World Bank Forecasts Weakest Global Economic Growth Since The Financial Crisis

Topline: The World Bank released a gloomy outlook for global economic growth on Wednesday, cutting its forecast for the fourth time in a row as it warned of ongoing uncertainties from tariffs and geopolitical tensions, as well as the risk of a fresh global debt crisis.

• In its latest biannual Global Economic Prospects report, published on Wednesday, the World Bank released its latest projections for the global economy in 2020.
• A modest rebound in growth is expected: The global economy will grow 2.5% this year, slightly better than the 2.4% estimate for 2019, though both yearly estimates are lower than the last forecast released in June (2.6% for 2019 and 2.7% for 2020).
• The 189-country lending institution trimmed its outlook for this year, expecting the weakest growth since the global financial crisis as the world economy remains vulnerable to geopolitical tensions and a potential re-escalation of the ongoing trade war between the U.S. and China.
• Growth among advanced economies is set to decline 1.4% in 2020—thanks in part to a global slowdown in manufacturing, while growth in emerging market and developing economies, spurred by a smaller group of large economies, will rise 4.1% according to Bank’s forecast.
• The World Bank also warned of the risk of a fresh global debt crisis, spurred by the “largest, fastest, and most broad-based accumulation of debt since the 1970s.” In 2018, for example, global debt climbed to a record high of around 230% of GDP.
• “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,” the report found.

Crucial quote: Ayhan Kose, the World Bank’s lead economic forecaster, warned in the report that such large waves of debt borrowing tend to have unhappy endings and that low interest rates may not be enough to offset another financial meltdown. “Low global interest rates provide only a precarious protection against financial crises,” he said. “In a fragile global environment, policy improvements are critical to minimize the risks associated with the current debt wave.”

Crucial statistics: Growth in the U.S., Euro area and Japan is forecast to fall 1.4% in 2020, from 1.6% in 2019. That’s due to a continued manufacturing slowdown and negative effects from tariffs. China’s economic growth is projected to fall from 6.1% in 2019 to 5.9% in 2020, as the country continues to deal with the effects of a slowing domestic economy and fallout from the trade war with the U.S. Russia, on the other hand, saw growth slow to 1.2% in 2019, after weaker-than-expected business investment and continued economic sanctions—but growth is forecast to improve in 2020, at 1.6%.

Further reading: Read the World Bank’s full report here.