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Global Economic Prospects

Heightened Tensions, Subdued Investment

Overview

Global Outlook

Global growth in 2019 is expected to slow to 2.6 percent, reflecting weaker-than-expected trade and investment at the start of the year. Growth is projected to gradually rise to 2.8 percent by 2021, predicated on continued benign global financing conditions and a modest recovery in emerging market and developing economies (EMDEs). However, EMDE growth remains constrained by subdued investment. Risks are firmly on the downside, in part reflecting the possibility of a further escalation of trade tensions. It is urgent for EMDEs to reinforce policy buffers and to implement reforms that boost growth prospects.

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Regional Outlooks

EMDE growth is projected to pick up from a four-year low of 4 percent in 2019 to 4.6 percent in 2020-21. This recovery is predicated on the waning impact of earlier financial pressures in some large EMDEs. Growth in all EMDE regions has been weaker than expected amid softening external demand and, in some countries, persistent domestic headwinds. Activity in the East Asia and Pacific and South Asia regions remains buoyant, while growth in other EMDE regions is expected to recover in 2020-21. Risks remain firmly on the downside.

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    East Asia and Pacific

    Growth in the East Asia and Pacific region is projected to slow from 6.3 percent in 2018 to 5.9 percent in 2019 and 2020. This is the first time since the 1997-1998 Asian financial crisis that growth in the region has dropped below 6%. In China, growth is expected to decelerate from 6.6 percent in 2018 to 6.2 percent in 2019, predicated on a deceleration in global trade, stable commodity prices, supportive global financial conditions, and the ability of authorities to calibrate supportive monetary and fiscal policies to address external challenges and other headwinds. In the rest of the region growth is also expected to moderate to 5.1 percent in 2019, before rebounding modestly to 5.2 percent in 2020 and 2021, as global trade stabilizes.
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    Europe and Central Asia

    Regional growth is expected to firm to 2.7% in 2020 from a four-year low of 1.6% this year as Turkey recovers from an acute slowdown. Excluding Turkey, regional growth is expected to grow 2.6% in 2020, slightly up from 2.4% this year, with modest growth in domestic demand and a small drag from net exports. In Central Europe, fiscal stimulus and the resulting boost to private consumption will begin to fade in some of the subregion’s largest economies next year, while growth is expected to modestly recovery to 2.7% in Eastern Europe and moderate to 4% in Central Asia. Growth in the Western Balkans is anticipated to rise to 3.8% in 2020.
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    Latin America and the Caribbean

    Regional growth expected to be a subdued 1.7% in 2019, reflecting challenging conditions in several of the largest economies, and to build to 2.5% in 2020, helped by a rebound in fixed investment and private consumption. In Brazil, a weak cyclical recovery is expected to gain traction, with growth rising to 2.5% next year from 1.5% in 2019. Argentina is projected to revert to positive growth in 2020 as the effects of financial market pressures fade, while easing policy uncertainty in Mexico is expected to help support a moderate growth uptick in Mexico next year, to 2%.
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    Middle East and North Africa

    Regional growth is projected to rise to 3.2% in 2020, largely driven by rebound in growth among oil exporters. Growth among oil exporters is anticipated to pick up to 2.9% in 2020, supported by capital investment in the GCC and higher growth in Iraq. Among oil importing economies, increasing growth is predicated on policy reform progress and healthy tourism prospects.
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    South Asia

    The outlook for the region is solid, with growth picking up to 7% in 2020 and 7.1% in 2021. Domestic demand growth is expected to remain robust with support from monetary and fiscal policy, in particular in India. Growth in India is projected to accelerate to 7.5% in FY 2019/20, which begins April 1. Pakistan’s growth is expected to slow further to 2.7% in FY2019/20, which begins July 16.
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    Sub-Saharan Africa

    Regional growth is expected to accelerate to 3.3% in 2020, assuming that investor sentiment toward some of the large economies of the region improves, that oil production will recover in large exporters, and that robust growth in non-resource-intensive economies will be underpinned by continued strong agricultural production and sustained public investment. While per capita GDP is expected to rise in the region, it will nevertheless be insufficient to significantly reduce poverty. In 2020, growth in South Africa is anticipated to rise to 1.5%; growth in Angola is anticipated to pick up to 2.9%; and growth in Nigeria is anticipated to edge up to 2.2% in 2020.

Four Topical Issues

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Debt: No Free Lunch

Government debt has risen substantially in emerging market and developing economies (EMDEs), by an average of 15 percentage points of GDP since 2007 to 51 percent of GDP in 2018. The current environment of low global interest rates and weak growth may appear to mitigate concerns about elevated debt levels. Considering currently subdued investment, additional government borrowing might also appear to be an attractive option for financing growth-enhancing initiatives such as investment in human and physical capital. However, history suggests caut... See More

Four Topical Issues

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Investment: Subdued Prospects, Strong Needs

Investment growth in emerging market and developing economies (EMDEs) over the next three years is expected to be subdued and below historical averages. This continues a prolonged, broad-based slowdown after the global financial crisis, notwithstanding a modest recovery between 2016 and 2018. During the forecast period, EMDE investment growth is expected to be held back by weak global growth, limited fiscal space against the backdrop of elevated debt, and the presence of several structural constraints. Weak investment is a concern because it wi... See More

Four Topical Issues

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Currency Depreciations, Inflation, and Central Bank Independence

Financial market turbulence in 2018 illustrated, once again, that emerging market and developing economies (EMDEs) continue to face the risk of destabilizing exchange rate movements. These stress episodes often compel central banks to tighten policy to lessen currency pressures and fend off inflationary pressures despite slowing growth. To design appropriate policies, it is important to quantify the exchange rate pass-through to inflation associated with different domestic and global shocks and with different country characteristics. The pass-t... See More

Four Topical Issues

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Growth in Low-Income Countries: Evolution, Prospects, and Policies

There are currently 34 countries classified as low-income, about half the number in 2001. Rapid growth in low-income countries from 2001-18 allowed many to progress to middle-income status, supported by a pre-crisis commodity price boom, the MDRI and HIPC debt relief initiatives, increased investment in human and physical capital, improved economic policy frameworks, and recoveries from the deep recessions in transition economies during the 1990s. However, the prospects for today’s LICs appear much more challenging. Compared to the LICs in 2001... See More

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Global Economic Prospects

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