The Strategist

World Bank expects weak global growth in 2020

01/10/2020 - 08:39

In 2020, the global economy will grow only a little faster than in 2019. According to the World Bank forecast, the increase in global GDP will reach 2.5%. At the same time, a slowdown in growth will affect the United States, Eurozone countries and China. Large emerging economies other than China, by contrast, will grow faster. The World Bank warns that the forecast given by its experts is at risk of revision in the direction of lowering expected indicators.

Eugene Kim
Eugene Kim
The growth of the world economy this year should slightly accelerate compared to the previous year, amounting to 2.5%. This will be facilitated by a partial recovery in investment and trade, according to the World Bank's Outlook for the World Economy, a January World Bank macroeconomic survey.

It is expected that the GDP growth rate of developed economies will slow down from 1.6% to 1.4% (the decline will affect industry), while developing ones, on the contrary, will increase from 3.5% to 4.1%.
But this increase in the second group will not be widespread: approximately a third of such countries will slow down due to lower export and investment indicators, the bank expects. The risks associated with the aggravation of trade conflicts, a stronger slowdown in the growth of large economies and financial instability in developing countries remain.

According to the WB, the US GDP growth rate this year will slow down to 1.8% from 2.3% in 2019 due to the effects of the trade war with China (while the previous forecast for 2020 increased by 0.1 percentage points). The WB forecast for growth in the euro area for this year to be significantly reduced, from 1.4% to 1%, amid low activity in the industry (in 2019, growth was 1.1%). In Japan, last year the economy grew by 1.1%; in 2020, an increase of 1% is expected.

The Chinese economy will continue to slow down: in 2019, growth is estimated at 6.1%, in 2020 it can reach 5.9%, and next year - 5.8%. In Russia, as the WB expects, this year GDP will grow by 1.6%, next year - by 1.8% (these forecasts have not changed compared to December expectations). A sharp acceleration in GDP growth is expected in Brazil (from 1.1% to 2%), in Mexico (from 0% to 1.2%), in Saudi Arabia (from 0.4% to 1.9%), in Turkey (from 0% to 3%) and in India (from 5% to 5.8%). However, the bank indicates a sharp increase in the debt burden: it has reached 170% of GDP in developing countries, which is 54 points more than in 2010. This circumstance increases the risks of financial instability.

Capital Economics notes that the risks of recession in the US economy are quite low - at 12%, although a couple of months ago this probability was 20%. Weaknesses of indicators so far are observed only in the industrial sector, in general, the probability of an acceleration of the economy is higher than its stagnation in 2020, the researchers note. The WB expects that the lag of stock indices of emerging markets from the US in 2020 will be significantly reduced (due to acceleration in the first case and a slowdown in the second). This, however, will affect Asia to a lesser extent due to the slowdown in China and the persistence of tension in its relations with the United States.