Skies of global economy ‘darkening’, warns World Bank

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The skies of the global economy are “darkening”, the World Bank warns in its latest report.

The bank shaved its world GDP forecast for 2019 by 0.1 per cent to 2.9 per cent but stressed that downside risks are building, including the threat of a new financial crisis.

The forecast for emerging markets this year has been slashed to 4.2 per cent, down from 4.7 per cent in June, with Turkey, Argentina and Iran taking severe downgrades.

It expects growth in advanced economies to slow down from 2.2 per cent in 2018 to 2 per cent.

The bank blames the bleaker picture on Donald Trump’s trade wars, monetary tightening in the US and high debt levels, making economies more vulnerable to higher interest rates.

It notes that low-income countries have seen their government debt levels rise from 30 per cent to 50 per cent of GDP over the past four years, forcing them to spend more on interest payments.

“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 the bank’s CEO Kristalina Georgieva.

The World Bank’s biannual report notes that some large emerging market and developing economies have experienced “significant financial market stress” in recent months, causing them to lose momentum and that there is a risk of “contagion effects” elsewhere.

There has also been market turmoil in the US, where stock markets saw the worst December performance since the 1930s.

“We are facing a more difficult period for the global economy and the volatility in the financial markets certainly gave us that signal recently,” added Ms Georgieva, who will take over as interim leader of the Washington-based multilateral lender next month following president Jim Yong Kim’s surprise decision this week to resign early to take a job in private equity.

Many Wall Street analysts fear that US bond markets, where short rates are now almost higher than long rates, are signalling the possibility of a US recession.

The World Bank’s sister organisation, the International Monetary Fund, also downgraded its global growth outlook in October, projecting a 3.7 per cent expansion for 2019, 0.2 per cent lower than it had forecast in April.

The IMF also blamed global trade tensions for the weakening outlook.