WB forecast 2016 global growth to reach 2.4%
(VNF) - The World Bank is downgrading its 2016 global growth forecast to 2.4% from the 2.9% pace projected in January, due to sluggish growth in advanced economies, stubbornly low commodity prices, weak global trade, and diminishing capital flows.
According to the latest update of its Global Economic Prospects report, commodity-exporting emerging market and developing economies have struggled to adapt to lower prices for oil and other key commodities, and this accounts for half of the downward revision. Growth in these economies is projected to advance at a meager 0.4% pace this year, a downward revision of 1.2 percentage points from the January outlook.
“This sluggish growth underscores why it’s critically important for countries to pursue policies that will boost economic growth and improve the lives of those living in extreme poverty. Economic growth remains the most important driver of poverty reduction, and that’s why we’re very concerned that growth is slowing sharply in commodity-exporting developing countries due to depressed commodity prices”, said World Bank Group President Jim Yong Kim.
Commodity-importing emerging markets and developing economies have been more resilient than exporters, although the benefits of lower prices for energy and other commodities have been slow to materialize. These economies are forecast to expand at a 5.8% rate in 2016, down modestly from the 5.9% pace estimated for 2015, as low energy prices and the modest recovery in advanced economies support economic activity.
Among major emerging market economies, China is forecast to grow at 6.7% in 2016 after 6.9% last year. India’s robust economic expansion is expected to hold steady at 7.6%, while Brazil and Russia are projected to remain in deeper recessions than forecast in January. South Africa is forecast to grow at a 0.6% rate in 2016, 0.8 of a percentage point more slowly than the January forecast.
A significant increase in private sector credit - fueled by an era of low interest rates and, more recently, rising financing needs - raise potential risks for several emerging market and developing economies, the report finds.
According to World Bank Chief Economist and Senior Vice President Kaushik Basu, as advanced economies struggle to gain traction, most economies in South and East Asia are growing solidly, as are commodity-importing emerging economies around the world.
“However, one development that bears caution is the rapid rise of private debt in several emerging and developing economies. In the wake of a borrowing boom, it is not uncommon to find non-performing bank loans, as a share of gross loans, to quadruple.”
In an environment of anemic growth, the global economy faces pronounced risks, including a further slowdown in major emerging markets, sharp changes in financial market sentiment, stagnation in advanced economies, a longer-than-expected period of low commodity prices, geopolitical risks in different parts of the world, and concerns about the effectiveness of monetary policy in spurring stronger growth. The report introduces a tool to quantify risks to the global outlook and finds that they are now more tilted to the downside than in January.
While Development Economic Prospects Group Director Ayhan Kose pointed out that flagging growth prospects in emerging markets and developing economies would slow or even reverse their progress in catching up to income levels of advanced economies. However, he thought some commodity-importing emerging and developing economies have been able to register steady or accelerating growth over the last three years.
For East Asia and Pacific: Growth in the region is projected to slow to an unrevised 6.3% rate this year, with China’s expansion expected to ease to 6.7%, as projected in January. Excluding China, the region is projected to growth at 4.8% in 2016, unchanged from 2015. Growth in the rest of the region is expected to be supported by rising investment in several large economies (Indonesia, Malaysia, and Thailand), and strong consumption supported by low commodity prices (Thailand, the Philippines, and Vietnam).
Despite weaker-than-expected growth in advanced economies, which has dampened export growth in the region, growth in South Asia is forecast to accelerate to 7.1% in 2016. Activity has remained resilient as domestic demand, the main driver of growth, remained robust. India, the region’s largest economy, showed strengthening activity, as did Pakistan, Bangladesh and Bhutan. Most South Asian economies have benefited from the decline in oil prices, low inflation, and steady remittance flows./.
( VNF )