The World Bank warns of growing risks for the global economy

The global economic outlook obscures. It is the warning made by the World Bank, which projects global growth to moderate to 2.9% this year. It is one tenth less than in 2018 and that anticipated in June. But the agency lights the red lantern by pointing out that the risks are growing due to commercial tension and because a large number of countries experience “substantial” financial pressures. Latin America will rebound from 0.6% to 1.7% in 2019, although it will be six tenths less robust than predicted. The pace of global growth remains robust. But the balance of risks pushes more down, reiterates the agency, to say that “the prospects have become uncertain.” “The slowdown in external demand, the increase in loans and the persistence of political uncertainty will be a drag,” continues the financial institution in updating its projections. Also, he explains, there are other potential outcomes that can affect economic activity. He cites a “depression” of the capital flows due to a sudden increase in the cost of financing. The spiral fueled by the rise in rates and the appreciation of the dollar is compounded by trade tension, which can weaken growth and alter the supply chain. The picture is completely different from a year ago, when a stable expansion was taking place. “At the beginning of 2018,” recalls Kristalina Georgieva, CEO of the World Bank, “the engine of the global economy fired all the cylinders”. “But it was losing strength throughout the year and the road can be even more hectic,” he warned. Volatility of the market, he adds, “is a signal” in that sense that worries the organism. And although it seems unlikely in the short term, it warns that the combination of a possible recession in the United States and a greater deceleration than expected in China will “trigger a sharp decline in global activity.” The expansion in advanced countries remains at 2% for this year. It is two tenths less than in 2018. It mentions the deceleration of the euro zone, which goes from growing 1.9% to 1.6% this year. It supposes a reduction of a tenth. The expansion will also moderate in the US almost half a point, to 2.5% this year. From there it will again weaken to 1.7% in 2020 as the effect of fiscal stimuli is lost. In the case of China, it is expected to moderate to 6.2% due to the rebalancing of demand. If the commercial negotiation does not bear fruit, the World Bank warns that the effects of the tariff escalation will be severe. Vulnerabilities Beijing can counteract the impact of trade tension by pulling fiscal and monetary policy. But there is a danger that this will lead to a postponement of the efforts that are being made to contain the expansion of the debt and vulnerabilities will be created on the other hand. “If financial stress materializes,” he says, “the economic slowdown will be greater than expected.” World Bank economists point out that any negative factor can play against. Past experience illustrates, in addition, that the domino effect is usually more severe than is usually anticipated and spreads fast, in a synchronized manner. The resolution of commercial tensions, however, could raise sentiment and reactivate investments and exchanges.

For Latin America, the projection is for Brazil to expand 2.2% this year, going back 1.2%. It’s three tenths less than what was said six months ago. Mexico moderates a tenth with respect to 2018, when forecasting a growth of 2% this year. It involves a half-point cut due to political uncertainty. The two will rebound to 2.4% in 2020, as the entire region. Argentina will contract 1.7% this year due to the effect of fiscal consolidation, loss of employment, exchange rate crises and falling demand and investments. It represents a moderation of the recession when compared to 2.8% in 2018. Despite the improvement, it represents a drastic reduction of 3.5 points compared to the forecast six months ago. In 2020 it will grow again, by 2.7%.