The World Bank is revising its 2016 global growth forecast down to 2.4 percent from the 2.9 percent pace projected in January. The move is due to sluggish growth in advanced economies, stubbornly low commodity prices, weak global trade, and diminishing capital flows. Commodity-exporting emerging market and developing economies have struggled to adapt to lower prices for oil and other key commodities. Growth in these economies is projected to advance at a meager 0.4 percent pace this year, whereas growth in commodity importers has been more resilient. Projections are subject to substantial downside risks, including additional growth disappointments in advanced economies or key emerging markets and rising policy and geopolitical uncertainties. In an environment of weak growth and eroding policy buffers, structural reforms have become even more urgent. “Depressed commodity prices have slowed growth sharply in commodity-exporting emerging and developing economies, which are home to more than half the global poor,” said World Bank Group President Jim Yong Kim, “Economic growth remains the most important driver of poverty reduction. This underscores the critical priority of pursuing growth-enhancing policies to eliminate extreme poverty and boost shared prosperity.”
In addition to presenting detailed outlooks for the global economy and for each of the world’s emerging market and developing regions, this report analyses two topical policy challenges for policymakers to navigate.
The first charts an important vulnerability that risks sidetracking economic recovery in emerging and developing economies: the rapid increase in private-sector credit since 2010. This buildup has been greatest among commodity exporting countries, where credit levels had been modest. In contrast, credit has been stagnant or shrinking among commodity importing countries, where previously it had been considerably higher than in commodity exporters.
The second has to do with tools for assessing the risks surrounding prospects for the world economy and concludes that forecast uncertainty has increased since January 2016, while the balance of risks for global growth has further tilted to the downside.
The world economy is projected to expand at 2.4 percent in 2016, roughly at the same insipid pace we experienced last year. On the plus side, commodity importers will maintain their relatively high growth, as the low prices become stable. On the other hand, commodity exporters will continue to face challenges, though even in these economies there should be a slow positive upturn, as commodity prices stabilize and they slowly begin to diversify their economy.
Although global growth is projected to accelerate gradually, a wide range of risks threaten to derail the recovery, including a sharper-than-expected slowdown in major emerging markets, sudden escalation of financial market volatility, heightened geopolitical tensions, slowing activity in advanced economies, and diminished confidence in the effectiveness of policies to spur growth. These risks are compounded by the fact that for many countries policy buffers have eroded substantially, particularly in commodity exporting emerging and developing countries.
Against this backdrop of weak growth, pronounced risks, and limited policy space, policymakers in emerging and developing economies should put a premium on enacting reforms, which, even if they seem difficult in the short run, foster stronger growth in the medium and the long run.
Among these measures, efforts to invest in infrastructure and education, health and other human skills and wellbeing, as well as initiatives to promote economic diversification and liberalize trade, will boost growth prospects and improve standards of living. The international community has an important role to play in the pursuit of these goals.
