Global economic growth is forecast to edge up to 2.5% in 2020 as investment and trade gradually recover from last year’s significant weakness, but downward risks persist – including a re-escalation of trade tensions and trade policy uncertainty.

The latest projection from the World Bank adds that growth in emerging market and developing economies is expected to accelerate this year to 4.1%, while growth among advanced economies as a group is anticipated to slip to 1.4% in 2020. 

Its ‘January 2020 Global Economic Prospects‘ report notes that around a third of emerging market and developing economies are projected to decelerate this year due to weaker-than-expected exports and investment – but there will be improved performance in a small group of large economies, some of which are emerging from a period of substantial weakness.

“With growth in emerging and developing economies likely to remain slow, policymakers should seize the opportunity to undertake structural reforms that boost broad-based growth, which is essential to poverty reduction,” says Ceyla Pazarbasioglu, World Bank Group VP for equitable growth, finance and institutions. “Steps to improve the business climate, the rule of law, debt management, and productivity can help achieve sustained growth.”

US growth is forecast to slow to 1.8% this year, reflecting the negative impact of earlier tariff increases and elevated uncertainty. Euro area growth is seen slipping to a downwardly revised 1% in 2020 amid weak industrial activity.

The report explains that downside risks include a re-escalation of trade tensions and trade policy uncertainty, a sharper-than expected downturn in major economies, and financial turmoil in emerging market and developing economies.

In South Asia, growth is expected to rise to 5.5% in 2020, assuming a modest rebound in domestic demand and as economic activity benefits from policy accommodation in India and Sri Lanka and improved business confidence and support from infrastructure investments in Afghanistan, Bangladesh, and Pakistan. In India, where weakness in credit from non-bank financial companies is expected to linger, growth is projected to slow to 5% in FY 2019/20, which ends 31 March, and recover to 5.8% the following fiscal year.

Pakistan’s growth is expected to rise to 3% in the next fiscal year after bottoming out at 2.4% in FY2019/20, which ends 30 June. In Bangladesh, growth is expected to ease to 7.2% in FY2019/2020, which ends 30 June, and edge up to 7.3% the following fiscal year. Growth in Sri Lanka is forecast to rise to 3.3%.

In Europe and Central Asia, regional growth is expected to firm to 2.6% in 2020, assuming stabilisation of key commodity prices and Euro area growth and recovery in Turkey (to 3%) and Russia (to 1.6%).

And in East Asia and Pacific, growth is projected to ease to 5.7% in 2020, reflecting a further moderate slowdown in China to 5.9% this year amid continued domestic and external headwinds, including the lingering impact of trade tensions.

Regional growth excluding China is projected to slightly recover to 4.9%, as domestic demand benefits from generally supportive financial conditions amid low inflation and robust capital flows in some countries (Cambodia, the Philippines, Thailand, and Vietnam), and as large public infrastructure projects come on-stream (the Philippines and Thailand). Regional growth will also benefit from the reduced global trade policy uncertainty and a moderate, even if still subdued, recovery of global trade.