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

Growth among advanced economies is forecast to drop to two per cent this year, the bank’s January 2019 Global Economic Prospects stated.

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 per cent this year.

The upswing in commodity exporters has stagnated, while activity in commodity importers is decelerating.

Per capital growth will be insufficient to narrow the income gap with advanced economies in about 35 per cent of emerging market and developing economies in 2019, with the share increasing to 60 per cent in countries affected by fragility, conflict and violence.

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.

“Robust economic growth is essential to reducing poverty and boosting shared prosperity,” said World Bank Group Vice-President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasioglu.

“As the outlook for the global economy has darkened, strengthening contingency planning, facilitating trade and improving access to finance will be crucial to navigate current uncertainties and invigorate growth.”

The report also touches some key areas of concern. It stated that “the formal sector accounts for about 70 per cent of employment and 30 per cent of GDP in emerging market and developing economies.

Since it is associated with lower productivity and tax revenues and greater poverty and inequality, this is symptomatic of opportunities lost.

Fiscal policy

Reducing tax and regulatory burdens, improving access to finance, offering better education and public services, and strengthening public revenue frameworks could level the playing field between formal and informal sectors.

“Designing tax and social policies to level the playing field for formal and informal sectors as well as strengthening domestic revenue mobilisation and debt management will be important priorities for policymakers to overcome the challenges associated with informality in developing economies,” said World Bank Prospects Group Director Ayhan Kose. “As the economic outlook dims, such efforts become even more important.”