Anemic Recovery in Emerging Markets to Weigh Heavily on Global Growth in 2016 - Global Trade Magazine
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  January 18th, 2016 | Written by

Anemic Recovery in Emerging Markets to Weigh Heavily on Global Growth in 2016

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  • Weakness in major emerging markets is a concern for achieving the goals of poverty reduction and shared prosperity.
  • Global economic growth was less than expected in 2015.
  • Firmer global economic growth ahead will depend on continued momentum in high income countries.
  • World Bank: Growth is projected to slow further in China, and Russia and Brazil are expected to remain in recession.
  • The South Asia region, led by India, is projected by World Bank to be the 2016 bright spot for economic growth.
  • World Bank: The Trans-Pacific Partnership could provide a welcome boost to trade.

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 percent pace, from 2.4 percent growth in 2015, as advanced economies gain speed.

So says a recently-released report from the World Bank.

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, the report notes. 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 percent 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. Firmer growth ahead will depend on continued momentum in high income countries, the stabilization of commodity prices, and China’s gradual transition towards a more consumption and services-based growth model.

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

“There is greater divergence in performance among emerging economies,” said World Bank Group Vice President and Chief Economist Kaushik Basu. “Compared to six months ago, risks have increased, particularly those associated with the possibility of a disorderly slowdown in a major emerging economy.”

Although unlikely, a faster-than-expected slowdown in large emerging economies could have global repercussions, according to the report. Risks to the outlook also include financial stress around the U.S. Federal Reserve tightening cycle and heightened geopolitical tensions.

“Stronger growth in advanced markets will only partially offset the risks of continued weakness in major emerging markets,” said World Bank Development Economic Prospects Group Director Ayhan Kose. “In addition, the risk of financial turmoil in a new era of higher borrowing costs remains.”

Regional outlooks include a projected growth rate of 6.3 percent in East Asia and the Pacific, down from 6.4 percent in 2015; three percent in Europe and Central Asia, up from 2.1 percent last year; zero percent Latin America and the Caribbean, up from a shrinkage of 0.9 percent in the year just ended; 5.1 percent in the Middle East and North Africa, up from 2.5 percent; 7.3 percent in South Asia, up from 7.0 percent; and 4.2 percent in Sub-Saharan Africa, up from 3.4 percent in 2015.