World Bank downgrades global economic forecast for 2016

AP News
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Posted: Jan 06, 2016 3:36 PM

WASHINGTON (AP) — The World Bank has cut its forecast for global growth this year given weakness in the developing world.

The aid agency said Wednesday that it expects the world economy to expand 2.9 percent in 2016, down from the forecast of 3.3 percent it made in June. The global economy grew 2.4 percent in 2015.

Several big developing economies — including Brazil and China — are slowing or shrinking. Their troubles have disproportionately hurt their smaller trading partners, which have also been squeezed by depressed commodity prices.

The World Bank expects developing countries to collectively grow 4.8 percent, up from a six-year low 4.3 percent in 2015. China, the world's second-biggest economy, is expected to register 6.7 percent growth, down from 6.9 percent in 2015 and the slowest pace since 1990.

The economic prospects of advanced economies appear to be brightening as the developing world struggles. The World Bank expects the U.S. economy to grow 2.7 percent this year, up from 2.5 percent in 2015 and the fastest pace since 2006.

The agency foresees the 19-country eurozone economy expanding 1.7 percent, up from 1.5 in 2015 and fastest since 2011. And it expects the Japanese economy, lifted by the Bank of Japan's easy-money policies, to grow 1.3 percent, up from 0.8 percent in 2015.

Since the 2008 financial crisis and the Great Recession, the World Bank, the International Monetary Fund and others have frequently overestimated the strength of the world economy and have later had to downgrade their initial predictions.

The World Bank's 2016 forecast involves two key optimistic assumptions for global growth: That commodity prices will stabilize after plummeting in 2015. And that the Chinese government will keep growth in the world's second-biggest economy from imploding as it manages a difficult transition away from fast but unsustainable growth based on excessive investment in factories and real estate.

"China is going to continue slowing in an orderly fashion," says World Bank economist Ayhan Kose, who helped put together the forecast.

The agency also assumes that the Federal Reserve's interest-rate hike last month — and any further rate hikes — won't damage the U.S. economy or cause much turmoil in financial markets.

Its outlook differs from region to region and country to country.

Latin America, forecast to grow just 0.1 percent this year, has been especially hard hit by falling commodity prices. Brazil's economy, once an emerging powerhouse, is forecast to drop 2.5 percent this year after shrinking 3.7 percent in 2015.

The Russian economy, squeezed by low oil prices and international sanctions, is expected to slide 0.7 percent this year on top of a 3.8 percent drop last year.

The Iranian economy, which is getting relief from economic sanctions after reaching a nuclear deal with the Obama administration, is forecast to surge 5.8 percent this year, up from 1.9 percent in 2015.

The oil-importing countries of South Asia are expected to benefit from lower energy prices. The World Bank predicts that India will grow 7.8 percent, Pakistan 5.5 percent and Bangladesh 6.7 percent.

The countries of sub-Saharan Africa are expected to grow 4.2 percent, up from 3.4 percent last year. But the World Bank expects wide disparities among African countries. South Africa, for instance, is forecast to grow just 1.4 percent, while Ethiopia is expected to expand 10.2 percent and Rwanda 7.6 percent.