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World Bank Downgrades Global Growth To 2.6% For 2019

Kitco News

(Kitco News) - The World Bank is adding to growing recession fears after the international institution downgraded its global growth outlook.

In a report released Tuesday, the economists at the World Bank said that they now see the global economy expanding 2.6% this year, down from its previous estimate of 2.9%. Economists’ estimates have been declining since mid-last year.

For 2019, the World Bank said that growth should tick higher to 2.7%.

“The global economy has slowed to its lowest pace in three years. It is on track to stabilize, but its momentum is fragile and subject to substantial risks,” the economists said in its report. “A number of risks could disrupt that delicate momentum: a further escalation of trade disputes between the world’s largest economies, renewed financial turmoil in emerging and developing economies, or a more abrupt deceleration of economic growth among major economies than is currently envisioned.”

The World Bank said that a slowdown in trade, which is seeing its slowest pace of growth since the financial crisis, is of particular concern.

The Economists also said that ballooning government debt is another growing concern and could drag down future growth.

“Excessive debt carries serious risks. Even in an environment of low interest rates, debt can accumulate to unsustainable levels. A government spending large amounts to service debt is allocating less on other important activities,” the analysts said. “High debt also raises the possibility in the minds of investors and consumers that governments may eventually raise taxes to rein in deficits, chilling business and consumer spending.”

"It is urgent that countries make significant structural reforms that improve the business climate and attract investment,” added David Malpass, World Bank Group president said in a statement. “They also need to make debt management and transparency a high priority so that new debt adds to growth and investment.”

Growing economic concerns have increased gold’s safe-haven appeal with prices currently trading near a three-month high. August gold last traded at $1,342.40 an ounce and has rallied 4.5% in the last five sessions.

In April, in its semi-annual commodity report the World Bank said that it was bullish on gold prices, expecting the yellow metal to rise 3.2% compared to 2018 prices.

“Prices have been supported by strong demand and a fall in long-term real interest rates,” the analysts said in the report. “Upside risks to the forecast include the possibility of an interest-rate cut in the United States.”

Expectations of U.S. rate cuts have grown exponentially in the last few weeks. Markets see more than a 50% chance of a rate cut as early as July. Markets see the possibility of three rate cuts by the end of the year.

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