World Bank Head Says Virus Expected to Weigh on First-Half Global Growth

World Bank President David Malpass said global economic growth in the first half of 2020 is likely to fall short of the 2.5% pace that the lender has forecast for the full year.

The good news is that was slightly higher than what the growth rate was in 2019. but the bad news is. for one. the first half is probably to be slower than that given the coronavirus. Malpass said at a gathering of economists in Washington. But also. even at 2.5% real growth for the world. that simply is not enough growth to really lift developing countries.

The coronavirus is topic No. 1 at the bank. Malpass said at the National Association for Business Economics conference in Washington.

We are looking at ways to respond or to make available resources for developing countries. he said. We’re also very closely coordinating with WHO. the World Health Organization. which is on the front line of the virus. and we have a range of tools that the bank can use as the pandemic spreads.

Malpass also singled out European growth as being notable for its weakness. noting that the sluggishness is of particular concern to Africa because its ability to grow is closely associated with Europe’s expansion pace. He also said European Central Bank policy isn’t working because it’s distorting markets and subsidizing the least productive parts of the economy.

ECB Policy

Europe’s slow growth comes at a time when mainstream economics considers the ECB’s policies to be massively stimulative. he said. citing the expansion of the central bank’s balance sheet. He said that while the slow growth could be interpreted as evidence that the stimulus hasn’t been enough. he prefers to interpret the result as showing that the policy actually hasn’t been stimulative.

The ECB’s balance sheet has expanded manyfold in these recent years but there’s no longer a direct connection to private sector bank credit growth. he said. Much of the supply of short-term capital in Europe is soaked up by the central bank in order to purchase and hold long-term government bonds. The result is a central bank policy that doesn’t provide monetary stimulus.

In projections released early last month before the coronavirus began to spread widely. the World Bank said that global economic growth is likely to pick up slowly this year and next. The expansion will accelerate marginally to 2.5% this year from 2.4% in 2019. the lender said in its latest Global Economic Prospects report.

International Monetary Fund Managing Director Kristalina Georgieva told Group of 20 officials gathered in Saudi Arabia last weekend that the outbreak had led the fund to trim 0.1 percentage point from its global growth forecast. but that it’s also looking at more dire scenarios.

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