World Bank Cuts Forecast for World Economic Growth in 2019

The World Bank is downgrading its outlook for the global economy this year, citing rising trade tension, weakening manufacturing activity and growing financial stress in emerging-market countries.

In a report titled “Darkening Skies,” the anti-poverty agency said Tuesday that it expects the world economy to grow 2.9 percent in 2019, down from the 3 percent it forecast back in June. It would be the second straight year of slowing growth: The global economy expanded 3 percent last year and 3.1 percent in 2017.

‘Risks are rising’

“Global growth is slowing, and the risks are rising,” Ayhan Kose, the World Bank economist who oversees forecasts, said in an interview. “In 2017, the global economy was pretty much firing on all cylinders. In 2018, the engines started sputtering.”

The bank left its forecast for the U.S. economy unchanged at 2.5 percent this year, down from 2.9 percent in 2018. It predicts 1.6 percent growth for the 19 countries that use the euro currency, down from 1.9 percent last year; and 6.2 percent growth for China, the world’s second-biggest economy, versus 6.5 percent in 2018.

The bank upgraded expectations for the Japanese economy, lifting its growth forecast to 0.9 percent, up from 0.8 percent in 2018.

President Donald Trump, declaring that years of U.S. support for free trade had cost America jobs, last year slapped import taxes on foreign dishwashers, solar panels, steel, aluminum and $250 billion in Chinese products. Other countries retaliated with tariffs of their own in disputes that have yet to be resolved.

The exchange of tariffs is taking a toll on world trade. The bank predicts that the growth of world trade will slow to 3.6 percent this year from 3.8 percent in 2018 and 5.4 percent in 2017. Slowing trade is hurting manufacturers around the world.

Rising interest rates

Rising interest rates are also pinching emerging-market governments and companies that borrowed heavily when rates were ultra-low in the aftermath of the 2007-2009 Great Recession. As the debts roll over, those borrowers have to refinance at higher rates. A rising dollar is also making things harder for emerging-market borrowers who took out loans denominated in the U.S. currency.

“Now debt service is eating into government revenues, making it more difficult (for governments) to fund essential social services,” said World Bank CEO Kristalina Georgieva, who will replace bank president Jim Yong Kim on an interim basis when he leaves at the end of January.

The bank slashed its forecast for 2019 growth for Turkey, Argentina, Iran and Pakistan, among others.

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