Trump’s trade wars causing sharp decline in global investment, World Bank says

The trade wars led by US President Donald Trump against China, Mexico and Europe have sent global investment tumbling, the World Bank says in a report forecasting that this year’s global growth will go back to 2016 levels, according to The Guardian.

The World Bank’s report, Global Economic Prospects: Heightened Tensions, Subdued Investment, says that rising political uncertainty is the main factor causing a slowdown in trade and a collapse of investments, and that this will make GDP growth go down to 2.6 percent this year and slightly rise to 2.7 percent in 2020.

Some of the events mentioned by the World Bank as reasons why its policy uncertainty index reached a record high were the Trump administration imposing higher tariffs on Chinese imports and prolonged Brexit uncertainty. Trump has also caused worry in the markets after announcing that Mexico could face higher tariffs on exports to the US if it failed to reduce migration – starting with 5 percent and gradually rising to 25 percent by the fall.

Manufacturing output has seen a sharp decline across most regions of the world, most significantly in continental Europe. Emerging economies in Asia, South America and Africa were constrained by sluggish investment, according to the World Bank.

The Global Economic Prospects report also said that rising trade barriers increased the financial stress on trade-dependent economies, such as Turkey, and created sharper-than-expected slowdowns in major economies, especially in Europe. Meanwhile, governments in the developing world have reacted to the decline in private sector investment by borrowing to fill the gaps, thus increasing the risk of financial instability in the case of further global slowdown.

“Stronger economic growth is essential to reducing poverty and improving living standards. Current economic momentum remains weak, while heightened debt levels and subdued investment growth in developing economies are holding countries back from achieving their potential,” said David Malpass, the president of the World Bank group.