DHAKA: 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 US economy, continued low global interest rates, and receding domestic headwinds in several large emerging markets.
The World Bank Group’s Global Economic Prospects (GEP) report that was released on Wednesday forecasted about the global trends of economy that would follow in 2015.
“After growing by an estimated 2.6 percent in 2014, the global economy is projected to expand by 3 percent this year, 3.3 percent in 2016 and 3.2 percent in 2017,” predicts the Bank’s twice-yearly flagship.
Developing countries grew by 4.4 percent in 2014 and are expected to edge up to 4.8 percent in 2015, strengthening to 5.3 and 5.4 percent in 2016 and 2017, respectively.
World Bank Group President Jim Yong Kim also urged the developing countries to support social programs with a laser-like focus on the poor and undertake structural reforms that invest in people during this uncertain economic environment.
He also said, “It’s also critical for countries to remove any unnecessary roadblocks for private sector investment. 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 US and the UK is gathering momentum as labor 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 percent this year (7.4 percent in 2014), 7 percent in 2016 and 6.9 percent in 2017. And the oil price collapse will result in winners and losers.
However, the GEP report also said risks to the outlook remain tilted to the downside, due to four factors -- persistently weak global trade, the possibility of financial market volatility as interest rates in major economies rise on varying timelines, the extent to which low oil prices strain balance sheets in oil-producing countries and the risk of a prolonged period of stagnation or deflation in the Euro Area or Japan.
Kaushik Basu, World Bank Chief Economist and Senior Vice President, said, “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 (developing) countries.”
The report also said trade flows are likely to remain weak in 2015. Since the global financial crisis, global trade has slowed significantly, growing by less than 4 percent in 2013 and 2014, well below the pre-crisis average growth of 7 percent per annum.
Commodity prices are projected to stay soft in 2015. As discussed in a chapter in the report, the unusually steep decline in oil prices in the second half of 2014 could significantly reduce inflationary pressures and improve current account and fiscal balances in oil-importing developing countries.
“Lower oil prices will lead to sizeable real income shifts from oil-exporting to oil-importing developing countries. For both exporters and importers, low oil prices present an opportunity to undertake reforms that can increase fiscal resources and help broader environmental objectives,” said Ayhan Kose, Director of Development Prospects 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 5.6 percent in 2014), rising to 7 percent in 2016-17.
However, sustained low oil prices will weaken activity in exporting countries. For example, the Russian economy is projected to contract by 2.9 percent in 2015, getting barely back into positive territory in 2016 with growth expected at 0.1 percent.
“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.
BDST: 1650 HRS, JAN 14, 2015
