Darkening Clouds For The Global Economy

The World Bank is an international financial institution that provides loans to different countries of the world for their capital projects. The World Bank consists of two institutions: the International Bank for Reconstruction and Development, and the International Development Association.

The World Bank is a component of the World Bank Group. Recently, the World Bank has issued a warning related to the increase in risks, or what it calls "darkening skies", for the economy of the world. The bank issues its annual assessment every year. In the annual assessment, the bank makes a prediction that there will be comparatively slower growth this year and in the following year. The bank has predicted that the global economy will expand nearly 2.9% this year and 2.8% in the next year. The most important concern presently is the overhanging of the broadly favourable outlook, which means that the economic performance shall fall short. The economists are referring to it as “soft landing”. The slowdown is focused mainly on the rich countries such as the United States of America. It is being said that the US slowdown is a consequence of the fading impact of President Trump's tax cuts and by 2021 the growth will reach almost half i.e. 1.6% in comparison to 2.9% last year. Alongside, the bank has speculated that the growth in the emerging markets and developing economies shall most probably pick up some pace despite the continued cooling down in China. The cooling down process in China began at the start of the decade. It is expected that the growth in China will reach 6% by 2021.This is indeed a broadly marked change of gear for an economy that has witnessed expansion by an average of 10% annually between the years 1980 and 2010. Franziska Ohnsorge, a World Bank economist and lead author of the report stated in a BBC interview that in China it's policy got engineered, which resulted in a very deliberate slowdown towards more stable long term growth. Another major risk is being posed by the weakening of the International commerce and increasing conflict over trade especially between the US and China. US and China are the two largest national economies of the world. In the preceeding year, nearly 2.5% of global trade was affected by the new tariffs that came into picture. This year it may be doubled if further tariffs that have been discussed are implemented. The risk can depress the economic activity in these two giant economies. The slow growth in China shall indeed affect other economies of the world also because China is a large exporter of industrial commodities, energy and metals. Franziska Ohnsorge stated that giant economies like US and China together account for nearly 20% of the global trade and 40% of global GDP. If these giant economies get affected, its adverse consequences will be noted across the world. The bank has not predicted recession in any of these economies. Some economists on the other hand believe that US may see recession in the next year. In case if this happens, it will lead to global recession definitely. Generally, the risk of global recession every year is 7% but with US seeing a downfall, this risk will increase upto 50%. Those countries that are reliant upon selling to Europe may face a risk from Brexit. In case if UK's exit takes place with no agreement there is a chance of significant economic damage to both the UK and the EU. It would then affect countries in Eastern Europe and North Africa which are deeply integrated with Europe. Upon referring to the bank’s optimistic side of the report also, it may be seen that there are some pointers of worry for the developing parts of the world, for which the World Bank is always ready to help.

By: Anuja Arora

Content: https://www.bbc.com/news/business-46800098