World Bank Gloomy About Global Economy

The outlook for the global economy in 2019 has darkened, according to the World Bank's January 2019 Global Economic Prospects report.

International trade and investment have softened. Trade tensions remain elevated, and several large emerging markets underwent substantial financial pressures last year. Growth in emerging markets and developing economies is expected to remain flat in 2019 as a result. 

Risks are growing that growth could be even weaker than anticipated. The pickup in economies that rely heavily on commodity exports is likely to be much slower than hoped for, and growth in many other economies is anticipated to decelerate.

Advanced-economy central banks will continue to remove the policies that supported the protracted recovery from the global financial crisis 10 years ago. Also, simmering trade disputes could escalate. Higher debt levels have made some economies, particularly poorer countries, more vulnerable to rising global interest rates, shifts in investor sentiment or exchange rate fluctuations.

Addressing high levels of debt looms as an increasingly important concern. In recent years, many low-income countries have gained access to new sources of finance, including private sources and creditors outside the Paris Club of major creditor countries. This has allowed countries to fund important development needs. However, it has also contributed to growing public debt.

Government debt levels among low-income countries have risen from debt-to-GDP ratios of 30 percent to 50 percent over the last four years. Low income countries are using an increasing proportion of government revenues to make interest payments. Such debt service pressures will only grow further if borrowing costs rise as expected in coming years.

In addition, more frequent weather events raise the possibility of large swings in food prices, which could deepen poverty. Seeking to shield vulnerable populations from food price spikes may require a shift in policy emphasis away from trade policies. Authorities have in the past intervened with trade measures to dampen the impact of fluctuations in the prices of key food commodities, including rice, wheat and maize.

But while individual countries can succeed in the short term at buffering domestic markets from price fluctuations, collective action around the world can exacerbate food price volatility and push prices higher – hurting those with the thinnest margins of security, says the World Bank. Policies introduced in 2010-2011 may have accounted for 40 percent of the increase of the world price of wheat and one-quarter of the price rise for maize. It is estimated that the food price jump of that period pushed 8.3 million people into poverty.

While food prices have declined since peaks at the turn of the decade, world hunger and food insecurity have risen between 2014 and 2017. The number of under-nourished people rose five percent to 821 million during that period, and food security challenges have recently been recognized as an urgent priority by the G20.

Further, food price spikes of the kind experienced in 2010-11 could occur again as extreme weather events raise the possibility of disruption to food production.

The World Bank says that instead of interventions such as export bans or the reduction of import duties, effective approaches to soften the blow of higher food prices include better safety nets such as cash and food transfers, school feeding and public works programs. It is important for countries to have a strategy in place to respond to food crises and to provide adequate resources for these programs.

“At the beginning of 2018 the global economy was firing on all cylinders, but it lost speed during the year and the ride could get even bumpier in the year ahead,” said World Bank Chief Executive Officer Kristalina Georgieva. “As economic and financial headwinds intensify for emerging and developing countries, the world’s progress in reducing extreme poverty could be jeopardized. To keep the momentum, countries need to invest in people, foster inclusive growth and build resilient societies.”