World Bank revises forecast growth rate for Europe, Central Asia downward

Written by on June 8, 2016 in Business - Comments Off on World Bank revises forecast growth rate for Europe, Central Asia downward
Photo: Piotr Lewandowski

The continuing contraction in Russia is keeping the forecast growth rate for the Europe and Central Asia region at 1.2 per cent in 2016, a 0.4 percentage point downward revision from the January outlook, the World Bank said on June 8 in its latest update of its Global Economic Prospects report.

Geopolitical concerns, including flare-ups of violence in eastern Ukraine and the Caucasus and terror attacks in Turkey, weigh on the outlook for the Europe and Central Asia region, the World Bank said.

Excluding Russia, the region is expected to expand at a 2.9 per cent rate.

Growth projections for the eastern part of the region have been revised down from the January outlook as countries adjust to lower prices for oil, metals, and agricultural commodities. Activity in the western part of the region will benefit from moderate growth in the euro zone and strengthening domestic demand, helped by subdued fuel costs, the World Bank said.

The World Bank said that it was downgrading its 2016 global growth forecast to 2.4 per cent from the 2.9 per cent pace projected in January. The move is due to sluggish growth in advanced economies, stubbornly low commodity prices, weak global trade, and diminishing capital flows.

According to the update of its Global Economic Prospects report, commodity-exporting emerging market and developing economies have struggled to adapt to lower prices for oil and other key commodities, and this accounts for 40 per cent of the downward revision. Growth in these economies is projected to advance at a meagre 0.4 per cent pace this year, a downward revision of 1.2 percentage points from the January outlook.

“This sluggish growth underscores why it’s critically important for countries to pursue policies that will boost economic growth and improve the lives of those living in extreme poverty,” said World Bank Group President Jim Yong Kim, “Economic growth remains the most important driver of poverty reduction, and that’s why we’re very concerned that growth is slowing sharply in commodity-exporting developing countries due to depressed commodity prices.”

Commodity-importing emerging markets and developing economies have been more resilient than exporters, although the benefits of lower prices for energy and other commodities have been slow to materialize. These economies are forecast to expand at a 5.8 per cent rate in 2016, down modestly from the 5.9 per cent pace estimated for 2015, as low energy prices and the modest recovery in advanced economies support economic activity.

A significant increase in private sector credit — fuelled by an era of low interest rates and, more recently, rising financing needs — raise potential risks for several emerging market and developing economies, the World Bank report said.

In an environment of anaemic growth, the global economy faces pronounced risks, including a further slowdown in major emerging markets, sharp changes in financial market sentiment, stagnation in advanced economies, a longer-than-expected period of low commodity prices, geopolitical risks in different parts of the world, and concerns about the effectiveness of monetary policy in spurring stronger growth. The report introduces a tool to quantify risks to the global outlook and finds that they are now more tilted to the downside than in January.

(Photo: Piotr Lewandowski)



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