World Bank: Risks in the Global Economy Tilted to Downside in 2015

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--After growing an estimated 2.6% in 2014, the global economy is projected to expand 3% this year, 3.3% in 2016 and 3.2% in 2017, according to the World Bank (Washington D.C.) Group Global Economic Prospects' (GEP) latest report.

Developing countries grew 4.4% and are expected to edge up to 4.8% in 2015 and then on to 5.3% and 5.4% in 2016 and 2017, respectively.

Following a 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.

"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."

East Asia continued its gradual adjustment to slower but more balanced growth at 6.9% in 2014, which will ease to 6.7% in 2015. China's growth will slow from 7.4% in 2014 to 6.9% in 2017. Growth in the rest of the region, excluding China, will strengthen to 5.5% by 2017, from 4.6% in 2014, supported by firming exports, improved political stability and strengthening investments.

Growth in developing Europe and Central Asia is estimated to have slowed to a lower-than-expected 2.4% in 2014, as a sputtering recovery in the Euro area and stagnation in Russia posed headwinds. In contrast, Turkey exceeded expectations, despite slowing to 3.1%. Regional growth is expected to rebound to 3% in 2015, 3.6% in 2016, and 4% in 2017. The recession in Russia is holding back growth in the Commonwealth of Independent States (CIS), 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 region.

Economic slowdown by major trading partners and declining global commodity prices took their toll on some of the largest economies in Latin America and the Caribbean. North and Central America saw robust growth, lifted by stronger activity in the U.S., which should lift growth to about 2.6% in 2015-2017.

In the Middle East-North Africa (MENA) region, growth is expected to pick up gradually from 1.2% in 2014 to 3.5% in 2017. Risks from regional turmoil and the volatile oil price are considerable. High unemployment is a challenge, but lower oil prices offer an opportunity for the region's oil-importing countries to remove heavy energy subsidies.

South Asia saw growth rise to 5.5% in 2014 from a 10-year low of 4.9% in 2013, with the upturn driven by India. Regional growth is projected to rise to 6.8% by 2017. Sustaining the pace of reforms and political stability are key to maintaining the recent growth momentum.

There was a moderate growth pick-up in Sub-Saharan Africa to 4.5% in 2014, reflecting a slowdown in several of the region's large economies, notably South Africa. Lower commodity prices will keep growth at 4.6% in 2015, with a gradual rise to 5.1% by 2017, supported by infrastructure investment, increased agriculture production and buoyant services. Lower growth in emerging economies, a major destination point for exports from Sub-Saharan countries, is a major external risk. The report says that a worse-than-expected slowdown in China, especially, would reduce demand for commodities, putting further downward pressure on prices, especially where supply is abundant.

China consumes almost 25% of the global energy output and 50% of global metal supply, but as its economy has slowed. Prices of metals such as copper, iron ore and nickel have fallen by more than 30% below their 2011 highs. The report expects these prices to stay low during 2015 and 2016, as expanding supply is only gradually absorbed by rising demand.

As activity in the U.S. and U.K. gains momentum, risks to the global outlook remain tilted to the downside, due to: persistently weak global trade; the possibility of financial market volatility as interest rates in major economies rise on varying time lines; 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, the World Bank reports.

For related information, see January 7, 2014, article - EY: More Pain Ahead for Metals and Mining before Recovery in Price, Productivity.

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