MercoPress. South Atlantic News Agency

World bank slashes 2016 global economy growth forecast; points to disappointing “China and Brazil”

“Simultaneous slowing of four of the largest emerging markets, Brazil, Russia, China and South Africa - poses the risk of spillover effects”, said Kaushik Basu.

World Bank slashed its growth forecast for the global economy in 2016, citing “disappointing” growth in major emerging market economies like China and Brazil. The bank has cut its previous June forecast for global economic expansion in 2016 by 0.4 percentage point to 2.9%, though that is still faster than 2015's sluggish 2.4%, which itself missed an earlier prediction.

 “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 World Bank noted in the report.

In the midst of a deep economic transition, China should see economic growth slow to 6.7% this year from 6.9% in 2015, the bank said. The 2016 forecast for the world's second-largest economy is 0.3 percentage points lower than six months ago and would mark its weakest performance since 1990. Since mid-2014, China has endured bouts of financial turbulence, the latest on Monday with a spectacular 7 per cent plunge in stock market indices.

The World Bank's growth revisions are even more drastic for two other big emerging-market economies already in recession: Brazil, down 3.6 percentage points to a 2.5% contraction, and Russia, a 1.4-percentage-point drop to a 0.7% contraction. Both countries have been hammered by falling prices for commodities such as oil, iron ore and agriculture products.

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

“A combination of fiscal and central bank policies can be helpful in mitigating these risks and supporting growth.”

Risks to the outlook included financial stress linked to the US Federal Reserve's launch in December of an interest rate hiking cycle, and heightened geopolitical tensions, the bank said in its Global Economic Prospects report.

“The simultaneous slowing of four of the largest emerging markets - Brazil, Russia, China and South Africa - poses the risk of spillover effects for the rest of the world economy,” said Kaushik Basu.

“Global ripples from China's slowdown are expected to be greatest but weak growth in Russia sets back activity in other countries in the region.”

Developing countries were expected to expand by 4.8% this year, 0.4 percentage points weaker than the prior estimate, the 188-nation institution said. High-income countries as a whole fared better. The forecast for their growth in gross domestic product, the broad measure of goods and services output, was lowered to 2.1%t, a 0.3 percentage point drop.

Only a 0.1 percentage point dip in GDP was notched for the United States, the largest economy, and for the 19-nation eurozone, to 2.7% and 1.7%, respectively.

The dimmer picture of the world economy painted by the World Bank echoed concerns already expressed by the International Monetary Fund, which will update its own economic projections on January 20.