Global economic prospects to improve this year - World Bank
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 U.S. economy, continued low global interest rates,
and receding domestic headwinds in several large emerging markets, says
the World Bank Group's 'Global Economic Prospects' (GEP) report,
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 report.
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.
"In this uncertain economic environment, developing countries need to
judiciously deploy their resources to support social programs with a
laser-like focus on the poor and undertake structural reforms that
invest in people," said World Bank Group President Jim Yong Kim.
"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
United States and the United Kingdom is gathering momentum as labour
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. Risks
to the outlook remain tilted to the downside, due to four factors. First
is persistently weak global trade. Second is the possibility of
financial market volatility as interest rates in major economies rise on
Third is the extent to which low oil prices strain balance sheets in
oil-producing countries. Fourth is the risk of a prolonged period of
stagnation or deflation in the Euro Area or Japan.
"Worryingly, the stalled recovery in some high-income economies and
even some middle-income countries may be a symptom of deeper structural
malaise," said World Bank Chief Economist and Senior Vice President,
"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 countries,
such as China and India, we expect India's growth to rise to 7 percent
by 2016. What is critical is for nations to use this window to usher in
fiscal and structural reforms, which can boost long-run growth and
On the back of gradually recovering labour markets, less budget
tightening, soft commodity prices, and still-low financing costs, 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.
Growth 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 could prove to be protracted.
The forecast for Euro Area growth is a sluggish 1.1 percent in 2015
(0.8 percent in 2014), rising to 1.6 percent in 2016-17. In Japan,
growth will rise to 1.2 percent in 2015 (0.2 percent in 2014) and 1.6
percent in 2016. 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.
The slowdown is partly due to weak demand and to what appears to be
lower sensitivity of world trade to changes in global activity, finds
analysis in the report. Changes in global value chains and a shifting
composition of import demand may have contributed to the decline in
responsiveness of trade to growth.
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
said Director of Development Prospects at the World Bank, Ayhan Kose.
Among 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.
In Brazil, Indonesia, South Africa and Turkey, the fall in oil prices
will help lower inflation and reduce current account deficits, a major
source of vulnerability for many of these countries. 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.
In contrast to middle-income countries, economic activity in
low-income countries strengthened in 2014 on the back of rising public
investment, significant expansion of service sectors, solid harvests,
and substantial capital inflows.
Growth in low-income countries is expected to remain strong at 6
percent in 2015-17, although the moderation in oil and other commodity
prices will hold growth back in commodity exporting low-income
"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.
The East Asia and Pacific region continued its gradual adjustment to
slower but more balanced growth. Regional growth slipped to 6.9 percent
in 2014 as a result of policy tightening and political tensions that
offset a rise in exports in line with the ongoing recovery in some
The medium-term outlook is for a further easing of growth to 6.7
percent in 2015 and a stable outlook thereafter, 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, a gradual withdrawal of fiscal
stimulus, and continued prudential measures to slow non-bank credit
expansion will result in slowing growth to 6.9 percent by 2017 (from 7.4
percent in 2014).
In the rest of the region, excluding China, growth will strengthen to
5.5 percent by 2017 (from 4.6 percent in 2014) supported by firming
exports, improved political stability, and strengthening investment.
Growth in developing Europe and Central Asia is estimated to have
slowed to a lower-than-expected 2.4 percent in 2014 as a sputtering
recovery in the Euro Area and stagnation in Russia posed headwinds.
In contrast, growth in Turkey exceeded expectations despite slowing
to 3.1 percent. Regional growth is expected to rebound to 3 percent in
2015, 3.6 percent in 2016 and 4 percent in 2017 but with considerable
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 Russia and Ukraine and the associated economic
sanctions, the possibility of prolonged stagnation in the Euro area, and
sustained commodity price declines remain key downside risks for the
Growth in Latin America and the Caribbean slowed markedly to 0.8
percent in 2014, but with diverging developments across the region.
South America slowed sharply as domestic factors, exacerbated by
economic slowdown in major trading partners and declining global
commodity prices, took their toll on some of the largest economies in
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 continued recovery among high-income countries and
robust capital flows should lift regional GDP growth to an average of
around 2.6 percent in 2015-17.
A sharper-than-expected slowdown in China and a steeper decline in
commodity prices represent major downward risks to the outlook.
Following years of turmoil, some economies in the Middle East and
North Africa appear to be stabilising, although growth remains fragile
and uneven. Growth in oil-importing countries was broadly flat in 2014,
while activity in oil-exporting countries recovered slightly after
2013. Fiscal and external imbalances remain significant.
Regional growth is expected to pick up gradually to 3.5 percent in
2017 (from 1.2 percent in 2014). Risks from regional turmoil and from
the volatile price of oil are considerable; political transitions and
security challenges persist.
Measures to address long-standing structural challenges have been
repeatedly delayed and high unemployment 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 percent in 2014 from a
10-year low of 4.9 percent in 2013. The upturn was driven by India, the
region's largest 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 demand
for the region's exports firms.
Past adjustments have reduced vulnerability to financial market
volatility. Risks are mainly domestic and of a political nature.
Sustaining the pace of reform and maintaining political stability are
key to maintaining the recent growth momentum.
In Sub-Saharan Africa, growth picked up only moderately in 2014 to
4.5 percent, reflecting a slowdown in several of the region's large
economies, notably South Africa.
Growth is expected to remain flat in 2015 at 4.6 percent (lower than
previously expected), largely due to softer commodity prices, and rise
gradually to 5.1 percent by 2017, supported by infrastructure
investment, increased agriculture production, and buoyant services.
The outlook is subject to significant downside risks arising from a
renewed spread of the Ebola epidemic, violent insurgencies, lower
commodity prices, and volatile 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 resources.