Beware Of 'Darkening Skies', World Bank Warns

9th January 2019

“Despite ongoing negotiations, trade tensions among major economies remain elevated," the World Bank stated.

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, the Bank predicts continued, though somewhat slower, growth this year and next, as the recovery in trade and manufacturing activity loses steam.

The Bank predicted that global growth would moderate from a downwardly revised 3 per cent in 2018 to 2.9 percent in 2019 and 2.8 per cent in 2020-21, “as economic slack dissipates, monetary policy accommodation in advanced economies is removed, and global trade gradually slows.”

“Despite ongoing negotiations, trade tensions among major economies remain elevated. These tensions, combined with concerns about softening global growth prospects, have weighed on investor sentiment and contributed to declines in global equity prices.”

The Bank said that borrowing costs for emerging market and developing economies (EMDEs) have increased, in part as major advanced-economy central banks continue to withdraw policy accommodation in varying degrees, causing financial stress.

It added that energy prices have fluctuated markedly, mainly due to supply factors, with sharp falls toward the end of 2018. Other commodity prices—particularly metals—have also weakened, posing renewed headwinds for commodity exporters.

“Economic activity in advanced economies has been diverging of late. Growth in the United States has remained solid, bolstered by fiscal stimulus. In contrast, activity in the Euro Area has been somewhat weaker than previously expected, owing to slowing net exports. While growth in advanced economies is estimated to have slightly decelerated to 2.2 percent last year, it is still above potential and in line with previous forecasts.”

“Advanced-economy growth will gradually decelerate toward potential, falling to 1.5 percent by the end of the forecast horizon, as monetary policy is normalised and capacity constraints become increasingly binding.”


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