The Flags of World Bank members - Photo by World Bank

JAKARTA (TheInsiderStories) – Global economic growth is projected to soften from a downwardly revised 3 percent in 2018 to 2.9 percent in 2019, amid rising downside risks to the outlook, the World Bank said on Tuesday (01/08).

It said, international trade and manufacturing activity have softened, trade tensions remain elevated, and some large emerging markets have experienced substantial financial market pressures.

While, growth among advanced economies is forecast to drop to 2 percent this year, the Fund said. Slowing external demand, rising borrowing costs, and persistent policy uncertainties are expected to weigh on the outlook for emerging market and developing economies.

Growth for this group is anticipated to hold steady at a weaker-than-expected 4.2 percent this year.

At the beginning of 2018 the global economy was firing on all cylinders, but it lost speed during the year and the ride could get even bumpier in the year ahead”, said World Bank Chief Executive Officer Kristalina Georgieva in a written statement received by TheInsiderStories.

He added, “As economic and financial headwinds intensify for emerging and developing countries, the world’s progress in reducing extreme poverty could be jeopardized. To keep the momentum, countries need to invest in people, foster inclusive growth, and build resilient societies.”

The upswing in commodity exporters has stagnated, while activity in commodity importers is decelerating, added by Georgieva. Per capita growth will be insufficient to narrow the income gap with advanced economies in about 35 percent of emerging market and developing economies in 2019, with the share increasing to 60 percent in countries affected by fragility, conflict, and violence.

She continued, a number of developments could act as a further brake on activity. A sharper tightening in borrowing costs could depress capital inflows and lead to slower growth in many emerging market and developing economies.

Past increases in public and private debt could heighten vulnerability to swings in financing conditions and market sentiment. Intensifying trade tensions could result in weaker global growth and disrupt globally interconnected value chains.

Indonesia

Followed, the global trend, World Bank estimated Indonesia’ economic growth around 5.2 percent in 2018 and 2019, or slightly higher than 2017 at 5.07 percent. It said, the momentum of investment is expected to continue to rise in 2019 to support the growth.

“Some challenges for Indonesia such as falling oil prices could have a negative impact on other terms of trade, the global influence of trade disputes is getting worse, financial market pressures that have been felt by developing countries,” Frederico Gil Sanders World Bank‘s Lead Country Economist for Indonesia last year.

Stronger domestic demand, still led by investment, is expected to outweigh the drag from the external sector, amid slower global growth and continued global trade policy uncertainty, he said.

Investment growth remained a key driver of the economy, with construction investments rebounding from the previous quarter. While private consumption eased slightly, a surge in government consumption kept total consumption growth on an even keel, said Sanders.

Rodrigo A. Chaves, World Bank Country Director for Indonesia and Timor-Leste added, with monetary and fiscal policies securing macroeconomic stability, he believed the Indonesian economy expanded at a robust 5.2 percent in the third quarter.

The government’s coordinated monetary, fiscal and exchange rate policies have helped Indonesia to emerge relatively unscathed from the recent bout of external turmoil,” he stated.

Then, continued structural reforms that reduce domestic vulnerabilities will further enhance economic resilience and allow for even better management of global volatility, should it return in the future, said Chaves.

Going forward, external conditions are likely to continue to pose substantial risks to Indonesia’s growth outlook. The persistence of uncertainty regarding global trade tensions and the possibility of further tightening of United States monetary policy may lead to further capital outflows and financial volatility among emerging market economies, including Indonesia.

“Although pressures on the Rupiah have eased, Indonesia should further strengthen its external position by accelerating efforts to increase exports and investment,” added by Sander.

He continued, measures such as implementing free trade agreements and revising the negative investment list to reduce restrictions to investment from abroad will boost Indonesian competitiveness and create good jobs that can move more Indonesians into the middle class.”

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