JOHANNESBURG – The World Bank issued a stark warning yesterday on the impact of the US and China trade war, which made a global recession by 2020 likely.

The global economy is expected to slow to 2.9 percent in 2019, compared with 3 percent in 2018.

Growth in the US is expected to slow to 2.5 percent this year from 2.9 percent in 2018, while China is expected to grow at 6.2 percent this year compared, with 6.5 percent in 2018, the World Bank said. 

“The outlook for the global economy has darkened. Financing conditions have tightened, industrial production has moderated, trade tensions have intensified, and some large emerging market and developing economies have experienced significant financial market stress,” the bank said. “Faced with these headwinds, the recovery in emerging market and developing economies has lost momentum.”

It warned that the possibility of escalating trade restrictions involving major economies remained elevated despite the temporary pause in tariff hikes agreed by the US and China during the G20 meeting in early December 2018 and the successful negotiation of the new US-Mexico-Canada Agreement, which have somewhat tempered trade policy uncertainties. 

International value chains

“This uncertainty is likely to weigh on firms’ willingness to invest, export, and engage in international value chains, with negative effects on the global trade outlook,” the bank said.

“The risk of rising trade protectionism remains high. New US tariffs and the retaliatory response of trading partners now affect close to $430 billion (R6 trillion) of global imports – around 2.5 percent of global goods trade.”

In its report, “Global economic prospects, darkening skies”, the World Bank said that if such a risk materialised in the second half of 2019, global per capita growth would drop somewhat to about 1 percent in 2020.

Emerging-market economies are expected to grow at 4.2 percent this year, with advanced economies expected to grow at 2 percent, the World Bank said in the report. 

Oil prices are expected to average $67 a barrel in 2019 and 2020, $2 a barrel lower than June projections. However, uncertainty around the forecast was high.

It said although growth in oil demand was expected to remain robust in 2019, the expected loss in momentum across emerging markets and developing economies could have a greater impact on oil demand than expected. “The outlook for supply is uncertain and depends to a large extent on production decisions by Opec and its non-Opec partners. While these producers have agreed to cut output by 1.2 million barrels per day for six months starting January 2019, few details have been forthcoming about the distribution of the cuts, and they may prove insufficient to reduce the oversupply of oil.”