World Bank President David Malpass sees the global economic outlook in a fragile position hurt by Brexit-related uncertainty, trade tensions and a downturn in Europe - Photo by World Bank

JAKARTA (TheInsiderStories) – World Bank President David Malpass sees the global economic outlook in a fragile position hurt by Brexit-related uncertainty, trade tensions and a downturn in Europe. The global growth could fall short of the 2.6 percent rate it predicted in June, in the latest sign of concern in multilateral institutions about the direction of the world economy.

“Global growth is slowing. In June, the World Bank Group forecast that the global economy in 2019 would grow at 2.6 percent, the slowest pace in three years,” Malpass said in Montreal on Monday (10/07) in a speech ahead of the International Monetary Fund (IMF) and World Bank annual meetings next week.

“We now expect growth to be even weaker than that, hurt by Brexit, Europe’s recession and trade uncertainty. The global economy in a fragile position,” he adds.

The IMF has also indicated it may lower its 2019 outlook from after the fund in July projected 3.2 percent growth – the lowest since the financial crisis. The IMF is preparing to release its updated forecast next week.

Malpass renewed his global growth warning as investors are keeping an eye on several major issues that could come to a head this month.

The United States-China trade talks resume this week – before the next planned tariff escalation Oct. 15. While British Prime Minister Boris Johnson has pledged to take Britain out of the European Union on Oct. 31 without a deal if necessary. And, economic indicators from Europe are flashing red as a slump in manufacturing increasingly affects domestic demand.

In much of the developing world, he went on, investment growth is too sluggish for future incomes to rise in a meaningful way. Malpass repeated his criticism of the roughly US$15 trillion of bonds with zero or negative yields, describing it as “frozen capital” that is diverting resources from growth and benefiting bondholders and issuers of the debt.

“Even with the global economy in a fragile position, I believe that strong policy frameworks and robust institutions would allow almost all developing countries to deliver broad-based growth that reduces poverty and allows shared prosperity,” he said.

To address this urgent challenge, the World Bank, he said, pushing hard with approaches tailored to a country’s and region’s unique circumstances. Malpass said he was encouraged by the potential of digital cash transfers as an important boost to development policy.

“We’re almost at the point of having secure systems that would allow poor people to electronically receive remittances, foreign aid, and social safety-net payments as well as their earnings, and then be allowed to save and transact freely. That would be revolutionary because it allows people the freedom and opportunity they need to improve their living conditions,” he noted.

In an environment of slowing growth, Malpass said it was essential for countries to have “well-designed structural reforms”, including beefing up the rule of law so private companies can compete with state-owned enterprises.

“For many countries, this means opening up their closed and protected markets, allowing prices to be determined by market forces, and liberalizing capital flows. The pay-off is that countries that make this step attract more investment, both foreign and domestic, and can generate growth that benefits a broader part of the population,” he said.

To address climate change, Malpass said the Wolrd Bank ramping up investment. In the last fiscal year, the agency committed $17.8 billion to climate-related investments. In November, the agency announced a $200 billion five-year target to help countries address climate challenges, putting adaptation financing on a par with mitigation.

“In Fiscal Year 2019, 30 percent of our commitments had climate co-benefits, beating our 28 percent target,” he said.

It is also critical to have transparency, sustainability, and effectiveness in public spending, Malpass adds. The World Bank, he said, conducts public expenditure reviews to understand gaps in service delivery relating to resource allocation decisions and process-related bottlenecks.

“These diagnostics help countries develop more effective and transparent budget allocations, including in specific sectors such as health care, education or infrastructure,” he ended.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com