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11.01.2020 Business & Finance

Global Growth Is Set To Rise By 2.5% In 2020- World Bank Report

By Mensah Richard Adonu
Global Growth Is Set To Rise By 2.5% In 2020- World Bank Report
LISTEN JAN 11, 2020

“Following its weakest performance since the global financial crisis, the world economy is poised for a modest rebound this year– if everything goes just right”, according to 2019 World Bank Report.

Two other trends that raise questions about the course of economic growth according to the World Bank are “the unprecedented runup in debt worldwide, and the prolonged deceleration of productivity growth, which needs to pick up to bolster standards of living and poverty eradication”.

“Global growth is set to rise by 2.5% this year, a small uptick from 2.4% in 2019, as trade and investment gradually recover the World Bank’s semi-annual Global Economic Prospects forecasts. Advanced economies are expected to slow as a group to 1.4% from 1.6%, mainly reflecting lingering weakness in manufacturing”, the report added

Emerging market and developing economies are also expected to see growth accelerate to 4.1% from 3.5% last year.

However, the pickup is anticipated to come largely from a small number of large emerging economies shaking off economic doldrums or stabilizing after recession or turbulence. For many other economies, growth is on track to decelerate as exports and investments remain weak. A worrying aspect of the sluggish growth trend is that even if the recovery in emerging and developing economy growth takes place as expected, per capita growth will remain below long-term averages and will advance at a pace too slow to meet poverty eradication goals. Income growth would in fact be slowest in Sub-Saharan Africa – the region where 56 percent of the world’s poor live.

And even this modest rally could be disrupted by any number of threats. Trade disputes could re-escalate. A sharper-than-expected growth slowdown in major economies such as China, the United States, or the Euro Area would similarly reverberate widely. A resurgence of financial stress in large emerging markets, as was experienced in Argentina and Turkey in 2018, an escalation of geopolitical tensions, or a series of extreme weather events could all have adverse effects on economic activity around the world.

Productivity
The report also revealed that among the emerging and developing economies, which have a history of productivity growth surges and setbacks, the slowdown from 6.6% in 2007 to a trough of 3.2% in 2015 has been the steepest, longest, and broadest on record. The slowdown is due to weaker investment and efficiency gains, dwindling gains from the reallocation of resources to more productive sectors, and slowing improvements in the key drivers of productivity, such as education and institutional quality.

“The outlook for productivity remains challenging. Therefore, efforts are needed to stimulate private and public investment; upgrade workforce skills to boost firm productivity; help resources find the most productive sectors; reinvigorate technology adoption and innovation; and promote a growth-friendly macroeconomic and institutional environment”, the report added

Two other issues merit consideration in this edition of the outlook: adverse consequences of price controls and inflation prospects in LICs.

While price controls are sometimes considered a useful tool to smooth price fluctuations for good and services such as energy and food, they can also dampen investment and growth, worsen poverty outcomes, and lead to heavier fiscal burdens. However, replacing them with expanded and targeted social safety nets alongside the encouragement of competition and an effective regulatory environment can be beneficial both to poverty eradication and to growth.

In addition, while inflation has declined sharply among low-income countries over the last 25 years, “keeping it low and stable cannot be taken for granted. Low inflation is associated with more stable output and employment, higher investment, and falling poverty rates. However, rising debt levels and fiscal pressures could put some economies at risk of disruptions that could send prices sharply higher. Strengthening central bank independence, making the monetary authority’s objectives clear, and cementing central bank credibility are essential to keep prices anchored”.

“While the global economic outlook for 2020 envisions a fragile upward path that could be upended, there is high degree of uncertainty around the forecast given unpredictability around trade and other policies. If policy-makers manage to mitigate tensions and clarify unsettled issues in a number of areas – they could prove the forecast wrong by sending growth higher than anticipated”, the report suggested.

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