pSlow Growth, Policy ChallengesGlobal Economic Prospects JANUARY 2020 A World Bank Group Flagship ReportJANUARY 2020 Global Economic Prospects 2020 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone 202-473-1000; Internet www.worldbank.org Some rights reserved. 1 2 3 4 23 22 21 20 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of cutive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other ination shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. Rights and Permissions This work is available under the Creative Commons Attribution 3.0 IGO license CC BY 3.0 IGO http//creativecommons.org/licenses/by/3.0/igo. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions AttributionPlease cite the work as follows World Bank. 2020. Global Economic Prospects, January 2020 Slow Growth, Policy Challenges. Washington, DC World Bank. DOI 10.1596/978-1-4648-1468-6. License Creative Commons Attribution CC BY 3.0 IGO. TranslationsIf you create a translation of this work, please add the following disclaimer along with the attribution This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. AdaptationsIf you create an adaptation of this work, please add the following disclaimer along with the attribution This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed by The World Bank. Third-party contentThe World Bank does not necessarily own each component of the content contained within the work. The World Bank therefore does not warrant that the use of any third-party-owned individual component or part contained in the work will not infringe on the rights of those third parties. The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a component of the work, it is your responsibility to determine whether permission is needed for that re-use and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; e-mail pubrightsworldbank.org. ISSN 1014-8906 ISBN paper 978-1-4648-1468-6 ISBN electronic 978-1-4648-1469-3 DOI 10.1596/ 978-1-4648-1468-6 Cover design Bill Pragluski Critical Stages. The cutoff date for the data used in this report was December 20, 2019. III Summary of Contents Chapter 1 Special Focus 1 Chapter 2 Special Focus 2 Chapter 3 Chapter 4 Global Outlook Fragile, Handle with Care 1 Price Controls Good Intentions, Bad Outcomes .49 Regional Outlooks 61 Low for How Much Longer Inflation in Low-Income Countries 177 Fading Promise How to Rekindle Productivity Growth .191 The Fourth Wave Rapid Debt Buildup. .251 Statistical Appendix .299 Selected Topics .306 V Table of Contents Foreword. xiii Acknowledgments nbsp;xv cutive Summary . xvii Abbreviations xix Chapter 1 Global Outlook Fragile, Handle with Care 1 Summary .3 Major economies Recent developments and outlook . 7 United States7 Euro Area 8 Japan .8 China 9 Global trends .9 Global trade . 10 Financial markets 11 Commodity markets . 12 Emerging market and developing economies 13 Recent developments. 13 Outlook. 15 Risks to the outlook 25 Summary of global outlook and risks . 25 Rising trade barriers and protracted policy uncertainty 26 A deepening slowdown in major economies nbsp;27 Financial stress in EMDEs . 29 Geopolitical and region-specific downside risks 30 Upside risks . 31 Policy challenges. 32 Challenges in advanced economies 32 Challenges in emerging market and developing economies 34 Box 1.1 Recent developments and outlook for low-income countries 16 Box 1.2 Regional perspectives Recent developments and outlook 23 References 42 VI Regional Outlooks . 61 East Asia and Pacific nbsp;63 Recent developments 63 Outlook 65 Risks 67 Box 2.1.1 Labor productivity in East Asia and Pacific Trends and drivers 69 Europe and Central Asia nbsp;77 Recent developments 77 Outlook 79 Risks . 80 Box 2.2.1 Labor productivity in Europe and Central Asia Trends and drivers 84 Latin America and the Caribbean 95 Recent developments 95 Outlook 97 Risks 98 Box 2.3.1 Labor productivity in Latin America and the Caribbean Trends and drivers . 102 Middle East and North Africa . 111 Recent developments 111 Outlook 112 Risks 114 Box 2.4.1 Labor productivity in the Middle East and North Africa Trends and drivers . 117 South Asia . 125 Recent developments 125 Outlook 127 Risks 128 Box 2.5.1 Labor productivity in South Asia Trends and drivers 131 Special Focus 1 Chapter 2 Price Controls Good Intentions, Bad Outcomes 49 Introduction 51 Use of price controls . 51 Challenges of price controls . 55 Policy implications . 57 References . 