Worldwide Economic Prospects to Improve in 2015, But Divergent Trends Pose… : World Bank Group

WASHINGTON, January 13, 2015 – Following another disappointing year in 2014, developing countries should see an uptick in growth this year, boosted in part simply by soft oil prices, a more powerful U. S. economy, continued low global interest rates, and receding domestic headwinds in several large emerging marketplaces, says the World Bank Group’s Global Economic Prospects (GEP) report, released nowadays.

After growing simply by an estimated 2 . 6 percent in 2014, the global economy is forecasted to expand by 3 % this year, 3. 3 percent in 2016 and 3. 2 % in 2017 [1], predicts the Bank’s twice-yearly flagship. Developing countries grew simply by 4. 4 percent in 2014 and are expected to edge up to four. 8 percent in 2015, strengthening to 5. 3 and five. 4 percent in 2016 and 2017, respectively.

“In this uncertain economic environment, creating countries need to judiciously deploy their particular resources to support social programs having a laser-like focus on the poor and carry out structural reforms that invest in individuals, ” said World Bank Group Chief executive Jim Yong Kim . “It’s also critical for countries to remove any unnecessary roadblocks just for private sector investment. The private sector is by far the greatest source of work opportunities and that can lift hundreds of millions of people out of poverty. ”

Underneath the fragile global recovery lie increasingly divergent trends along with significant implications for global growth. Activity in the United States and the United Kingdom is gathering momentum as labor marketplaces 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 going through a carefully managed slowdown along with growth slowing to a still-robust seven. 1 percent this year (7. 4 % in 2014), 7 percent in 2016 and 6. 9 % in 2017. And the oil price collapse will result in winners and duds.

Risks to the view remain tilted to the downside, due to four factors. First is persistently weak global trade. Second could be the possibility of financial market volatility as interest rates in major economies increase on varying timelines. Third could be the extent to which low oil costs strain balance sheets in oil-producing countries. Fourth is the risk of the prolonged period of stagnation or decrease in the Euro Area or Japan.

“Worryingly, the particular 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 Main Economist and Senior Vice Chief executive. “As human population growth has slowed in many countries, the pool of younger employees is smaller, putting strains on productivity. But there are some silver linings behind the clouds. The lower oil price, which is expected to persist via 2015, is lowering inflation worldwide and is likely to delay interest rate outdoor hikes in rich countries. This produces a window of opportunity for oil-importing countries, such as China and India; we expect India’s growth to rise to seven percent by 2016. What is important is for nations to use this windows to usher in fiscal and structural reforms, which can boost long-run growth and inclusive development. ”

On the back again of gradually recovering labor marketplaces, less budget tightening, soft product prices, and still-low financing expenses, growth in high-income countries as a group is expected to rise modestly to 2 . 2 percent this year (from 1 . 8 percent in 2014) in 2015 and by about 2 . 3 percent in 2016-17. Development in the United States is expected to accelerate to 3. 2 percent this year (from 2 . 4 percent last year), before moderating to 3 and 2 . 4 percent in 2016 and 2017, respectively. In the Euro Area, uncomfortably low inflation can prove to be protracted. The forecast just for Euro Area growth is a slow 1 . 1 percent in 2015 (0. 8 percent in 2014), rising to 1. 6 percent in 2016-17. In Japan, growth will increase to 1. 2 percent in 2015 (0. 2 percent in 2014) and 1 . 6 percent in 2016.

Trade moves are likely to remain weak in 2015. Since the global financial crisis, global industry has slowed significantly, growing simply by less than 4 percent in 2013 and 2014, well below the particular pre-crisis average growth of seven percent per annum. The slowdown is partly due to weak demand and also to what appears to be lower sensitivity of world trade to changes in global activity, finds analysis within the report. Changes in global worth chains and a shifting composition of import demand may have contributed to the decline in responsiveness of industry to growth.

Product prices are projected to stay soft in 2015. As discussed within a chapter in the report, the unusually steep decline in oil costs in the second half of 2014 can significantly reduce inflationary pressures and improve current account and fiscal balances in oil-importing developing countries.

“Lower oil costs will lead to sizeable real earnings shifts from oil-exporting to oil-importing developing countries. For both exporters and importers, low oil costs present an opportunity to undertake reforms that can increase fiscal resources and help broader environmental objectives, ” said Ayhan Kose, Director of Development Leads at the World Bank.

Amongst large middle-income countries that will benefit from lower oil prices is India, where growth is expected to accelerate to 6. 4 percent this year (from five. 6 percent in 2014), rising to 7 percent in 2016-17. In Brazil, Indonesia, South Africa and Turkey, the fall in oil costs will help lower inflation and reduce current account deficits, a major source of vulnerability for many of these countries.

Nevertheless , sustained low oil prices will certainly weaken activity in exporting countries. For example , the Russian economy is projected to contract by 2 . 9 percent in 2015, obtaining barely back into positive territory in 2016 with growth expected on 0. 1 percent.

