Washington: The sun has come out for the global economy, as trade tensions appear to be receding.
But whether that leads to a resurgence in investment that can boost growth remains to be seen, a World Bank economist said.
Ayhan Kose, who oversees the World Bank's twice-yearly deep dive into the global economy, said the slight acceleration in world growth expected this year but it is not fast enough and the recovery is fragile.
In an interview with AFP, he explained the main findings and his main concerns:
You've cut GDP forecasts from June. Why is this good news?
“I think it's fair to say that 2019 was an extremely difficult year for the global economy. Growth last year was the lowest since global financial crisis and trade growth was at the lowest level since the global financial crisis as well. So the good news for 2020, we expect global growth to pick up, a marginal pickup from 2.4 to 2.5 (percent).””We hope it is an inflection point. For the three years in a row we saw weaker growth ... trade-related tensions and elevated policy uncertainty (that) overshadowed activity, and basically you saw this sustained slowdown in trade, in manufacturing, industrial production, and more importantly in investment. Now the hope is that these trade tensions are going to be reduced... and then you will see you know confidence coming back.””We have this change of tone in the context of trade and that is a very positive development.”
What are your main concerns about the outlook?
“One day of sunshine does not make the summer, so we need to see and analyze incoming data to be convinced about this fragile recovery we are projecting.””It's not just the trade tensions' impact on confidence but the bigger impact on investment. And this investment slowdown has an impact on what we call potential growth, economies' ability to generate growth. So, there is some permanent impact.”
“This debt buildup since the crisis has been the largest, the widest and then, of course, fastest build up for emerging market developing economies and we need to be mindful of what will happen if growth remains weak and a sudden increase in interest rates or spreads will trigger challenges for emerging market economies.”
“We shouldn't lose sight of this important issue because at the end the root cause of crisis is always about debt.”
”These countries are definitely less well prepared, relative to where they were.”
Will US tensions with Iran alter the outlook?
“I think this recent increase in geopolitical tensions is a cause of concern.... However, when you look at the market reaction so far, market reaction has been muted.”
”We monitor developments in the region very carefully, because these geopolitical tensions could have adverse impacts on activity.”
"The impact of geopolitical tensions tends to be short-lived. We just need to wait and see. We really don't have much data to play with.”
"At the same time, we should all be mindful of the fact that the global economy needs basically lower uncertainty and higher confidence. We are projecting a fragile recovery.”...