58 VII Sub-Saharan Africa 141 Recent developments 141 Outlook 143 Risks 144 Box 2.6.1 Labor productivity in Sub-Saharan Africa Trends and drivers 148 References 159 Special Focus 2 Low for How Much Longer Inflation in Low-Income Countries 177 Introduction.179 Evolution of inflation 180 Factors supporting inflation developments .181 Monetary policy challenges 182 Policy options going forward 185 References 187 Chapter 3 Fading Promise How to Rekindle Productivity Growth 191 Introduction 193 Evolution of labor productivity growth . 196 Labor productivity convergence 204 Sources of post-crisis slowdown in labor productivity growth . 205 Long-run drivers of productivity growth 214 Prospects for productivity growth . 220 Policy implications 222 Box 3.1 EMDE regional productivity trends and bottlenecks . 198 Box 3.2 Sectoral sources of productivity growth . 209 Box 3.3 Patterns of total factor productivity a firm perspective 215 Box 3.4 Debt, financial crises, and productivity 223 Annex 3.1 Challenges of productivity measurement 231 Annex 3.2 Data and growth accounting approach. 232 Annex 3.3 Drivers of productivity. 233 Annex 3.4 Data and ology for sectoral productivity 239 Annex 3.5 ology for Box 3.3 . 240 Annex 3.6 Local projection ology for Box 3.4 240 References 241 VIII 1.1 Global growth prospects . 5 1.2 Global risks and policy challenges 6 1.3 Advanced economies 8 1.4 United States 9 1.5 Euro Area . 9 1.6 China . 10 1.7 Global trade 11 1.8 Global finance . 12 1.9 Commodity markets 13 1.10 EMDE recent developments . 14 1.11 EMDE commodity exporters and importers . 15 1.1.1 Recent developments in low-income countries 17 1.1.2 Outlook for per capita GDP and risks 18 1.12 EMDE outlook . 21 1.13 EMDE per capita income growth and poverty 22 Figures Statistical Appendix . 299 Selected Topics . 306 The Fourth Wave Rapid Debt Buildup . 251 Introduction 253 Evolution of past waves of debt 256 The current wave of debt in historical context 259 Rapid debt accumulation episodes 276 What comes next . 278 Seven lessons 282 Policy implications 283 Box 4.1 Similarities and differences between the previous three waves . 260 Box 4.2 The fourth wave . 266 Box 4.3 Debt and crises . 272 Annex 4.1 Event study ology . 286 Annex 4.2 Regression ology 287 Annex 4.3 Case studies 288 References 289 Chapter 4 IX 1.2.1 Regional growth 24 1.14 Balance of risks 26 1.15 Rising trade barriers and protracted policy uncertainty . 27 1.16 A deepening slowdown in major economies 28 1.17 Financial stress in EMDEs 30 1.18 Other downside risks . 31 1.19 Upside risks 32 1.20 Monetary and financial policies in advanced economies . 32 1.21 Fiscal policy in advanced economies. 33 1.22 Structural policies in advanced economies 34 1.23 EMDE monetary and financial policy 36 1.24 EMDE fiscal policy 37 1.25 EMDE structural policiesGovernance, business climate, and GVC participation. 39 1.26 EMDE structural policiesProductivity 40 SF1.1 Price controls 53 SF1.2 Price controls on imported and exported goods . 54 2.1.1 nbsp; EAP Recent developments nbsp;64 2.1.2 nbsp; Recent developments, China . 65 2.1.3 nbsp; EAP Outlook and risks 66 2.1.1.1 Productivity in EAP compared with other country groups 70 2.1.1.2 Evolution of productivity in EAP 71 2.1.1.3 Factors underlying productivity growth in EAP. 73 2.1.1.4 Prospects for productivity growth in EAP . 74 2.2.1 nbsp; ECA Recent developments. 78 2.2.2 ECA Outlook and risks . 79 2.2.1.1 Productivity in ECA compared with other regions . 85 2.2.1.2 Evolution of productivity in ECA 86 2.2.1.3 Factors supporting productivity growth in ECA 88 2.2.1.4 Drivers of productivity growth in ECA 91 2.3.1 LAC Recent developments . 96 2.3.2 LAC Outlook and risks . 98 2.3.1.1 Evolution of labor productivity growth in LAC 103 2.3.1.2 Sources of productivity growth in LAC .105 2.3.1.3 Sectoral productivity in LAC .106 2.3.1.4 Drivers of labor productivity growth in LAC .107 X 2.4.1 MENA Recent developments 112 2.4.2 MENA Outlook and risks.113 2.4.1.1 Productivity in MENA in regional comparison 118 2.4.1.2 Evolution of labor productivity in MENA .119 2.4.1.3 Factors supporting productivity growth in MENA .120 2.4.1.4 Policy challenges.121 2.5.1 SAR Recent developments 126 2.5.2 SAR Outlook and risks .127 2.5.1.1 Evolution of productivity growth in SAR 132 2.5.1.2 Sectoral productivity and employment in SAR .134 2.5.1.3 Drivers of productivity growth in SAR 135 2.5.1.4 Policy options in SAR .136 2.5.1.5 Productivity prospects in SAR 137 2.5.1.6 Constraints to productivity growth in SAR 139 2.6.1 SSA Recent developments .142 2.6.2 SSA Outlook and risks .144 