Business / Economy

Trade tensions denting growth both globally and for Japan in 2019, World Bank says

Kyodo

The World Bank on Tuesday revised growth forecasts downward for the world and Japan for this year as a tit-for-tat tariff war between the United States and China has led to slowing trade and investment.

In its semiannual Global Economic Prospects report, the Washington-based institution estimated global growth at 2.6 percent, down 0.3 percentage point from its estimate in January, and Japan’s growth at 0.8 percent, down 0.1 point.

Growth in East Asia and the Pacific is projected to slow to 5.9 percent in 2019 from 6.3 percent the previous year, making it the first time since the 1997-1998 Asian financial crisis that growth in the region has dropped below 6 percent.

But bolstered by monetary and fiscal measures, U.S. growth was unchanged from the January estimate at 2.5 percent, and China’s growth rate was flat at 6.2 percent.

According to the report, Japan’s economic activity remains lackluster, with trade — particularly exports to China — “especially weak.”

Referring to a planned increase in the consumption tax from 8 percent to 10 percent, the report said “a value-added tax hike in October is likely to dampen activity further.”

“Nonetheless, unemployment is low, labor force participation continues to climb, and the services sector remains relatively healthy,” it said, as it forecast 0.7 percent growth for Japan in 2020, unchanged from the January projection.

The bank estimated the global economy will expand 2.7 percent in 2020, down 0.1 point amid rising downside risks, including the impact of the U.S.-China trade war as well as a U.S. plan to slap new levies on Mexican imports beginning next Monday.

“Risks remain firmly on the downside, including the possibility of escalating trade tensions, sharper-than-expected slowdowns in major economies, and renewed financial stress in emerging market and developing economies,” it said.

Reflecting such sentiments, growth in the trade of goods and services across the world was revised down by 1.0 point from the January forecast to 2.6 percent in 2019 and 0.4 point to 3.1 percent in 2020, according to the report.

Despite concerns about rising trade tensions, the World Bank said U.S. growth remains “solid,” and forecast the world’s biggest economy will increase 1.7 percent in 2020, unchanged from the January forecast.

“On the one hand, recent tariff increases and associated retaliatory actions are expected to weigh on activity,” it said, in reference to an increase of U.S. tariffs on $200 billion of Chinese products from 10 percent to 25 percent, an action that prompted Beijing to slap a retaliatory levy of a maximum 25 percent on $60 billion of American goods.

“On the other, growth is being supported by more accommodative monetary policy than previously assumed and by sustained increases in productivity growth and labor force participation.”

The Chinese economy, meanwhile, is likely to expand 6.1 percent in 2020, down 0.1 point, according to the report.

Chinese economic activity has been supported by monetary and fiscal stimulus, but the recent increase in tariffs on trade with the United States is projected to weigh on growth in 2020, it said.

The eurozone economy is estimated to grow 1.2 percent in 2019, down 0.4 point, and 1.4 percent in 2020, down 0.1 point, in reflection of a decline in exports, especially to China, Europe and Central Asia.

“A sustained dissipation of these uncertainties — for instance, due to a comprehensive resolution of trade tensions between the United States and China — could significantly buttress global growth prospects,” the report said.

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