World Bank cuts global outlook as trade tumbles to decade low

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The World Bank cut its 2019 global growth forecast, citing a slowdown in trade growth to the weakest since the financial crisis a decade ago and a drop in global investment.

The bank forecast that the world economy will expand 2.6% this year, compared with a projection of 2.9% it made in January and easing from an estimated 3% last year, the bank said in its twice-yearly Global Economic Prospects report released Tuesday. The pace will pick up to 2.7% next year.

“There’s been a tumble in business confidence, a deepening slowdown in global trade and sluggish investment in emerging and developing economies,” World Bank President David Malpass said in a call with reporters. “Momentum remains fragile.”

The bank also warned that risks are skewed “firmly" to the downside, citing reignited trade tensions between the US and China, financial turbulence in emerging markets and sharper-than-expected weakness in advanced nations, particularly Europe.

“Heightened policy uncertainty, including a recent re-escalation of trade tensions between major economies, has been accompanied by a deceleration in global investment and a decline in confidence,” according to the report.

The bank joins the International Monetary Fund in lowering its forecast over concerns President Donald Trump’s trade actions will undermine global growth. In his latest threat, the president announced plans to impose tariffs on all Mexican imports starting next week if the southern neighbor doesn’t halt a flow of migrants reaching the US border.

The tariff move prompted several economists to downgrade their outlooks and consider the possibility the Federal Reserve may have to cut rates. On Tuesday, Fed chairperson Jerome Powell signaled an openness to reduce interest rates if necessary, pledging to keep a close watch on fallout from a deepening set of disputes between the US and its largest trading partners.

“We are closely monitoring the implications of these developments for the US economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2% objective,” Powell said.

Trump also unnerved investors in May by raising tariffs on Chinese goods and threatening to slap duties on almost all other imports from the Asian nation.

The bank revised global trade downward by a percentage point -- to 2.6% this year -- in its report.

The Washington-based bank’s view of world growth prospects could dim further if the trade conflicts worsen. A significant escalation of tariffs would result in a “deeper slowdown” in major economies and have potential spillover impacts on everything from investor confidence to commodity markets, Ayhan Kose, director of the bank’s Prospects Group, said on the call.

The bank downgraded its forecast for the euro area to 1.2% in 2019 and 1.4% in 2020, down 0.4 percentage point and 0.1 percentage point respectively from January’s forecast. It highlighted weakening exports and investment as drivers of weakness in the region.

“Economic conditions in the euro area have deteriorated rapidly since mid-2018, particularly in the manufacturing sector,” according to the report.

The bank left this year’s outlooks for the US and China unchanged. US economic growth is seen slowing to 2.5%, and further decelerating to 1.7% in 2020 and 1.6% in 2021 as the fiscal stimulus peters out, the bank said.

China’s economy is expected to expand by 6.2% this year before slowing to 6.1% next year, down 0.1 percentage point from the bank’s earlier forecast.