Global Economies Face to Lingering Risks, World Bank Says

Diep Nguyen

10:10 16/10/2019

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A number of other large economies, including Brazil, Germany, the Russian Federation, and the United Kingdom, experienced negative per capita growth in recent quarters.

Global Economies Face to Lingering Risks, World Bank Says

Photo: IIJ

Global growth is expected to slow to 2.5 percent in 2019. The global economy has continued to falter. Growth in several major economies, including China, India, and the United States, has slowed. 
A number of other large economies, including Brazil, Germany, the Russian Federation, and the United Kingdom, experienced negative per capita growth in recent quarters. Reflecting the sluggish global growth, global trade in goods contracted 1.4 percent in June (year-onyear).
The slowdown in trade has been broad-based, but emerging market and developing economies (EMDEs) in East Asia and the Pacific, including China, have been particularly affected. Incoming data suggest global activity remains subdued in the third quarter of 2019, with sustained deterioration in both business confidence and the global manufacturing purchasing managers’ index (PMI). 
Trade indicators also point to further weakness, with September data showing new export orders contracting for twelve successive months. While the services sector had been more resilient earlier in the year, activity has begun to slow down in tandem with declining consumer confidence and retail sales growth.
Global trade policy uncertainty induced by China-United States trade tensions is exacerbating the impact of weakening global demand on business confidence and investment growth. The United States and China have increased tariffs further on each other’s products, to the extent that virtually all of their bilateral trade is now subject to tariffs. 
These abrupt changes in the rules of global commerce are contributing to elevated global policy uncertainty, leading to weakening business confidence and investment growth. In response to weakening activity and generally low inflation, central banks around the world, including the U.S. Federal Reserve and the ECB, have loosened monetary policy, helping push global yields to extremely low levels, with yields on some advanced economy bonds reaching negative values.
Prospects of persistently low monetary policy rates alongside weak investment growth are lowering global yields, while elevated policy uncertainty raises fears of a global recession. Developing East Asia and Pacific (EAP) region economies are at the epicenter of these adverse global developments. 
Regional exports have declined sharply, and investor confidence across the region has weakened. The resilience of the region is being tested in the face of challenging global conditions. The region is experiencing a broadbased deceleration. 
Regional growth declined from 6.5 percent year-on-year in the first half of 2018 to 6.0 percent in the first half of 2019, with growth decelerating in all the major developing economies of the region.
Trade tensions with the United States weighed down on China’s economic activity speeding up its ongoing gradual slowdown. Most of the other major regional economies have also experienced a moderation in activity. Growth in the smaller economies, however, remained robust, reflecting relatively weak global spillovers. 
In the region excluding China, consumption growth remained steady, albeit slightly lower than the same period last year, supported by accommodative monetary and fiscal policies. Export growth, however, declined due to weakening external demand, including from China. Election-related uncertainties in Indonesia and Thailand, and the delayed passage of the national budget in the Philippines resulted in weaker investment growth in early 2019. 
Monetary policy loosening, benign financial conditions related to external push factors and fiscal spending in some countries helped weather the decrease in exports and investment growth. Despite the overall downturn, the region remains a key driver of global economic activity, accounting for over one-third of global growth, with China contributing the lion’s share.
Leading indicators suggest that the slowdown has continued in recent months. The manufacturing Purchasing Managers’ Index (PMI) shows that activity in almost all major region’s economies softened against the backdrop of escalating trade tensions in recent months.
Sluggish growth in the manufacturing sector reflects an uncertain global trade policy environment, and weakening global demand and investment. New export orders have contracted to a six-year low, while activity in the services sector has begun to slow down in tandem with declining consumer confidence and retail sales growth in many East Asian and Pacific countries.

DIEP NGUYEN

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