2.6.1.1 Productivity in SSA in regional comparison .149 2.6.1.2 Evolution of labor productivity growth in SSA .150 2.6.1.3 Sectoral productivity growth in SSA.152 2.6.1.4 Drivers of productivity growth in SSA 154 2.6.1.5 Prospects for productivity growth in SSA 156 SF2.1 Inflation in low-income countries and poverty .180 SF2.2 Factors supporting falling inflation in LICs181 SF2.3 Monetary policy challenges in LICs 185 3.1 Labor productivity, per capita income and poverty reduction.194 3.2 Global productivity developments 195 3.3 Evolution of global productivity growth 197 3.1.1 Evolution of regional labor productivity 199 3.1.2 Sectoral contributions to regional productivity growth 201 3.1.3 Potential bottlenecks to productivity growth 203 3.4 Distribution of productivity levels and convergence progress .205 3.5 Decomposition of productivity growth207 3.2.1 Agriculture, industry and services .210 3.2.2 Sectoral labor productivity .211 3.2.3 Between– and within-sector sources to productivity growth .212 3.6 Sectoral productivity developments.214 XI 3.3.1 Firm TFP and distance-to-frontier in EMDEs by industry 216 3.3.2 Firm TFP by regions. 217 3.3.3 Distance-to-frontier of TFP, firm characteristics, and regulations . 218 3.7 Impact of drivers on productivity growth 220 3.8 Pre-crisis developments in productivity drivers and productivity growth . 221 3.9 Post-crisis slowdown of the drivers of productivity growth 222 3.4.1 Productivity in debt accumulation episodes and financial crises 224 3.10 EMDE infrastructure and education gaps 226 3.11 Developments in Fintech and Govtech . 226 3.12 Productivity growth re scenario 227 3.13 Effect of governance re spurts 230 Annex 3.3.1 Productivity drivers in 2017, by region . 234 Annex 3.3.2 Productivity changes in productivity drivers, by region . 237 4.1 Evolution of debt . 254 4.2 Debt in EMDEs . 257 4.3 The fourth wave Debt accumulation 259 4.1.1 Comparison of previous waves . 261 4.1.2 Changes in debt by sector and region 263 4.1.3 GDP per capita in EMDEs during the four waves 264 4.4 The fourth wave Vulnerabilities and use of borrowed funds 265 4.2.1 The fourth wave Debt developments . 267 4.5 Comparison of features of fourth wave and earlier waves Debt 270 4.6 Comparison of fourth wave and earlier waves Policies and institutions . 271 4.7 Episodes of rapid debt accumulation in EMDEs 277 4.8 Crises during rapid debt accumulation episodes in EMDEs . 278 4.9 Macroeconomic developments during debt accumulation episodes . 279 4.10 Fourth wave Opportunities and risks . 280 Annex 4.1.1 Country examples of debt accumulation episodes . 286 1.1 Real GDP .4 1.1.1 Low-income country forecasts . 19 1.2 Emerging market and developing economies . 41 2.1.1 East Asia and Pacific forecast summary . 68 2.1.2 East Asia and Pacific country forecasts 68 2.2.1 Europe and Central Asia forecast summary . 82 Tables XII 2.2.2 Europe and Central Asia country forecasts 83 2.3.1 Latin America and the Caribbean forecast summary . 100 2.3.2 Latin America and the Caribbean country forecasts 101 2.4.1 Middle East and North Africa forecast summary 115 2.4.2 Middle East and North Africa economy forecasts. 116 2.5.1 South Asia forecast summary . 129 2.5.2 South Asia country forecasts 130 2.6.1 Sub-Saharan Africa forecast summary . 146 2.6.2 Sub-Saharan Africa country forecasts 147 Annex 3.3.1 Variables included in the regressions and sources . 238 Annex 3.4.1 Sectoral categorization 239 Annex 4.1.1 Comparison of debt accumulation episodes. 287 XIII Foreword Following a year during which weak trade and investment dragged the world economy to its feeblest perance since the global financial crisis, economic growth is poised for a modest rebound this year. However, for even that modest uptick to occur, many things have to go right. Global growth is set to rise by 2.5 percent this year, a small rise from an estimated 2.4 percent in 2019, as trade and investment gradually recover. Emerging market and developing economies are anticipated to see growth accelerate to 4.1 percent from 3.5 percent last year. However, that acceleration will not be broad-based the pickup is anticipated to come largely from a handful of large emerging economies stabilizing after deep recessions or sharp slowdowns. Even this tepid global rally could be disrupted by any number of threats. Trade tensions could re-escalate. A sharper-than-expected growth slow-down in major economies would reverberate widely. A resurgence of financial stress in large emerging markets, an es/p