In the race to outpace developed economies, emerging countries such as China, India and Brazil suffered a setback this year and would outgrow them later than previously expected, the Centre for Economics and Business Research (CEBR) said.
The CEBR consultancy’s 2019 World Economic League Table was more downbeat on the global economy than last year’s outlook.
“For the medium term, we are roughly as optimistic as we were a year ago, but suspect the route to growth will be more bumpy than we had assumed 12 months ago,” said the report, which forecast the fortunes of 193 countries to 2033.
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China is likely to overtake the US as the world’s No. 1 economy in 2032, two years later than previously expected, due to a more lax monetary policy and lower exchange rate, it said.
It expects Brazil to overtake Italy in 2020, not this year, while India would overtake Britain and France, probably next year, but possibly 2020, rather than this year as it predicted a year ago.
Britain would likely lose its place as the sixth-biggest economy to France next year due to Brexit-related disruption, but should regain that position by 2023, the report said.
The CEBR also expected Ireland to be among the fastest-growing economies in the eurozone next year, but said that Brexit posed a big downside risk to that forecast.
The effects of a trade dispute between the world’s two biggest economies have made themselves felt across global markets this year and dented world trade growth.
The volume of world trade growth is likely to be up 2.99 percent this year, less than two-thirds of the increase last year, the centre estimated.
The report’s forecasts chimed with a deepening sense that optimism about synchronized global growth was overcooked and that markets got ahead of themselves.
A Reuters poll of economists in late October signaled the outlook for global growth next year dimmed for the first time.
Markets have suffered this year as investors fled risky assets, afraid monetary tightening from the world’s central banks is removing too much support from the economy as a trade dispute weighs on growth.
“With debt high and many of the structural problems that caused the great recession still in existence, a global recession could be more difficult to resolve than its predecessors,” the CEBR said.
However, policymakers and governments still have enough ammunition to see the world through the next recession, CEBR deputy chairman Douglas McWilliams said, although he saw a shift from monetary to fiscal action.
“We’re in a world now where there’s a sense that a certain degree of fiscal action will have to be applied in order to avoid the world falling flat on its face,” McWilliams said.
Government spending is likely to rise, both from fiscal easing and from discretionary spending, he said, adding that he saw governments delivering more support than central banks.
With many economies facing an infrastructure backlog and mega-projects such as China’s Belt and Road Initiative ongoing, the CEBR forecasts that global construction spending would increase from US$11.5 billion to US$27.4 billion, or 15.5 percent of world GDP, by 2033.
McWilliams expected the average fiscal deficit for the Organisation for Economic Co-operation and Development (OECD) area to come in at 5 percent of GDP in 2020, higher than the OECD’s forecast of 3.2 percent.
“A 5 percent spend is risking it a bit, but the developed economies are in a better position to take that risk than emerging economies,” he said.
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