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The Global Economic Outlook: Darkening Skies

Carlos Arteta's picture

Download the January 2019 Global Economic Prospects report.

Global growth sputtered in 2018 amid weakening trade and manufacturing, tighter financing conditions, and elevated policy uncertainties. 

Growth decelerated in almost 80 percent of advanced economies and in nearly half of emerging market and developing economies in 2018. This year, it is expected to slow further in a majority of advanced economies and in about a third of emerging market and developing economies. 

In all, global growth is predicted to moderate from 3.0 in 2018 to 2.9 percent in 2019 and an average of 2.8 percent in 2020-21, below previous forecasts. 

Risks of even slower-than-expected growth have become more acute. Financial market pressures and trade tensions could escalate, denting confidence and further setting back growth prospects in emerging market and developing countries. 

Here is a look at global economic prospects in five figures:

1. Global growth is moderating as trade and manufacturing lose momentum. The deceleration in global activity was more pronounced than previously expected in 2018, as reflected in softening export orders and industrial production growth. The slowdown in global trade came against the backdrop of ongoing trade tensions involving major economies. A. Global industrial production andnew export orders

A. Global industrial production and new export orders

2. Headwinds are intensifying for emerging markets and developing economies. The global environment has become more challenging as external demand has weakened, financing conditions have tightened, commodity prices have softened, and several emerging markets have faced financial stress. Energy prices fluctuated in the second half of 2018 and fell sharply toward the end of the year. Prices of most metals and, to a lesser extent, agricultural commodities, also weakened.
 

B. Crude oil prices, nominal

3. Growth in the near term is expected to slow in advanced economies and to stall in emerging market and developing economies. As global investment and trade lose further momentum, global growth is projected to moderate in 2019 to 2.9 percent, down from 3 percent in 2018. Activity is predicted to decelerate this year in more than two-thirds of advanced economies, as capacity constraints become binding and policy easing is unwound.

C. Global growth

(Shaded area denotes forecast.)

4. The recovery in emerging market and developing economies has stagnated. Growth in emerging market and developing economies is projected to stall at 4.2 percent this year, with a weaker-than-expected rebound in commodity exporters accompanied by deceleration in commodity importers. Forecast downgrades are in some cases significant, reflecting external financing pressures, slowing external demand, policy uncertainty, and commodity price declines. 

D. Growth in EMDEs

(Shaded area denotes forecast.)

5. The risk of slower-than-expected growth has intensified. The risk of disorderly financial market developments remains elevated and could spread through emerging market and developing economies. An escalation of trade restrictions also remains a possibility and would be highly disruptive given globally interconnected value chains. Although unlikely in the near term, the simultaneous occurrence of a severe U.S. downturn and a sharper-than-expected deceleration in China would significantly increase the likelihood of an abrupt global slowdown. 

E. Global per capita growth scenarios: Impact of growth slowdowns in the United States and China
 
(Blue and red bars show scenarios assuming a 1-percentage-point growth shock in China, the United States, and the combination of the two. Negative shocks are applied in the second half of 2019.)