World Bank lowers global growth forecasts
/The World Bank has its updated forecasts for global growth out today (yesterday). There are some interesting things in here, about the world and about Vietnam.
For the world: The World Bank expects total global growth to be 2.5% in 2020, reflecting a slight increase from 2.4% in 2019e. The forecast is actually lower than the World Bank’s previous forecast of 2.7%.
What is driving the more pessimistic forecast:
Source: World Bank
Advanced economies are slow but steady (US, EU, Japan) - they are growing below 2%, with Japan barely growing. The World Bank slightly raised the forecast for the US by 0.1pp, but made no other changes for these three economies.
Emerging markets are dragging down the forecast - 2019 came in half a percentage point lower than expected at 3.5%. This year looks to recover a bit to 4.1%, but the World Bank was expected 4.6%. The recovery should continue in 2021 (4.3%) and 2022 (4.4%) but these reflect an expected slowdown.
Among emerging markets, forecasts were raised for Europe & Central Asia only. Expectations for every other region got worse.
China growth is slowing, which we knew, but still kind of surprises. It was 6.8% in 2017 and will be 5.7% in 2022. Remember that many people have issues with Chinese government economic statistics.
Only Argentina is expected to be in a recession in 2020 (-1.3%). After declining growth in 2018 (-2.5%) and 2019 (-3.1%). Poor Argentinians. They really need to get their economy to work. If they can’t grow when the rest of the world does, how will they grow when the rest of the world isn’t.
Vietnam is looking good. Forecasts are unchanged, but 2019 came in 0.2pp better than expected by the World Bank at 6.8%. Overally, nothing really unexpected here. Just to be clear, though, the government says the economy grew 7.02% in 2019, about 2pp higher than what the World Bank says.
Bangladesh also caught my eye with 8.1% growth in 2019 and 7.2% in 2020f, 7.3% in both 2021f and 2022f. There are likely other countries also growing quickly, but few big ones are growing as fast as Vietnam and Bangladesh.
EMBI spreads. Source: Haver Analytics, World bank, chart by World bank. Note: J.P. Moran Emerging Market Bond Index (EMBI) spread. Last observation is December 2019.
Some other interesting things found in the data:
Vietnamese bond spreads are low and have declined. The latest spread was 101.9bp, and has fallen 73.9bps since June 2018. This tells us that bond investors, at least, have gotten more comfortable buying the debt. This is true across the major ASEAN markets (and China).
I was surprised to find that Vietnam’s bonds are priced better than China, Indonesia or Malaysia. Also, spreads are generally low, all below 2pp. This just speaks to the general compression in rates globally.
Nominal rates are low at 4%, and have fallen by 1.2pp since January 2019. This refers to Vietnam’s discount rate. As we talked about yesterday, inflation has been low (2.0% for core, 2.8% for CPI), and that’s why the discount rate can remain so low despite strong growth. It doesn’t seem like Vietnam is overheating, helped by excess capacity (lots of people entering the labor market every year) and low inflation globally.
The research report also looked at debt and productivity:
Nominal policy rates and change in inflation-adjusted policy rates. source: Haver analytics, World bank, chart by world bank. Note: Latest rate refers to Malaysia’s overnight policy rate, Indonesia’s 7-day reverse repo rate, China’s loan prime rate, Thailand’s one-day repurchase rate, Vietnam’s discount rate and Philippines’ overnight reverse repo rate. Change refers to the difference in real interest rate between November 2019 and January 2019. Last observation is November 2019.
On debt, it sees worries about high government debt in emerging markets (like in Vietnam), that would be exacerbated by and exacerbate a new economic crisis. Especially with lower growth.
Productivity is a real problem globally, but again, Vietnam is well placed. It was specifically mentioned as a country with particularly fast productivity growth (pg 70).
More about these last two items over the next few days.