World Bank Urges 'Leave Central Banks Alone' As Global Economic Outlook Darkens

If we were a cynical thinking group, we could be persuaded that the World Bank just wrote a politically-charged 'mini-project-fear' report aimed directly at President Trump.

But that would be paranoid so we won't consider that. However, see if you can spot their pointed 'findings'...

The World Bank begins with its rather ominous title: "Storm Clouds Are Brewing for the Global Economy"

"The outlook for the global economy in 2019 has darkened."

Which may be a little overdone since they only reduced their expectation for global growth to 2.9% this year, down from 3% in 2018 and a reduction of 0.1 point from its forecast in June, blaming slowing growth in trade and investment and rising interest rates for sapping momentum.

Advanced-economy central banks will continue to remove the accommodative policies that supported the protracted recovery from the global financial crisis ten years ago.Also, simmering trade disputes could escalate. Higher debt levels have made some economies, particularly poorer countries, more vulnerable to rising global interest rates, shifts in investor sentiment, or exchange rate fluctuations.

In addition, more frequent weather events raise the possibility of large swings in food prices, which could deepen poverty. Because equitable growth is essential to alleviating poverty and increasing shared prosperity, emerging market and developing economies need to face this challenging economic climate by taking steps to sustain economic momentum, readying themselves for turbulence, and foster long-term growth. Rebuilding budget and central bank buffers; nurturing human capital; promoting trade integration; and addressing the challenges posed by sometimes large informal sectors, are important ways to do this.

“At the beginning of 2018 the global economy was firing on all cylinders, but it lost speed during the year and the ride could get even bumpier in the year ahead,” said World Bank Chief Executive Officer Kristalina Georgieva. “As economic and financial headwinds intensify for emerging and developing countries, the world’s progress in reducing extreme poverty could be jeopardized. To keep the momentum, countries need to invest in people, foster inclusive growth, and build resilient societies."

So - weather (climate change), trade tensions (Trump), and lack of inclusive policies (Trump?) are the problems with the global economy? Oh, and the war on cash needs to be stepped up to counter "informal economies."

And so The World Bank concludes:

Hard-won central bank independence and transparency could erode in the face of pressures to finance government. Mounting debt could weaken commitment to strong fiscal and monetary regimes.

If global inflationary pressures rise, policymakers can protect their constituents by redoubling their support for central bank independence, building fiscal frameworks to ensure debt sustainability and maintaining adequate buffers to ride out economic downturns.  

As the global economic outlook darkens, the imperative of sustaining economic momentum will require making the most out of growth opportunities, avoiding pitfalls, and building buffers against possible shocks. Lessons from the past about debt, faith in public institutions, food security, and price stability can offer guidance in an increasingly challenging environment. 

So above all else, citizens of the world should support the independence of their central banks and leave the central planners to fix the storm clouds for you... "Leave them alone" in other words... oh and now is the time to stop your government from getting into more debt - good luck with that.