Global economy predicted to expand by 2.8 percent this year
The World Bank has downgraded its forecast for economic growth in developing countries this year to 4.8 percent from the January estimate of 5.3 percent.
If correct, this year would be a third straight year of expansion below 5 percent for these nations.
While describing the developing world’s likely performance as “disappointing“, the bank identified a few Western causes including bad weather in the US, the Ukraine crisis, political strife in several middle-income economies, and slow progress on structural reforms.
“Growth rates in the developing world remain far too modest to create the kind of jobs we need to improve the lives of the poorest 40 percent,” World Bank’s President Jim Yong Kim said in a report released on Tuesday.
“Clearly, countries need to move faster and invest more in domestic structural reforms to get broad-based economic growth to levels needed to end extreme poverty in our generation,” he continued.
The World Bank expects the developing nations to grow to 5.4 percent in 2015 and 5.5 percent in 2016.
Meanwhile, the global economy would expand by 2.8 percent this year, then grow to 3.4 percent in 2015 and 3.5 percent in 2016.
High-income economies would contribute about half of global growth in 2015 and 2016, compared with less than 40 percent in 2013, according to the bank’s report.
Despite first quarter weakness in the US, the recovery in high-income countries is gaining momentum, the bank said in the report. These economies would grow by 1.9 percent in 2014, before growing to 2.4 percent in 2015 and 2.5 percent in 2016.
Kaushik Basu, senior vice president at the World Bank, urged emerging economies to tighten their fiscal policies and carry out structural reforms to restore fiscal progress depleted by the 2008 financial crisis.
National budgets of developing countries have deteriorated significantly since 2007. In almost half of developing countries, government deficits exceed 3 percent of GDP, while debt-to-GDP ratios have risen by more than 10 percentage points since 2007.
In addition, the structural reform agenda in many developing countries, which has stalled in recent years, needs to be reinvigorated in order to sustain rapid income growth, according to the report.
Andrew Burns, lead author of the report, said, “Spending more wisely rather than spending more will be key.
“Bottlenecks in energy and infrastructure, labor markets and business climate in many large middle-income countries are holding back GDP and productivity growth.
Subsidy reform is one potential avenue for generating the money to raise the quality of public investments in human capital and physical infrastructure.”
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An employee lowers an engine onto a chassis on the assembly line at a truck factory in India. Photo credit: Bloomberg
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