Trade Talks Trumps World Bank

World Bank cuts growth forecasts

Image source: HappyAprilBoy, Gts - Shutterstock

What's going on?

The World Bank got dark and stormy on Tuesday as it cut its forecast for global economic growth this year – but investors had other things on their minds.

What does this mean?

The revised 2019 growth estimate, down from 3.0% to 2.9%, follows a similar-sized downgrade from the International Monetary Fund in October. The World Bank, an international development organization, reckons trade wars and rising interest rates are the main culprits – with new tariffs introduced last year touching 2.5% of all world trade.

Emerging and developing economies are most exposed to rising rates, thanks to their higher levels of debt. Predicted 2019 growth there was slashed from 4.7% to 4.2%, with warnings that any unexpected shocks could hit emerging markets particularly hard. Some developed economies fared better. The Bank kept its growth forecasts for the US unchanged and actually increased them for Japan, thanks to the lingering impact of low rates and high government spending. But the eurozone was less fortunate. A raft of economic issues conspired to send 2019 growth forecasts down from 1.9% to 1.6%.

Why should I care?

For markets: The prospect of better US-China relations is more important.

Despite the negative update from the World Bank, markets rose on Wednesday thanks to seemingly positive trade talks between the US and China. Investors are hopeful that the talks – which were extended for an extra day – will now lead to a deal between the two countries. The prospect of lower (or, at least, no higher) trade taxes would mean more profit for companies – and higher share prices.

For you personally: Prepare to curb your spending…

An economy-boosting trade resolution could lead to the resumption of interest rate rises, in order to make sure people and companies don’t get too carried away spending. That goes especially for US citizens enjoying healthy pay rises (tweet this) – unlike their transatlantic brothers and sisters, who’re already counting the pennies (due in part, perhaps, to Brexit-related fears).

Originally posted as part of the Finimize daily email.

The top 2 financial news stories in 3 minutes. Join over 800,000 Finimizers

Read next

Sears And Rescue

Sign up to Finimize

Get the two most important global financial news stories each day. Sent at midnight UK time.

Get started with one email a day

The top financial news stories in 3 minutes.