WASHINGTON – The World Bank on Wednesday forecast global economic growth for this year at 2.5 percent, down 0.2 percentage point from its estimate last June, citing weaker-than-expected trade and manufacturing activity in advanced economies amid the U.S.-China trade war.
It also projected slight growth for Japan’s economy in the wake of the consumption tax hike and deadly typhoons.
In its Global Economic Prospects report, the Washington-based institution left its growth forecast for Japan unchanged at 0.7 percent.
It revised downward China’s growth estimate by 0.2 point to 5.9 percent, projecting the world’s second-largest economy to register a pace of expansion below 6 percent for the first time since 1990.
“In major economies, activity has slowed more markedly than previously expected. Very weak manufacturing activity has dampened growth in advanced economies, and policy uncertainty associated with trade tensions has also weighed on activity in the United States and China,” the World Bank said in the semiannual report.
As the U.S.-China trade tensions escalated throughout most of 2019, global growth weakened to an estimated 2.4 percent that year. Global trade growth is also believed to have slowed sharply to 1.4 percent last year from 4.0 percent in 2018.
While economic growth is poised for a modest rebound on the back of an expected recovery in trade and investment, Ceyla Pazarbasioglu, World Bank vice president for equitable growth, warned of “threats” that could disrupt the tepid rally — such as the re-escalation of the trade war between the world’s two largest economies.
The United States and China agreed in December to bring a temporary truce to their bruising trade war, which has continued for more than a year as the United States seeks to reduce its chronic trade deficit with China and to address alleged intellectual property and technology theft by Chinese companies.
The so-called phase one agreement, which is expected to be signed later in January, includes a U.S. plan to alleviate some of the punitive tariffs imposed on Chinese goods in exchange for Beijing’s commitment to make additional purchases of U.S. products and strengthen intellectual property protections.
The report welcomed that the U.S.-China deal signals a “notable de-escalation of trade tensions” but also said that re-escalation is possible because “many commitments, including items related to the expansion of bilateral trade, intellectual property, and technology transfer, may be difficult to enforce.”
On Japan, the report said economic activity had declined sharply due to disaster conditions in the wake of Typhoon Hagibis as well as the consumption tax hike in October.
Japan’s economy is expected to grow 0.6 percent in 2021.
The U.S. economy is expected to grow 1.8 percent in 2020 and 1.7 percent in 2021, each revised upward by 0.1 point.
The Federal Reserve cut interest rates between July and October to address uncertainties over U.S.-China trade tensions and other risks.
The eurozone economy is projected to expand 1.0 percent in 2020, down 0.4 point from the previous projection, before marking a 1.3 percent growth the following year.
It also said Japan’s economy is suffering from “acute weakness” in manufacturing and exports, particularly those to China, but that the government has provided “significant support” to prop up the economy.
Meanwhile, China’s growth has decelerated to an estimated 6.1 percent in 2019, with higher tariffs on trade with the United States weighing on investor sentiment for most of the year, the report said.
Its growth is expected to moderate to 5.9 percent in 2020 and 5.8 percent in 2021, but “a permanent and lasting resolution of trade disputes with the United States that builds upon recent progress could bolster China’s growth prospects,” it added.