Global growth registered a 10-year low of 2.3% in 2019 amid trade and policy certainty, and could slow further to 1.8% in 2020 if trade and geopolitical tensions pick up, according to a report from the United Nations.
In its World Economic Situation and Prospects report for 2020, the U.N. said that the 2019 growth rate was the slowest since the 2008-2009 global financial crisis, as trade tensions between the U.S. and China disrupted supply chains and particularly affected the automobile and electronics sectors.
World GDP growth could, however, rebound to 2.5% in 2020, assuming trade tensions do not intensify, Brexit is concluded with a framework for the future relationship between the U.K. and the European Union, further geopolitical frictions do not escalate and there are no catastrophic climate shocks.
While the U.S. and China have signed a "phase one" trade deal, the U.N. said a final resolution to the trade conflict "is far from certain," with a high likelihood that trade tensions may continue or even escalate.
In addition, if the U.S. raises tariffs on automotive products and parts, retaliatory measures are expected from major trading partners such as the European Union and Japan.
"Risks remain strongly tilted to the downside," according to the report.
In the U.S., continued policy uncertainty, weak business confidence and waning fiscal stimulus is expected to slow GDP growth of the world's largest economy to 1.7% in 2020 from 2.2% in 2019. EU GDP growth is projected to rise to 1.6% from 1.4%.
In China, GDP growth is projected to moderate from a 29-year low of 6.1% in 2019 to 6.0% in 2020 and 5.9% in 2021.
The U.N. added that loose monetary policy in major economies and rapid credit growth in emerging markets have fueled a rise in worldwide debt levels, potentially leading to an imbalance in the global financial system.
"Much of the recently accumulated global debt has been channeled into financial assets rather than into raising productive capacity — illustrating a worrying disconnect between the financial sector and real economic activity," the U.N. said.
High demand for negative-yielding sovereign bonds suggests an inclination toward taking small losses, rather than undertaking productive investment, indicating "a very pessimistic view" about economic growth, the report said. "With no signs of a significant investment revival in the near term, productivity growth will remain weak over the medium term."
The U.N. called for a "more balanced" policy mix, utilizing both monetary and fiscal policies. However, the scope for fiscal and monetary easing to offset the global slowdown is limited in many countries, which puts mounting emphasis on efficiency in policymaking.
Meanwhile, the U.N. said that a "prolonged weakness" in global economic activity could hamper efforts to eradicate poverty, raise living standards and create decent jobs.