The growth of the global economy appears to have peaked, according to a new report from the World Bank. The report shows a lack of investments, a slowdown in productivity and tightening monetary policy.
Although the bank has raised its projection for global growth from 2.7 percent to 3 percent, it warned that the acceleration in growth would be temporary unless governments implemented structural reforms to raise long-term growth potential. This is in spite of the fact that it has revised estimates upwards for both 2018 and 2019.
“Focus should now turn to the structural policies needed to boost longer-term productivity and living standards,” said the report.
The World Bank’s lead economist Franziska Ohnsorge said: “It would be the slowest decade of potential growth since [the World Bank’s dataset began in] the mid-nineties.” This could have serious repercussions for investors and for borrowers, she warned.
The World Bank has predicted that advanced economies (as a group) are expected to slow in the coming years as they run up against full employment and as central bankers raise rates to contain inflation. Growth in advanced economies is expected to slow from 2.3 percent last year to 2.2 percent this year and 1.7 percent by 2020. Emerging and developing economies, which grew by 4.3 percent as a group last year, are also likely to slow and contribute less to global growth.
Geopolitical tensions and an upsurge in protectionism which could stop trade growth from recovering and undermine GDP are also among the potential risks for the global economic expansion.
According to Ohnsorge, stock markets are at levels similar to those seen before the Wall Street Crash of 1929. Bond markets are assuming that low inflation will keep official borrowing costs down, she said.
“There is a sense in which financial markets appear to be complacent. That makes room for disruption when there are surprises – a repricing of risk.”
If policy makers around the world focus on such key investments as human and physical capital they could “increase their countries’ productivity, boost workforce participation, and move closer to the goals of ending extreme poverty and boosting shared prosperity,” said the World Bank’s President Jim Yong Kim.