Global economic prospects to improve this year — World Bank
Following another disappointing year in 2014, developing countries should see an uptick in growth this year, boosted in part by soft oil prices, a stronger U.S. economy, continued low global interest rates, and receding domestic headwinds in several large emerging markets, the World Bank Group has said in its Global Economic Prospects (GEP) report released last Tuesday.
Advertisement
After growing by an estimated 2.6 per cent in 2014, the global economy is projected to expand by three per cent this year, 3.3 per cent in 2016 and 3.2 per cent in 2017, predicts the bank’s twice-yearly flagship report.
It recorded that developing countries grew by 4.4 per cent in 2014 and are expected to edge up to 4.8 per cent in 2015, strengthening to 5.3 per cent and 5.4 per cent in 2016 and 2017, respectively.
In sub-Saharan Africa, growth picked up only moderately in 2014 to 4.5 per cent, reflecting a slowdown in many of the region’s large economies, notably South Africa.
Growth is expected to remain flat in 2015 at 4.6 per cent (lower than previously expected), largely due to softer commodity prices, and rise gradually to 5.1 per cent by 2017, supported by infrastructure investment, increased agricultural production, and buoyant services.
The outlook is subject to significant downside risks arising from a renewed spread of the Ebola epidemic, violent insurgencies, lower commodity prices, and volatile global financial conditions.
Policy priorities include a need for budget restraint for some countries in the region and a shift of spending to increasingly productive ends, as infrastructure constraints are acute. Project selection and management could be improved with greater transparency and accountability in the use of public resources.
In this uncertain economic environment, the report said developing countries needed to judiciously deploy their resources to support social programmes with a laser-like focus on the poor and undertake structural reforms that invest in people. It is also critical for countries to remove any unnecessary roadblocks for private sector investment.
According to the report, the private sector is by far the greatest source of jobs and that can lift hundreds of millions of people out of poverty.
Underneath the fragile global recovery lie increasingly divergent trends with significant implications for global growth. Activity in the United States and the United Kingdom is gathering momentum as labour markets heal and monetary policy remains extremely accommodative.
But the recovery has been sputtering in the Euro Area and Japan as legacies of the financial crisis linger. China, meanwhile, is undergoing a carefully managed slowdown with growth slowing to a still-robust 7.1 per cent this year (7.4 per cent in 2014), seven per cent in 2016 and 6.9 per cent in 2017. And the oil price collapse will result in winners and losers.
Risks to the outlook remain tilted to the downside, due to four factors. First is persistently weak global trade. Second is the possibility of financial market volatility as interest rates in major economies rise on varying timelines. Third is the extent to which low oil prices strain balance sheets in oil-producing countries. Fourth is the risk of a prolonged period of stagnation or deflation in the Euro Area or Japan.
Worryingly, the stalled recovery in some high-income economies and even some middle-income countries may be a symptom of deeper structural malaise, said Kaushik Basu, World Bank Chief Economist and Senior Vice-President. As population growth has slowed in many countries, the pool of younger workers is smaller, putting strains on productivity. But there are some silver linings behind the clouds.
The lower oil price, which is expected to persist through 2015, is lowering inflation worldwide and is likely to delay interest rate hikes in rich countries.
This creates a window of opportunity for oil-importing countries, such as China and India; with India’s growth expected to rise to seven per cent by 2016. What is critical is for nations to use this window to usher in fiscal and structural reforms, which can boost long-run growth and inclusive development.
On the back of gradually recovering labour markets, less budget tightening, soft commodity prices, and still-low financing costs, growth in high-income countries as a group is expected to rise modestly to 2.2 per cent this year (from 1.8 per cent in 2014) and by about 2.3 per cent in 2016-17.
Growth in the United States is expected to accelerate to 3.2 per cent this year (from 2.4 per cent last year), before moderating to three and 2.4 per cent in 2016 and 2017, respectively. In the Euro Area, uncomfortably low inflation could prove to be protracted.
The forecast for Euro Area growth is a sluggish 1.1 per cent in 2015 (0.8 per cent in 2014), rising to 1.6 per cent in 2016-17. In Japan, growth will rise to 1.2 per cent in 2015 (0.2 per cent in 2014) and 1.6 per cent in 2016.
The slowdown is partly due to weak demand and to what appears to be lower sensitivity of world trade to changes in global activity. Commodity prices are projected to stay soft in 2015.
Growth in low-income countries is expected to remain strong at six per cent in 2015-17, although the moderation in oil and other commodity prices will hold growth back in commodity exporting low-income countries.
Risks to the global economy are considerable. Countries with relatively more credible policy frameworks and reform-oriented governments will be in a better position to navigate the challenges of 2015, concluded Franziska Ohnsorge, Lead Author of the report.