Contrary to middle-income countries, economic activity in low-income countries strengthened in 2014 on the back of rising community investment, significant expansion of assistance sectors, solid harvests, and substantial capital inflows. Growth in low-income countries is expected to remain solid at 6 percent in 2015-17, although the moderation in oil as well as other commodity prices will hold growth back in commodity exporting low-income countries.

“Risks to the worldwide economy are considerable. Countries along with relatively more credible policy frameworks and reform-oriented governments will be within a better position to navigate the particular challenges of 2015, ” concluded Franziska Ohnsorge, Lead Author of the report.

Regional Highlights:

The Eastern Asia and Pacific region continued its gradual adjusting to slower but more well balanced growth. Regional growth slipped to 6. 9 percent in 2014 as a result of policy tightening and politics tensions that offset a rise in exports in line with the ongoing recovery in certain high-income economies. The medium-term view is for a further easing of growth to 6. 7 percent in 2015 and a stable outlook afterwards, reflecting a gradual slowdown in China, which will be offset by a pick-up in the rest of the region in 2016-17. In China, structural reforms, the gradual withdrawal of fiscal incitement, and continued prudential measures to slow non-bank credit expansion will result in slowing growth to 6. nine percent by 2017 (from seven. 4 percent in 2014). In the rest of the region, excluding China, growth will strengthen to 5. 5% by 2017 (from 4. 6 percent in 2014) supported simply by firming exports, improved political stability, and strengthening investment.

Growth in developing Europe and Central Asia is estimated to have slowed down to a lower-than-expected 2 . 4 % in 2014 as a sputtering recovery in the Euro Area and stagnation in Russia posed headwinds. In comparison, growth in Turkey exceeded goals despite slowing to 3. 1%. Regional growth is expected to rebound to 3 percent in 2015, 3. 6 percent in 2016 and 4 percent in 2017 but with considerable divergence. Recession in Russia holds back growth in Commonwealth of Independent States whereas a gradual recovery in the Euro Area should lift growth in Central and Eastern Europe and Turkey. The tensions between The ussr and Ukraine and the associated economic sanctions, the possibility of prolonged stagnation within the Euro Area, and sustained product price declines remain key drawback risks for the region.

Growth in Latin America and the Caribbean slowed markedly to 0. 6 percent in 2014, but with diverging developments across the region. South America slowed down sharply as domestic factors, exacerbated by economic slowdown in main trading partners and declining worldwide commodity prices, took their cost on some of the largest economies in the area. In contrast, growth in North and Central America was robust, lifted by strengthening activity in the United States. Strengthening exports on the back of the carried on recovery among high-income countries and robust capital flows should raise regional GDP growth to an typical of around 2 . 6 % in 2015-17. A sharper-than-expected slow down in China and a steeper decline in commodity prices represent main downward risks to the outlook.

Following years of turmoil, a few economies in the Center East and North Africa appear to be stabilizing, although growth remains fragile and uneven. Development in oil-importing countries was broadly flat in 2014, while activity in oil-exporting countries recovered slightly after contracting in 2013. Fiscal and external imbalances remain significant. Regional growth is expected to pick-up gradually to 3. 5 percent in 2017 (from 1 . 2 % in 2014). Risks from local turmoil and from the volatile price of oil are considerable; political changes and security challenges persist. Actions to address long-standing structural challenges have already been repeatedly delayed and high joblessness remains a key challenge. Lower oil prices offer an opportunity to remove the region’s heavy energy subsidies in oil-importing countries.

In South Asia , growth rose to an estimated 5. 5% in 2014 from a 10-year low of 4. 9 percent in 2013. The upturn was driven by India, the region’s biggest economy, which emerged from two years of modest growth. Regional growth is projected to rise to 6. 8 percent by 2017, as reforms ease supply constraints in India, political tensions subside in Pakistan, remittances remain robust in Bangladesh and Nepal, and requirement for the region’s exports firms. Previous adjustments have reduced vulnerability to financial market volatility. Risks are usually mainly domestic and of a politics nature. Sustaining the pace of reform and maintaining political stability are key to maintaining the particular recent growth momentum.

In Sub-Saharan The african continent, growth picked up just moderately in 2014 to four. 5 percent, reflecting a slowdown in many of the region’s large economies, particularly South Africa. Growth is expected to remain flat in 2015 at four. 6 percent (lower than earlier expected), largely due to softer product prices, and rise gradually to 5. 1 percent by 2017, supported by infrastructure investment, increased farming production, and buoyant services. The particular outlook is subject to significant drawback risks arising from a renewed distribute of the Ebola epidemic, violent insurgencies, lower commodity prices, and unstable 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 sources.

[1] Using 2010 purchasing power parity weights, global growth will be 3. 6 percent in 2015, and 4. 0 percent for every of 2016 and 2017.

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