Recently, the World Bank published its Global Economic Prospects report. Based on the report, the world economy is likely to expand by 2.5% in 2020. It means that in comparison with 2019, the global economy will be only slightly faster as in 2019, the economy grew 2.4%.
It is worth mentioning, economic growth in 2019 was the lowest since the financial crisis. In this situation, it is not surprising that the forecast for 2020 is moderate due to uncertainty. As a reminder, in June 2019, the bank predicted that the global economy would grow by 2.6% in 2019 and 2,7% in 2020. However, as can be seen from the report, the World Bank had to lower its forecast for 2020.
According to the lending organization, this year will remain vulnerable to uncertainties due to trade and geopolitical tensions.
The forecast of the organization reflects an expected recovery in several emerging and developing countries. These countries experienced problems in 2019.
Nevertheless, one of the reasons why recovery is slow is the slower growth in the United States and several developing nations.
The economic growth in 2020 depends on a severe development of some large emerging and developing nations. India which has one of the largest economies in the world is expected to rebound after a turbulent year.
Moreover, Brazil, which has the largest economy in South America, should also achieve better results than in 2019. Other developing countries such as Mexico and Turkey should also strengthen their economies. In 2019, neither Turkey nor Mexico’s economy recorded any growth. However, Argentina’s economy will continue to fall in 2020. The good news is that the economy most likely would contract more slowly than in the previous years.
Economic growth and main challenges
The geopolitical tensions in the Middle East will continue to influence economic growth in 2020. For example, political tensions and violence may undermine Iran’s recovery. According to the forecast, economic activity in this country will stop declining in 2020 and the economy will grow in 2021. However, this will happen in case of a strong recovery. As mentioned above, this may not occur due to political tensions and other problems.
The World Bank underlined the risks in its report. It is worth mentioning that this report was prepared before the latest incidents which took place in Iraq. It means that it will become even harder for Iran’s economy to grow in the future as the U.S. plans to introduce additional sanctions.
Additionally, the drone attack on Saudi Arabian oil facilities once again underlined the volatility in the region. One of the authors of the report, Franziska Ohnsorge, stated due to tensions in the Middle East, the oil prices may increase for the developing economies.
In the past, the tension in that region led to higher oil prices and even contributed to global recessions.
Another serious challenge for economic growth connected with trade more precisely with trade tensions. U.S. and China reached an agreement back in 2019, but the leaders should sign the phase one trade deal. The bank is aware that the situation may change at any time. Furthermore, other trade tension could arise in 2020.
To sum up, the global economy will grow faster in 2020 and this is excellent news for the governments and private companies.