World Economy

WB Predicts Growth in SSA, Stagnation in LatAm

WB Predicts Growth in SSA, Stagnation in LatAmWB Predicts Growth in SSA, Stagnation in LatAm

Sub-Saharan Africa awaits economic boom this year, given the World Bank’s prediction of 4.2% growth from 3.4% last year due to stabilization of commodity prices in the region against the world’s flagging trade, capital flows and episodes of financial volatility.

But economies in Latin America and the Caribbean will stagnate this year after shrinking an average 0.9% in 2015, World Bank reported.

The trend in Sub-Saharan Africa is contrary to other regions in the developing countries where more than 40% of the world’s poor live, that registered a remarkable slowed growth last year, says WB Group President Jim Yong Kim in the recently released bank’s 2016 report on Global Economic Prospects.

“Developing countries should focus on building resilience to 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,” says Kim.

But “compared to six months ago, risks have increased, particularly those associated with the possibility of a disorderly slowdown in a major emerging economy,” says the group’s vice president and chief economist, Kaushik Basu, in the report, noting that a combination of better fiscal and central bank policies could help mitigate the risks and support the growth.

  Global Repercussions

However, he attributes poor performance last year to various factors including falling commodity prices, flagging trade and capital flows, and episodes of financial volatility especially among emerging economies.

But the report also asserts that the sustainable growth ahead will depend on the current momentum in high income countries, the stabilization of commodity prices, and China’s gradual transition towards a more consumption and service-based growth model.

Developing economies are projected at 4.8% growth in 2016, less than earlier expectations but up from a post-crisis low of 4.3% last year, says the report.

Growth is projected to slow further in China, while Russia and Brazil are expected to remain in recession in 2016. The South Asia region, led by India, is projected to be a bright spot. The recently negotiated Trans-Pacific Partnership could provide a welcome boost to trade.

However, a faster-than-expected slowdown in large emerging economies could have global repercussions, says the report.

  Latin America Volatility

The World Bank also expects economies in Latin America and the Caribbean to stagnate in 2016, after shrinking an average 0.9% in 2015 marking the worst overall performance of any emerging region.

The bank said it does not see the region recovering from economic growth until 2017, with most Latin American nations experiencing negative growth this year.

The region should beware of “financial volatility,” the slowing down of its large trade partners, continued low prices for raw materials and potential disasters sparked by the El Nino weather phenomenon, the bank warned.

Economic performance will differ among countries in the region, “with stronger growth in developing Central and North America and the Caribbean offsetting weakness in South America,” the bank said.

“The current recession in Brazil is expected to extend into 2016 but a return to growth is expected in 2017,” the report said.

In Mexico “growth is expected to pick up ... thanks to dividends from implementation of structural reforms and strengthening demand from the US market,” it added.

The agency also noted the “political uncertainty” affecting both Brazil and Venezuela, which are struggling with poor economies and political upheaval.

In general, economic growth around the globe is expected to be weak in 2016, with risks to the global economy caused by regional conflicts and the interest rate hike initiated recently by the US Federal Reserve.

The United States is expected to grow 2.7%, and the eurozone countries, 1.7%, according to the bank.