The World Bank has downgraded its global economic forecast for 2016 to the same “insipid” growth rate as last year, citing sluggish growth in advanced economies, low commodity prices, weak global trade, and diminishing capital flows.
In its latest Global Economics Report, the bank predicts 2.4% growth, down from the 2.9% estimated in January. The downgrade of 50 basis points is larger than that of the International Monetary Fund, which in April reduced its global growth forecast for this year to 3.2% from 3.4%.
Commodity-exporting emerging market and developing economies (EMDEs) accounted for half of the World Bank’s revision. Growth in these economies is projected to advance at only a 0.4% pace this year, down from 1.6% in January.
“Depressed commodity prices have slowed growth sharply in commodity-exporting emerging and developing economies, which are home to more than half the global poor,” World Bank Group President Jim Yong Kim said. “Economic growth remains the most important driver of poverty reduction. This underscores the critical priority of pursuing growth-enhancing policies to eliminate extreme poverty and boost shared prosperity.”
Advanced economies are expected to expand by 1.7% in 2016, 50 basis points below January projections. “Investment continues to be soft amid weaker growth prospects and elevated policy uncertainty, while export growth has slowed reflecting subdued external demand,” the World Bank said.
The projection for growth in the U.S. is 1.9%, with the steep decline in energy sector investment and weaker exports shaving 0.8 percentage point from the earlier forecast.
“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,” World Bank Chief Economist Kaushik Basu said.
The bank expects global growth to pick up to 3% by 2018, as stabilizing commodity prices provide support to commodity-exporting EMDEs. But the report urges policymakers in emerging and developing economies to “put a premium on enacting reforms, which, even if they seem difficult in the short run, foster stronger growth in the medium and the long run.”