The Trump administration’s trade skirmish with China appears to have reached a reprieve. That’s something the world’s economy, which has been badly damaged in the trade war, should welcome. But the global economy still faces significant growth challenges in 2020.
Economists at the World Bank are forecasting worldwide growth of 2.5% this year, up 0.1 percentage point from a year earlier, as both trade and investments recover slowly from the shock of last year’s US-China trade war.
Even so, that is still below the world economy’s trend rate of 3%, leaving it in a so-called growth recession.
A subset of emerging market economies, including China, will be the driver of this modest global expansion.
Meanwhile, developed markets are expected to grow only 1.4% – less than in 2019 – because of issues in the manufacturing sector.
America’s manufacturing industry, for instance, contracted for nearly the entire second half of 2019, as the trade war caused material costs to rise and demand to slow.
US GDP growth for 2020 is forecast at 1.8%, “reflecting the negative impact of earlier tariff increases and elevated uncertainty,” the World Bank said in a press release.
A re-escalation of trade tensions is one of the major risks of 2020.
Although Washington and Beijing are preparing to sign their preliminary trade agreement next week, negotiations for a “phase two” deal bear as much risk for markets and the economy as last year’s first round of talks .
The World Bank economists also point at other risk factors for 2020, including rising debt levels around the world and sluggish productivity growth since the 2008 financial crisis.
The latest wave of debt accumulation, which began a decade ago, has been the “largest, fastest, and most broad-based increase” of recent history, the World Bank warns, and with low interest rates around the world, the debt load could just keep growingd.
The Federal Reserve cut interest rates three times last year to boost US growth, and many of its central banking peers are still committed to ultra-low rates. The continued easy money policies have created a borrowing boomthat could wind up causing a crisis if – or rather, when – rates start rising again.
Correction: An earlier version of this report incorrectly stated the World Bank's global growth forecast
