Global economic behavior 2019...
As per the Global Economic Prospects Report, flagship paper of World Bank, at the beginning of 2019 global growth projection has been downgraded to 2.6 percent from the earlier forecast of 2.9 percent, as a result of weaker international trade, manufacturing and investment.
Growth is expected to reach 2.8 by 2021, due to modest global recovery in financing conditions as well as Emerging Market and Developing Economies (EMDES), which were in stressful financial situations previously.
However, EMDE growth will continue to be under pressure due to subdued investments. Risks are remaining downside showing possibility of escalating trade tensions among major economies and potential slowdown of growth rates.
Policy action to enhance private investments, productivity, increasing access to markets and technology, boosting quality of infrastructure and governance, overall improvement of business environment, improvement of social safety nets and active labor market policies are much needed to recover from the said situation. This condition may adversely affects low income countries if corrective policy measure are not taken in time.
However, global growth is expected recover with cyclical recoveries that could take place in advanced economies and Emerging Market and Developing Countries. Through implementation of structural reforms that improves business climate, ensure job creation, increasing productivity and the efficiency, encouraging private sector investments on infrastructure needs of the economy such as electricity, water supply, sanitation and climate change mitigation, increasing agriculture productivity would carry expected growth potential.
Developments outlook of major economies
Euro area
Due to weakening growth of exports and investments, advanced economies specially Euro Area is slowing down. Projections are in the range of 1.8 percent in 2018 and to have an average of 1.4% by 2021.
Trade growth is also losing momentum with the slowdown of domestic demand and manufacturing and industrial activities, where simulative fiscal polies to be adapted in the years to come. Germany, France and Italy are already on corrective measures by introducing limited tax cuts equaling to 0.2 percent of Euro Area GDP, from 2019 to 2021. Additionally, European Central Bank will encourage commercial banks to provide low cost credit.
United States
United States’ growth is also to be slowed down to 2.5 percent in 2018 and forecasted be further down to 1.7 percent in 2020 and 1.6 percent in 2021. More accommodative fiscal policies are expected to take control of the growth momentum together with continues increase of productivity and labor force participation where these projections could be changed in the medium and long term. But increasing policy uncertainties in trade restrictions could be challenging for the growth momentum.
Japan
With many corrective measures from the government at the beginning of 2019, Japan outlook remains cloudy due many natural disasters experienced in the recent past. Growth in 2019 will be 0.8 percent and present projections for 2020 and 2021 would be 0.7 percent and 0.6 respectively.
Exports to China have become weaker but unemployment remaining low and labor force participation is on the rise with service sector remaining very healthy.
China China experienced slowdown in growth during few quarters mainly due to softening manufacturing activities and globally prevailing scenarios such as weaker trade flows, and now stabilizing in spite of US trade tensions. China would have 6.2 percent growth in 2019, with 6.1 percent growth expectation in 2020 with the assumption of having no further trade tensions with United States. Increasing trade tensions among US and China where new tariffs were declared in May 2019, global trade tensions may escalate further affecting investment confidence. Demand from major economies will continue to moderate export growth of Emerging Markets and Developing countries will be affected where oil production cuts in OPEC counties, as well trade sanctions against Iran. Nevertheless other major agreements happening at global level such as EU- Japan Economic Partnership Agreement and United States, Mexico and Canada (USMCA) may foster the situation to an extent.
Global trade growth is projected to be down to 2.6 percent in 2019 from 4.1 percent in 2018. However global trade growth is expected to be averaged around 3.2 percent by 2021.
Financial market trends
In diminishing global economic prospects and prevailing low inflation, have pushed key central banks in the world to launch more accommodative monetary policies. In light of this situation, US Federal Reserve has placed its contraction cycle on hold, whilst EU Central Bank slowed down their negative interest rate policy and implemented a new measures to encourage credit movement.
Commodity markets
In the first half of 2019, supply limitations and production cuts made most of industrial commodity prices high and agricultural prices remained flat. But with rising trade tensions, metal commodity prices remained high even with weaker growth scenarios.
Crude oil
Crude oil prices averaged to US$ 64 with the production cut down of OPEC and non OPEC countries and continues embargos on Iran. Saudi Arabia reduced their supply by 1 million barrels per day, whilst Russia reduced their production by 200,000 barrels per day and in 2019 Venezuela oil output was dropped to 800,000 barrels per day from 1.4 million barrels per day in 2018.
Amidst this situation United States continues to remain as world largest oil producer. With the said background oil prices are expected to average around US$ 65 – 66 per barrel in 2019, but predictions may be in challenging situations due to policy uncertainties and unexpected disastrous situations that may erupt in oil producing countries.
Metals
Metals such as copper, lead, zinc and nickel supplies were considerably disturbed in the first half of 2019, due to mining facility disaster in Brazil and whether disturbances in Australia where prices remained high.
But overall metal prices are predicted to go down slightly due to weaker demand for metal in the second half, triggered by escalating trade tensions. Agricultural prices remained steady with high stock levels and satisfactory crop conditions over four years, wheat prices were rising and fell sharply with expected high supply in Russia and Europe. Soybean prices also started falling with the spread of African swine flu to pig farms in china, where many US farmers started switching to produce corn. Projections confirmed agri prices may go down in 2019 second half but would stabilize towards 2020.
Emerging market and developing economies
With the prevailing market situations, in the background of softening external demand and investment Emerging Markets and Developing countries’ economic performance would further slow down to 4 percent in 2019, but expected to recover by 2020-2021.
In Asia, situation is remaining steady with output of 6 to 7 percent in countries such as Bangladesh, Cambodia, China, India, Philippines and Vietnam, even with challenges in export growth. The Situation in India is quite steady with improved confidence, lower inflation and strong investment atmosphere.
Further, expanding intra-regional trade and infrastructure investments have boosted Bhutan, Cambodia and Vietnam. Countries such as Mexico and Sri Lanka are with weaker activity due to policy uncertainties affecting private investments. China is adopting many policy measures internally to face challenges caused by trade tensions with United States and financial stability risks instigated through high corporate debts as per World Bank statistics. Said measures are more focused on having a sustainable growth trajectory through improved business environment, supporting innovation, ensuring intellectual property rights, encourage entrepreneurship and increase household consumption etc.
Low income countries are having a robust growth with rising consumption, sustained public investment in infrastructure but it is challenging in certain situations such as weaker external demand of major trading partners and adverse weather conditions and slowing down of agri output in certain low income countries .
Over the next three years investment growth in emerging and developing economies is expected to be below historical average. The World Bank report says, Central Banks of Emerging and Developing countries need to work on policy measures to face future shocks specially the countries with high public and private debt to GDP ratio.
Key priorities of such measures could be increasing access to reliable and cost effective electricity, improving transport services and related infrastructure, empowering digital technologies, improving business environments, and increasing agricultural productivity in countries where large rural population exists.
Reference – Global Economic Prospects, World Bank Group 2019 3rd quarter Report
(The contents of the article does not constitute any opinions of the institution/ employer that the writer is attached to)