World Bank Chief Malpass Sees Steeper Global Growth Slowdown

(Bloomberg) -- World Bank President David Malpass said the global economy is poised to decelerate more than previously estimated, with the pile of negative-yielding debt indicating growth will be slower in the future.

“The slowdown in global growth is broad based,” Malpass said Tuesday in a speech in Washington. Recent developments signal the 2019 world expansion will likely to fall short of the lender's June projection of 2.6% in real terms, Malpass said. The nominal growth rate appears poised to slow to less than 3% -- “a big letdown” from the about 6% pace in 2017 and 2018, he said.

Roughly $15 trillion of bonds with zero or negative yields indicate that investors accept “the market's premise of very low or even negative returns for years, even decades,” he said. “This frozen capital implies slower future growth.”

The comments by Malpass at the Peterson Institute for International Economics in Washington, his first major public address since taking office in April, come as the global economic outlook dims ahead of next month's annual meetings of the bank and the International Monetary Fund. The fund is preparing to update its growth forecast in the new World Economic Outlook, after reducing the projection, already the lowest since the financial crisis, in July to 3.2% this year.

Chinese Slowdown

Malpass said the global slowdown is apparent in China's deceleration, also noting “substantial downturns” in Argentina, India and Mexico, plus “disappointments” across the developing world.

Parts of Europe are in recession or close to it, with Germany and the U.K. seeing a quarter of contraction, while Italy and Sweden have experienced “several quarters of stagnation,” he said.

Large amounts of capital locked into low-yielding bonds with historically tepid rates of capital investment imply that growth, “especially in developing countries, will remain slow as current capital stocks deteriorate and are exhausted,” he said. “That's a challenge for the World Bank.”

Central banks worldwide have been grappling with how to respond to weaker growth as U.S. President Donald Trump's trade wars add to uncertainty confronting consumers and businesses. The Federal Reserve in July cited the implications of global developments for the outlook as they cut interest rates for the first time in a decade. Officials are expected to again reduce borrowing costs Wednesday.

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Bank and fund leaders meet in a big year for leadership changes atop the sister institutions. Malpass, previously a senior U.S. Treasury official, was selected in April for a five-year term. World Bank Chief Executive Kristalina Georgieva, meanwhile, has been nominated to succeed Christine Lagarde as IMF managing director after she left to lead the ECB.

Trump nominated Malpass in February, choosing a supporter who'd criticized China and backed a shakeup of the global economic order. Malpass previously portrayed the lender as inefficient and reluctant to cut funding for developing countries that grow into dynamic emerging markets.

--With assistance from Saleha Mohsin.

To contact the reporter on this story: Jeff Kearns in Washington at jkearns3@bloomberg.net

To contact the editors responsible for this story: Sarah McGregor at smcgregor5@bloomberg.net, Robert Jameson

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