Regional growth is expected to firm to 2.6% in 2020, assuming stabilization of key commodity prices and Euro Area growth and recovery in Turkey (to 3%) and Russia (to 1.6%).

In India, where weakness in credit from non-bank financial companies is expected to linger, growth is projected to slow to 5% in FY 2019/20, which ends on 31 March and recover to 5.8% the following fiscal year.

The full report can be downloaded at January 2020 Global Economic Prospects.


 

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