The “Darkening Skies” report by World Bank Global Economic Prospects reveals an anticipated global growth slowdown to 2.9% in 2019 and 2.8% in 2020. A key finding of the report is that global growth is moderating due to a slowdown in the recovery of trade and manufacturing activity.
Impact of Trade Tensions
Trade tensions among major economies such as the US and China remain high despite ongoing negotiations. Such tensions, coupled with concerns about softening global growth prospects, have adversely affected investor sentiment, leading to declines in share prices. Considering that the US and China together account for 20% of global trade and 40% of global GDP, proposed tariffs could have global impacts.
Global Financing Conditions and Brexit
Changes in global financing conditions, like the recent appreciation of the US dollar, could hinder economic activity in Emerging Market and Developing Economies (EMDEs), particularly those with large current account deficits. The report also highlights Brexit as a potential risk, especially for countries heavily reliant on selling to Europe. A no-deal exit could cause significant economic damage to the UK, EU, Eastern Europe and North Africa, all of which are closely integrated with Europe.
China’s Economic Slowdown
China’s growth is projected to slow down to 6.2% in both 2019 and 2020, further reducing to 6% in 2021. This deceleration could impact developing countries that export industrial commodities, energy, and metals to China. In 2017, China’s 6.9% growth narrowly surpassed India’s 6.7%, primarily due to the latter’s economy slowing because of demonetisation and GST implementation.
| Year | China’s Growth | India’s Growth |
|---|---|---|
| 2017 | 6.9% | 6.7% |
| 2018 | 6.5% (est.) | 7.2% (est.) |
Debt Vulnerabilities and Policy Recommendations
Debt vulnerabilities in emerging markets and developing economies, particularly in low-income countries, have risen. Frequent severe weather events could lead to volatility in international food prices, exacerbating poverty. The report recommends EMDEs rebuild policy buffers, boost human capital, promote trade integration, and address challenges associated with informality.
India’s Economic Outlook
India is expected to continue as the world’s fastest-growing major economy, with an anticipated GDP growth of 7.3% in 2018-19 and 7.5% in subsequent years. This growth is largely attributed to increased consumption and investment due to structural reforms like GST harmonisation and bank recapitalisation.
Issues such as low profitability and high non-performing assets remain a concern for public sector banks in India, which comprise approximately 70% of banking sector assets. Strong domestic demand could widen the current account deficit to 2.6% of GDP next year while inflation is projected to rise above the RBI’s target range of 2 to 6%, mainly due to energy and food prices.
About Global Economic Prospects
Global Economic Prospects is a flagship report from the World Bank Group, which explores global economic developments and prospects with a special focus on emerging market and developing economies. It is published twice a year, in January and June. The January edition contains in-depth policy analyses, while the June edition features shorter analytical pieces. The World Bank also publishes other reports like the Ease of Doing Business Report, Human Capital Index, and the World Development Report.