In the U.S., many economists are also pointing to uncertainty in the presidential election as suppressing activity. Governments from Brazil to South Africa to Indonesia also are facing deepening political turbulence, on top of persistent risks from wars in the Middle East and geopolitical tensions in the South China Sea.
“If we have a major shock, it can translate into a very sharp slowdown for the global economy,” said Ayhan Kose, the chief author of the bank’s Global Economic Prospects report.
Policy makers’ room to maneuver is shrinking. Although debt levels have moderated in many advanced economies, central banks are starting to run out of monetary-policy options. And politicians are reluctant to use government balance sheets to fund major injections of stimulus.
Options are even fewer among emerging-market exporters. Debt levels are rising, budget deficits are deepening and central banks are having to raise rates instead of cutting them to temper rising prices as their currencies weaken. Those countries, such as Angola, Kazakhstan, Malaysia, South Africa and Venezuela, are running average budget deficits of 5% of gross domestic product.
One major indicator of global weakness—trade growth—remains muted at 3.1%, well below precrisis trends.
“Persistently low growth could intensify protectionist tendencies that would further weaken growth prospects,” the bank said.
That attitude can be seen in the antitrade rhetoric gathering strength in the U.S. presidential election, but it isn’t isolated to North America. Around the world, discriminatory practices that act as a barrier to international trade outpace liberalization efforts by more than two-to-one, the bank said.
One bright note in the outlook: Emerging-market importers aren’t suffering the same downturn as exporters. In countries such as India, Hungary, Thailand and Vietnam, government deficits are actually lower than the bank forecast two years ago and debt levels as a share of economic output are falling.
