World Bank Reduces Global Growth Forecast

101935455-96502248-530x298The World Bank reduced its 2016 global growth forecast on June 8th, 2016 to 2.4 percent from the 2.9 percent projected in January 2016 because of low commodity prices, slow demand in developed nations, sluggish trade, and reducing capital flows.

Commodity-exporting emerging nations have not been able to adjust to lower prices for several commodities, including oil and metals, accounting for 50% of the descending revision.

The World Bank predicts these economies to grow at a minimum 0.4 percent pace this year, a descending revision of 1.2 percentage points from the January position.

Commodity-importing emerging nations are doing better, but the benefits of lesser energy and other materials have occurred at a slow pace. The World Bank forecasts growth in these nations would reach 5.8 percent, down a tenth of a percentage point from the January estimates.

In the US, a sharp reduction in energy sector investment and sluggish exports would also remove eight-tenths of a percentage point from the World Bank’s 2016 estimate, taking growth to 1.9 percent.

The euro zone witnessed a modest downgrade of its 2016 prediction to 1.6 percent, in spite of outstanding monetary policy support and a boost from lesser energy and commodity prices.

According to Kaushik Basu, World Bank Chief Economist, “As advanced economies struggle to gain traction, most economies in South and East Asia are growing solidly, as are commodity-importing emerging economies around the world.”

The quick increase of private debt in many emerging nations posed a risk to growth should non-performing bank loans increase.

As far as key emerging market nations are concerned, the World Bank maintained China’s growth estimate unchanged at 6.7% this year after 2015 growth of 6.9%. It forecasts China’s growth to slow further to 6.3% by 2018 as the second-largest global economy rebalances towards a greater consumer-driven growth model away from exports.

India’s dynamic economic growth also is estimated to hold steady at 7.6%, while Brazil and Russia are expected to continue in severe recessions than forecast in January.

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