World Bank lowers 2016 global economic growth forecast

By: 9 years ago

WASHINGTON, United States—The World Bank slashed its growth forecast for the global economy in 2016 on Wednesday, citing “disappointing” growth in major emerging-market economies like China and Brazil.

The bank cut its June forecast for global economic expansion in 2016 by 0.4 percentage point to 2.9 percent, though that is still faster than 2015’s sluggish 2.4 percent.

“Simultaneous weakness in most major emerging markets is a concern for achieving the goals of poverty reduction and shared prosperity because those countries have been powerful contributors to global growth for the past decade,” the World Bank said.

In the midst of a deep economic transition, China should see economic growth slow to 6.7 percent this year from 6.9 percent in 2015, it said. The 2016 forecast for the world’s second-largest economy is 0.3 point lower than six months ago and would mark its weakest performance since 1990.

Since mid-2014, China has endured bouts of financial turbulence, the latest on Monday with a spectacular seven percent plunge in stock market indices.

The World Bank’s growth revisions are even more drastic for two other big emerging-market economies already in recession: Brazil, down 3.6 points to a 2.5 percent contraction, and Russia, a 1.4-point drop to a 0.7 percent contraction.

Both countries have been hammered by falling prices for commodities such as oil and agriculture products.

“There is greater divergence in performance among emerging economies. Compared to six months ago, risks have increased, particularly those associated with the possibility of a disorderly slowdown in a major emerging economy,” said Kaushik Basu, World Bank chief economist.

“A combination of fiscal and central bank policies can be helpful in mitigating these risks and supporting growth.”

Risks to the outlook included financial stress linked to the US Federal Reserve’s launch in December of an interest rate hiking cycle, and heightened geopolitical tensions, the Bank said in its Global Economic Prospects report.

Spillovers from emerging powers

“The simultaneous slowing of four of the largest emerging markets—Brazil, Russia, China, and South Africa—poses the risk of spillover effects for the rest of the world economy,” said Basu.

“Global ripples from China’s slowdown are expected to be greatest but weak growth in Russia sets back activity in other countries in the region.”

Developing countries were expected to expand by 4.8 percent this year, 0.4 point weaker than the prior estimate, the 188-nation institution said.

High-income countries on a whole fared better. The forecast for their growth in gross domestic product, the broad measure of output of goods and services, was lowered to 2.1 percent, a 0.3-point drop.

Only a 0.1 point dip in GDP was notched for the United States, the largest economy, and for the 19-nation eurozone, to 2.7 percent and 1.7 percent, respectively.

Hard-hit has been Sub-Saharan Africa, where growth stumbled to 3.4 percent in 2015, its weakest performance since 2009, on falling commodity prices.

But with commodity prices expected to stabilize this year, growth in the region, home to some of the world’s poorest countries, was expected to pick up to 4.2 percent, the institution said, lowering its June forecast by 0.3 point.

The dimmer picture of the world economy painted by the World Bank’ echoed concerns already expressed by the International Monetary Fund, which will update its own economic projections on January 20.

“Global growth in 2016 will be disappointing and patchy,” IMF Managing Director Christine Lagarde warned in late December.

“And the medium-term outlook has clouded over, too, because low productivity, aging populations and the fallout from the global financial crisis are putting the brakes on growth.”