GRIM YEAR FORECAST FOR DEVELOPING NATIONS / THE FINANCIAL TIMES

Grim year forecast for developing nations

Shawn Donnan in Washington

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©AP

Developing economies last year recorded their slowest growth since the immediate aftermath of the 2008 financial crisis and are facing the prospect of an equally grim 2016, the World Bank has warned.

Releasing its latest forecasts on Wednesday, the World Bank said it expected the global economy would grow 2.9 per cent this year, up slightly from 2.4 per cent in 2015.

 

But that predicted bump depended on advanced economies such as the US and EU accelerating, it said, with developing economies ranging from China to commodity-dependent nations in Africa and Latin America facing an increasingly fragile outlook.

 

Developing economies as a group grew at a rate of 4.3 per cent in 2015, the slowest pace since 2009, and the bank predicted they would grow 4.8 per cent this year. But 2016 was already shaping up to be “risky” and the forecast for this year “comes with the realisation that there are faultlines below the surface”, said Kaushik Basu, the World Bank’s chief economist.

After suffering through slumps caused by the US subprime and eurozone crises, the global economy was now in the middle of a “third dip” brought about by the slowing of big emerging economies like China and Brazil that was likely to persist for some time, he said.

Besides 2009, when developing economies grew just 3.7 per cent, last year’s growth was the slowest in developing economies since 2001. It also was two percentage points below the average 6.3 per cent growth developing economies saw during the boom years between 2000 and 2008, a rate that the World Bank made clear it did not expect them to return to at any point soon. It expects developing economies to grow at 5.3 per cent in 2017 and 2018.

The faltering growth in developing economies last year was the result of the spillover effect of China’s slowdown and the recessions in big emerging economies Brazil and Russia, the bank said.

As a result of reduced Chinese demand, 42 of the 46 commodities that the World Bank tracks traded at their lowest level since the early 1980s in 2015. Any benefits from low oil prices for non-producing nations in the developing world had also been slow to come into evidence, Mr Basu said.

In a report detailing its forecasts, the bank warned that a faster-than-expected slowdown in China and a “more protracted deceleration in other large emerging markets” remained a risk.

By its estimates a sustained one percentage point decline in growth in the Brics countries (Brazil, Russia, India, China and South Africa) would reduce growth in other developing economies by around 0.8 percentage points and global growth by 0.4 percentage points.

World Bank economists called that a “low-probability scenario” in their report but others at the bank said the risks of that happening were already growing just a few days into the new year.

“The risk [for slowing developing economies in 2016] is already known. What is worrying is that the risk is already deepening,” former Indonesian economy minister Sri Mulyani Indrawati, the World Bank’s managing director and chief operating officer, told the Financial Times.
 

Fears for developing countries were evident in Nigeria on Wednesday where Christine Lagarde, managing director of the International Monetary Fund, warned in a speech that Africa’s largest economy and others in the region needed to adapt to a “different phase” in the global economy where commodity prices were likely to remain “lower for longer”.

 

The IMF, she said, estimated that growth in sub-Saharan Africa had fallen from 5 per cent in 2014 to about 3.8 per cent last year, and it expected “only a modest recovery in 2016”.