The World Bank has cut its global growth forecasts again for 2015, warning of further downside risks despite the benefit of cheaper oil. However, mixed fortunes are seen for Asia’s biggest economies, with growth slowing in China but accelerating in Japan and India.
In its latest “Global Economic Prospects” report, the Washington-based lender said it expected the world economy to expand by 3 percent this year, up from a “disappointing” 2.6 percent in 2014. Growth is forecast to improve next year, rising to an estimated 3.3 percent, according to the twice-yearly report.
Developing countries expanded by 4.4 percent last year and are expected to post 4.8 percent growth in 2015, rising to 5.3 percent next year, the bank said.
Nevertheless, the latest estimates reflect another downgrade to the bank’s 2015 growth forecasts. In October, it predicted 3.2 percent global growth this year, itself another cut from its 3.4 percent forecast made in June.
Underlying the weaker forecasts is an increasing divergence between the global economy’s winners and losers. The United States is back in the box seat as the world economy’s major driving force, but the eurozone and Japan continue to move slowly out of recession.
China, the world’s second-largest economy, is undergoing a “carefully managed slowdown” that will see growth slow from 7.4 percent in 2014 to 7.1 percent this year and 7 percent in 2016, affected by “structural reforms, a gradual withdrawal of fiscal stimulus, and continued prudential measures to slow non-bank credit expansion,” the bank said.
However, risks remain “tilted to the downside” due to “persistently weak global trade,” the possibility of further financial market volatility as interest rates in major economies rise, and the risk of a prolonged downturn in Europe or Japan. Despite its overall beneficial effects for the world economy and Asia, low oil prices will also strain balance sheets in oil-producing countries, the bank said.
“Worryingly, the stalled recovery in some high-income economies and even some middle-income countries may be a symptom of deeper structural malaise,” World Bank chief economist Kaushik Basu said in a statement.
“As population growth has slowed in many countries, the pool of younger workers is smaller, putting strains on productivity. But there are some silver linings behind the clouds. The lower oil price, which is expected to persist through 2015, is lowering inflation worldwide and is likely to delay interest rate hikes in rich countries.
“This creates a window of opportunity for oil-importing countries, such as China and India; we expect India’s growth to rise to 7 percent by 2016. What is critical is for nations to use this window to usher in fiscal and structural reforms, which can boost long-run growth and inclusive development.”
Growth in high-income countries is expected to benefit from stronger labor markets, soft commodity prices such as oil, and relaxed monetary and fiscal policy. The United States is expected to increase growth from 2.4 percent in 2014 to 3.2 percent this year, its best performance since 2005 and the first time since 1999 that the world’s biggest economy has not lagged global growth.
The eurozone is also expected to continue to emerge from recession, with 1.1 percent growth forecast in 2015, rising to 1.6 percent next year. Likewise Japan, which is expected to jump from 0.2 percent growth in 2014 to 1.2 percent this year and 1.6 percent in 2016, helped by soft oil prices, labor and other reforms and continued monetary and fiscal stimulus. Japan’s Cabinet Office expects real GDP growth of 1.5 percent in fiscal 2015, helped by a record $814 billion budget.
India, the world’s 10th-largest economy, is expected to be among the major middle-income beneficiaries of cheaper oil. According to the bank, growth will accelerate from 5.6 percent in 2014 to 6.4 percent this year and 7 percent in 2016, with reforms expected to yield productivity gains.
For Indonesia, lower oil prices will reduce inflation and its current account deficit, with the bank predicting a growth pickup from 5.1 percent in 2014 to 5.2 percent this year and 5.5 percent for 2016.
Thailand is also seen performing better, with its economy forecast to expand from just 0.5 percent growth last year due to political turmoil, to an estimated 3.5 percent in 2015 and 4 percent next year.
Meanwhile, growth in low-income countries is forecast to remain strong at 6 percent from 2015 to 2017, “although the moderation in oil and other commodity prices will hold growth back in commodity exporting low-income countries,” the bank said.
Softer Regional Growth
Overall though, the East Asia and Pacific region (excluding China) is predicted to show softer growth this year, dropping from 6.9 percent in 2014 to 6.7 percent for this year and next, reflecting China’s slowing economy.
“Although the region has so far been resilient to the growth slowdown in China from post-crisis peaks (with the exception of some commodity exporters, such as Indonesia), a sustained slowdown in China may feed through via integrated supply chains,” the bank said.
“Nevertheless, growth is expected to gain momentum as the investment cycle turns (Indonesia), political unrest subsides (Thailand), and countries integrated into global value chains (Cambodia, Malaysia, Thailand, and Vietnam) benefit from the pickup in the United States and other major markets for manufactures. Adjustment to softer commodity prices will continue to weigh on growth of the commodity exporters of the region but should help commodity-importing countries.”
For Asia’s resource exporters such as Australia, Indonesia and Mongolia, the bank warned of commodity prices remaining soft through to 2017, including oil, base metals and agricultural products.
The bank’s softer economic forecasts follow a warning by HSBC economist Frederic Neumann that the region is in the grip of a “growth malaise,” with slowing consumption and investment despite favorable energy costs and U.S. export demand.
“A slight pick-up in exports to the West and a lower price of oil will, on their own, hardly be enough to stir things up,” the Hong Kong-based economist said in a report, noting the reduced benefits to Asian consumers of cheaper oil due to subsidies and taxes.
According to Neumann, the expected U.S. monetary tightening in June could slam the brakes on Asian business investment, with greater financial volatility dampening sentiment. Nevertheless, HSBC expects Asian GDP to rise from 4.8 percent last year to 5 percent in 2015, with China to expand by 7.3 percent and Australia by 2.8 percent, according to the Australian Financial Review.
With the International Monetary Fund set to release its “World Economic Outlook” report on January 20, Asia’s policymakers will soon have more evidence on which to prioritize reform efforts in 2015.