Emerging Market and Developing Economies Current Affairs - 2020

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World Bank’s Global Economic Prospect: World Economic Growth projected at 2.5%

On January 9, 2020, the World Bank released its Global Economic Prospect. According to its forecast, the world is expected to grow economically at the rate of 2.5%. This is the lowest prediction since that predicted in 2008-09, 3.1%. By then, the global financial crisis derailed the economy.

Highlights

The report says that investment and trade in the country is expected to recover. However, the downward risks from 2019 are to continue. It also said that the advanced economies are to slip their growth by 1.4% as the manufacturing sector continues to soften.

The emerging markets in the developing economies are to witness acceleration in their growth according to the report. However, this is not applicable to all. A third of developing countries are expected to decelerate this year. Predominantly the growing economies are located in South and South East Asia.

South Asia

Growth in South Asia is expected to rise by 5.5% in 2020. The report predicts India’s growth rate at 5%. It is expected that the credit from non-banking companies to expected to weaken. The report also says that India will see a growth rate of 5.5% in the subsequent year.

The United States is expected to grow at 1.8% and European Union is projected to slip its growth by 1% in 2020.

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Global Economic Prospects report 2019- Key Facts

The World Bank has released the Global Economic Prospects report 2019 titled “Darkening Skies”. The key findings of the report are:

  • Growth among advanced economies is expected to drop to 2 per cent this year.
  • Slowing external demand, rising borrowing costs and persistent policy uncertainties may weigh on the outlook for Emerging Market and Developing Economies (EMDE). As result growth rates of this group are anticipated to hold steady at a weaker-than-expected 4.2 per cent this year.
  • South Asia is expected to grow at 7.1 per cent in 2019 driven by strengthening investment and robust consumption. Much of the contribution would come from India.
  • The growth rate of Pakistan is anticipated to slow to 3.7 per cent in 2018-19 as financial conditions tighten in the face of rising inflation and external vulnerabilities.
  • Bangladesh is expected to register a growth of 7 per cent in 2018-19, Sri Lanka is expected to speed up slightly to 4 per cent in 2019, and Nepal’s growth is expected to slow to 5.9 per cent in FY 2018-19.
  • The report warns that if a trade war between the US and China leads to a global slowdown, the spillover effects on the emerging market and developing economies (EMDEs) could be profound.
  • The report underlines the importance of “rebuild policy buffers” for EMDEs while underscoring the need of laying a stronger foundation for future growth by boosting human capital, promoting trade integration, and addressing the challenges associated with informality.
  • The global growth rates are moderating as the recovery in trade and manufacturing activity loses steam.
  • Trade tensions among major economies combined with concerns about softening global growth prospects, have weighed on investor sentiment and contributed to declines in global equity prices.
  • The report states that Growth in the US will continue to be supported by fiscal stimulus. As a result, there would be larger and more persistent fiscal deficits.
  • Even though the probability of a recession in the United States is still low and the slowdown in China is projected to be gradual, markedly weaker-than-expected activity in the world’s two largest economies will have a severe impact on global economic prospects.
  • The report warns that sharper-than-expected tightening of global financing conditions, or a renewed rapid appreciation of the US dollar, could exert further downward pressure on activity in EMDEs, due to large current account deficits financed by portfolio and bank flows.
  • The report estimates that if all tariffs under consideration were implemented, they would affect about 5% of global trade flows and could dampen growth in the economies involved, leading to negative global spillovers.

The World Bank has warned that the projected gradual deceleration of global economic activity over the forecast horizon could be more severe than expected because of the predominance of substantial downside risks.

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