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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.
The World Bank has released the Global Economic Prospects report 2019 titled “Darkening Skies”. The key findings of the report related to India are:
- India’s GDP is expected to grow at 7.3 per cent in the fiscal year 2018-19, and 7.5 per cent in the following two years. The growth rates are attributed to an upswing in consumption and investment.
- India would continue to be the fastest growing major economy in the world. The report estimates China’s growth to slow down to 6.2 per cent each in 2019 and 2020 and 6 per cent in 2021.
- China had an estimated growth rate of 6.5 per cent as against India’s 7.3 per cent in 2018.
- China’s growth rate at 6.9 per cent growth was marginally ahead of India’s 6.7 per cent in 2017 because of the slowdown witnessed in the Indian economy due to demonetisation and implementation of the Goods and Services Tax (GST).
- World Bank notes that domestic demand has strengthened as the benefits of structural reforms such as the GST harmonisation and bank recapitalisation take effect.
- Strong domestic demand may further widen the current account deficit to 2.6 per cent of GDP in 2020. Inflation is projected to be above the midpoint of the Reserve Bank of India’s target range of 2 to 6 per cent, mainly owing to energy and food prices.
- The introduction of the GST and demonetisation has encouraged a shift from the informal to the formal sector.
- Public sector banks in India, which represent roughly 70% of the banking sector assets, still report low profitability and high non-performing assets.
The report notes that growth performance of India as compared to other emerging markets has been quite impressive.