World Bank sees sharper constraints to cut poverty

08Jun 2019
The Guardian Reporter
The Guardian
World Bank sees sharper constraints to cut poverty

Global economic growth is forecast to ease to a weaker-than-expected 2.6 percent in 2019 before inching up to 2.7 percent in 2020.

However, growth in emerging markets and developing economies is expected to stabilize next year as some countries move past periods of financial strain, but economic momentum remains weak.

A monthly report by the World Bank states that emerging markets and developing economies’ growth is constrained by sluggish investment, and risks are tilted to the downside.

The risks include rising trade barriers, renewed financial stress and sharper-than-expected slowdowns in several major economies, the World Bank said in its June 2019 Global Economic Prospects.

“Stronger economic growth is essential to reducing poverty and improving living standards,” said World Bank Group President David Malpass.

 Current economic momentum remains weak, while heightened debt levels and subdued investment growth in developing economies are holding countries back from achieving their potential, he said.

“It’s urgent that countries make significant structural reforms that improve the business climate and attract investment. They also need to make debt management and transparency a high priority so that new debt adds to growth and investment,” he pointed out.

World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasioglu said that while almost every economy faces headwinds, the poorest countries face the most daunting challenges because of fragility, geographic isolation and entrenched poverty.

“Unless they can get onto a faster growth trajectory, the goal of lowering extreme poverty under three percent by 2030 will remain unreachable,” she declared.

World Bank Prospects Group Director Ayhan Kose said that in the current environment of low global interest rates and weak growth, additional government borrowing might appear to be an attractive option for financing growth-enhancing projects.

“However, as the long history of financial crises has repeatedly shown, debt cannot be treated as a free lunch,” he said.

Growth among advanced economies as a group is anticipated to slow in 2019, especially in the Euro Area, due to weaker exports and investment.

Economic growth in the U.S. is forecast to ease to 2.5 percent this year and decelerate to 1.7 percent in 2020. Euro Area growth is projected to hover around 1.4 percent in 2020/21, with softness in trade and domestic demand weighing on activity despite continued support from monetary policy.

Growth among emerging market and developing economies is projected to fall to a four-year low of 4 percent in 2019 before recovering to 4.6 percent in 2020.

A number of economies are coping with the impact of financial stress and political uncertainty. Those drags are anticipated to wane and global trade growth – which is projected to be the weakest in 2019 since the financial crisis a decade ago -- is expected to recover somewhat.

The report noted that government debt has risen substantially in emerging and developing economies, as hard-won cuts in public debt ratios prior to the financial crisis have to a large extent been reversed.

Emerging and developing economies need to strike a careful balance between borrowing to promote growth and avoiding risks associated with excessive borrowing.

Growth rates in low-income countries are expected to rise to 6 percent in 2020 from 5.4 percent in 2019, but that is still not enough to substantially reduce poverty.

While a number of low-income countries progressed to middle income status between 2000 and 2018, the remaining low-income countries face steeper challenges to achieving similar progress.

Many are poorer than the countries that made the leap to higher income levels and are fragile, disadvantaged by geography and heavily reliant on agriculture.

In Sub-Saharan Africa, regional growth is expected to accelerate to 3.3 percent in 2020, assuming that investor sentiment toward some of the large economies of the region improves, that oil production will recover for large exporters, and that robust growth in non-resource-intensive economies will be underpinned by continued strong agricultural production and sustained public investment.

Per capita GDP is expected to rise in the region but it will nevertheless be insufficient to significantly reduce poverty, the report added.