Global growth is set to slow over the next two years as central banks raise borrowing rates and US fiscal stimulus starts to fade, the World Bank said.
The world economy is to grow 3.1 percent this year and 3 percent next year, the development lender said on Tuesday in its latest Global Economic Prospects report.
Both forecasts were unchanged from January. About half of the world’s economies are accelerating, underscoring the breadth of the upswing.
Growth would further slow in 2020, as the world economy approaches full output, trade and investment growth wanes, and financial conditions tighten, the Washington-based bank said.
Risks are tilted to the downside and include the threat of a sudden contraction in global credit and a spike in protectionism, it added.
“We’re asking whether the tide is now turning,” Ayhan Kose, director of the World Bank Group’s Development Prospects Group, said in an interview. “This broad-based upturn story we had is no longer there, so we are expecting a slowdown.”
Investors are weighing the solid performance of the global economy against a host of threats, including interest-rate hikes by the US Federal Reserve, the prospect of a trade war between the US and China, and the election of a euro-skeptic government in Italy.
The World Bank views an unexpected tightening of financial conditions as the top risk to emerging markets and developing economies, Kose said.
Still, the development lender does not see imminent signs of a financial crisis brewing in emerging markets, despite bouts of volatility in Argentina and Turkey, he said.
A global trade war would hit emerging markets hardest, said the bank, which projected the effects if every nation increased tariffs to the highest levels allowed under WTO rules.
“Global growth right now is robust. This is a good time to find ways to sustain global growth,” Kose said. “Trade has always been a major factor in supporting the global economy, especially in emerging markets and developing economies.”
The bank upgraded its forecast for US growth this year to 2.7 percent, up 0.2 points from January, and would grow 2.5 percent next year, up 0.3 point from six months ago.
The spending increases passed by the US Congress in February were the main factor behind the upgrades, it said.
The spending boost, coupled with tax cuts that took effect earlier this year, would raise the US budget deficit to 5 percent of GDP over the next decade, from 3.5 percent last year, the bank said.
Eurozone nations are expected to grow 2.1 percent this year and 1.7 percent next, unchanged from January, it said.
The development lender cut its forecast for growth this year in Japan by 0.3 points to 1 percent, as higher oil prices cut into incomes and fiscal tightening drags on growth.
Japan’s economy is to grow 0.8 percent next year, unchanged from the forecast at the start of the year, it added.
China is to expand 6.5 percent this year, up 0.1 points from January, the bank said, adding that Chinese growth would slow to 6.3 percent next year and 6.2 percent in 2020. |
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