(10 January 2019 – Global) The latest World Bank Global Economics Prospects Report for January 2019 announced that global growth is moderating as the recovery in trade and manufacturing activity loses momentum.
Global growth is projected to moderate from a downwardly revised three percent in 2018 to 2.9 percent in 2019 and 2.8 percent in 2020 as economic stimulus capacity dissipates, monetary policy accommodation in advanced economies is removed and global trade gradually slows. The revised 2019 growth estimate follows a downgrade of similar magnitude by the International Monetary Fund (IMF) in Q4 2018.
With 189 member countries, the World Bank is a global partnership fighting poverty worldwide through sustainable solutions. As an international development organization, the World Bank believes trade wars and rising interest rates are the main contributors to declining growth with new tariffs introduced last year affecting 2.5 percent of global merchandise trade volumes. Elevated trade tensions among major economies along with concerns about weakening global growth prospects have negatively impacted investor sentiment. A strengthening US dollar, heightened financial market volatility, and rising risk premiums have intensified capital outflow and currency pressures in some emerging markets with some vulnerable countries experiencing substantial financial stress. Energy prices have fluctuated markedly, mainly due to supply factors, with sharp falls toward the end of 2018.
Softening global trade and tighter financing conditions will result in a more challenging external environment for emerging market economic activity. If all tariffs currently under consideration were implemented, they would affect up to five percent of global trade flows and could dampen growth in the economies involved, leading to negative global spillovers. While some countries could benefit from trade diversion in the short term, rising trade protectionism would stifle investment and severely disrupt global value chains, contributing to higher prices and lower productivity. Despite the World Bank lending US$64 billion in 2018 many estimates suggest offshore Chinese lending outstrips that amount by several multiples.
World Bank President Jim Yong Kim unexpectedly departed from his role three years before his term was set to expire following his appointment by US President Barack Obama in 2012. The US president does not have the final say on the World Bank appointment, which must be voted on by the bank’s board of directors, however presidential nominations have traditionally led to appointments. Mr Kim's abrupt, voluntary exit has not only triggered confusion and frustration for staff at the bank, but raised profound questions about the leadership and the future role of an institution that has been a centrepiece of US-led international economic order. The Financial Times reports that Ivanka Trump is being considered as a potential successor however these claims have been labelled as ‘ridiculous’ by some commentators. Democratic donor Tom Steyer stated “This is among the most ridiculous proposals I have ever heard. Nepotism is just another form of corruption, so I am not surprised, but the level of absurdity is breathtaking.”