World Economy

EMs’ Weak Revival to Affect Global Growth

EMs’ Weak Revival to  Affect Global GrowthEMs’ Weak Revival to  Affect Global Growth

Weak growth among major emerging markets will weigh on global growth in 2016, but economic activity should still pick up modestly to a 2.9% pace, from 2.4% growth in 2015, as advanced economies gain speed, according to the World Bank’s January 2016 Global Economic Prospects.

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. Spillovers from major emerging markets will constrain growth in developing countries and pose a threat to hard-won gains in raising people out of poverty, the report warns.

“More than 40% of the world’s poor live in the developing countries where growth slowed in 2015,” said World Bank Group President Jim Yong Kim. "Developing countries should focus on building resilience to a weaker economic environment and shielding the most vulnerable. The benefits from reforms to governance and business conditions are potentially large and could help offset the effects of slow growth in larger economies."

Global economic growth was less than expected in 2015, when falling commodity prices, flagging trade and capital flows, and episodes of financial volatility sapped economic activity.

Developing economies are forecast to expand by 4.8% in 2016, less than expected earlier but up from a post-crisis low of 4.3% in the year just ended.

East Asia & Pacific

Growth in the region is projected to continue to slow to 6.3% in 2016 from a slightly less-than-expected 6.4% in 2015. Growth in China is forecast to ease further to 6.7% in 2016 from 6.9% in 2015. 

Growth in the region excluding China was 4.6% in 2015, broadly unchanged from 2014, as weaker growth in commodity exporters, including Indonesia and Malaysia, was offset by growth acceleration in Vietnam and moderate recovery in Thailand.

Risks include a faster-than-expected slowdown in China, the possibility of renewed financial market turbulence, and an abrupt tightening of financing conditions.

Europe & Central Asia

Growth is projected to rise to 3% in 2016 from 2.1% in the year just ended as oil prices fall more slowly or stabilize, the Russian Federation’s economy improves, and Ukraine recovers. Economic activity in Russia is projected to contract by 0.7% in 2016 after shrinking by 3.8% in the year just ended.

Growth could resume modestly in the eastern part of the region, which includes Eastern Europe, South Caucasus, and Central Asia, if there is a stabilization of commodity prices. The western part of the region, which includes Bulgaria, Romania, Turkey and the western Balkans, should grow moderately in 2016, buoyed by recovery in the Eurozone.

LatAm & Caribbean

The region is projected to recover modestly from recession in 2016, with activity flat after shrinking by 0.9% in the year just ended, as the region grapples with the protracted decline of commodity prices and domestic challenges weighing on the region’s largest economies. 

However, there are differences among the sub-regions with stronger growth in developing Central and North America and the Caribbean offsetting weakness in South America. The current recession in Brazil is expected to extend into 2016 but a return to growth is expected in 2017.

Although weighed down by low oil prices and associated fiscal pressures, growth is expected to pick up in Mexico thanks to dividends from implementation of structural reforms and strengthening demand from the US market.

Mideast & North Africa

Growth is forecast to accelerate to 5.1% in 2016 from 2.5% in the year just ended, as the expected suspension or removal of economic sanctions against the Iran will allow that country to play a larger role in global energy markets.

Growth is expected to pick up in other oil exporter countries as well, predominantly on the assumption that oil prices will stabilize. The region is subject to serious risks from the possibility of an escalation of conflict, a further decline in oil prices, and failure to improve living conditions, which could spark social unrest.

South Asia

The region is projected to be a bright spot in the outlook for emerging and developing economies, with growth speeding up to 7.3% in 2016 from 7% in the year just ended.

The region is a net importer of oil and will benefit from lower global energy prices. At the same time, because of relatively low global integration, the region is shielded from growth fluctuations in other economies.

For FY 2016-17, India, the dominant economy in the region, is projected to grow at a faster 7.8% and growth in Pakistan (on a factor cost basis) is expected to accelerate to 4.5%.

Sub-Sahara Africa

The region is forecast to accelerate to 4.2% in 2016 from 3.4% in 2015 as commodity prices stabilize. Economic activity will vary across Sub-Saharan Africa, with consumption growth remaining weak in oil exporting countries as fuel costs rise, while lower inflation in oil importing countries helps boost consumer spending.

Nigeria is forecast to expand 4.6% after growing by 3.3% last year while South Africa is expected to advance only modestly to 1.4% growth from 1.3% in the year just ended.