Storm Clouds Are Brewing for the Global Economy

The outlook for the global economy in 2019 has darkened.

International trade and investment have softened. Trade tensions remain elevated. Several large emerging markets underwent substantial financial pressures last year.

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Kristalina Georgieva World Bank Chief Executive Officer

Against this challenging backdrop, growth in emerging market and developing economies is expected to remain flat in 2019. The pickup in economies that rely heavily on commodity exports is likely to be much slower than hoped for. Growth in many other economies is anticipated to decelerate.

In addition, risks are growing that growth could be even weaker than anticipated, the World Bank’s January 2019 Global Economic Prospects reports.

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.

In addition, more frequent weather events raise the possibility of large swings in food prices, which could deepen poverty. Because equitable growth is essential to alleviating poverty and increasing shared prosperity, emerging market and developing economies need to face this challenging economic climate by taking steps to sustain economic momentum, readying themselves for turbulence, and foster long-term growth. Rebuilding budget and central bank buffers; nurturing human capital; promoting trade integration; and addressing the challenges posed by sometimes large informal sectors, are important ways to do this.

“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.”

Promoting equitable and sustainable economic growth is central the World Bank’s goals of ending extreme poverty and boosting shared prosperity. The GEP provides invaluable intelligence in support of achieving these aims and is a trusted resource for clients, stakeholders, civil organizations and researchers.

Burdened by debt

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.

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.

Under these circumstances, were financing conditions to tighten abruptly, countries could experience sudden capital outflows and struggle to refinance debts.

Ideally, public debt should be sustainable and serviced under a wide range of circumstances at reasonable costs. By increasing the effectiveness of resource mobilization, public spending, as well as strengthening debt management and transparency, low-income countries can reduce the possibility of costly debt stress, support financial sector development, and reduce macroeconomic volatility.

The article is published courtesy of the World Bank


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Categories: Development

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