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World Bank cuts 2016 global growth forecast

By    June 8, 2016 | 02:09 am PT
World Bank cuts 2016 global growth forecast
Growth in the East Asia and Pacific region, excluding China, is expected to be supported by rising investment in several large economies and strong consumption supported by low commodity prices in emerging markets like Thailand, the Philippines and Vietnam. Photo by Reuters/Edgar Su
The World Bank is downgrading its 2016 global growth forecast to 2.4 percent from the 2.9 percent pace projected in January due to sluggish growth in advanced economies, low commodity prices, weak global trade and diminishing capital flows.

Economic growth in the East Asia and Pacific region, excluding China, is projected to grow at 4.8 percent in 2016, unchanged from 2015, with growth supported by strong consumption in emerging markets like Vietnam, said the World Bank on Wednesday in its latest report on Global Economic Prospects.

It also said a significant increase in private sector credit – fueled by an era of low interest rates and, more recently, rising financing needs  raises potential risks for several emerging market and developing economies.

“As advanced economies struggle to gain traction, most economies in South and East Asia are growing solidly,”said World Bank Chief Economist and Senior Vice President Kaushik Basu.

“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,” he added.

According to the latest update, commodity-exporting emerging markets 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.

“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,” said World Bank Group President Jim Yong Kim.

“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,” he added.

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 percent rate in 2016, down modestly from the 5.9 percent 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 percent in 2016 after 6.9 percent last year. India’s robust economic expansion is expected to hold steady at 7.6 percent, 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 percent rate in 2016, 0.8 of a percentage point slower than the January forecast.

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 also introduced a tool to quantify risks to the global outlook, which appears to be gloomier than expected in January.

“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, some commodity-importing emerging and developing economies have been able to register steady or accelerating growth over the last three years," said Development Economic Prospects Group Director Ayhan Kose.

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