The World Bank projects developing countries will grow by 4.4 percent this year, instead of the earlier forecast of 4.8 percent.
Ayhan Kose, Director of the bank’s Development Prospects Group, gives a major reason why prospects dimmed this year.
“Developing countries as a group have been slowing down since 2010,"
he said. "It’s fair to say that. But what happened in 2014 and a part of
this year [was] a significant drop in oil prices started weighing on
activity, especially in oil exporting economies.”
The World Bank’s Global Economic Prospects report outlined problems in the so-called emerging economies.
Kose said, “Brazil, now we’re expecting, is going to have a
recession. Russia is going through a painful recession. Both of those
are big emerging market economies. And you look at the emerging market
economies, for example, China is going through an orderly slowdown.
South Africa has serious structural bottlenecks. All of these when you
put them together led to a forecast revision.”
Bad news for developing oil-exporting countries, he said, is good news for importers.
“It is a windfall for the global economy. And we still think that the
benefits of oil price decline will be materialized during the next 12
to 18 months. For oil exporting economies it’s a painful adjustment. But
for oil importing economies there’s no question it’s a positive
development.”
The decline in oil prices is causing a global economic shift.
“Ultimately, with the decline in oil price what you see is a real
income transfer from oil-exporting economies to oil-importing economies –
the consumers, the spenders,” he said.
The World Bank official said, however, consumers are still hesitant
to use their savings from lower oil prices to buy things. Spending spurs
economies, but there’s still a lack of consumer confidence.
So what about those oil exporting developing counties – like Nigeria
and Angola -- that pinned their hopes on their oil reserves?
“For this year, we reduced our growth forecast for Nigeria and
Angola. And in both countries you see policy adjustment as well. Nigeria
reduced their expenditures, the fiscal spending. Angola, they reduced
the fiscal spending. They are taking measures to adjust to this new
environment. At the same time, over the medium term, we expect them to
think about diversification -- to think about more investment in
infrastructure -- investment in human capital,” Kose said.
He said that while diversification may be a painful process for
Nigeria and Angola, in the long-term it could help them weather future
economic shocks. For example, investing in non-oil sectors could allow
them to have more trading partners.
The bank’s forecast for the turmoil-plagued Middle East and North
Africa is just 2.2 percent this year. Officials are monitoring the
various crises, saying they could trigger a rise in oil prices.
Another factor expected to negatively affect many developing nations is the predicted rise in U.S. interest rates.
Kose said, “The U.S. interest rates are the reference interest rates.
When the U.S. short-term policy rate increases that has an impact for
the cost of borrowing at different maturities. So it can have a
widespread effect across the different interest rates [for] consumers
and firms at which they are borrowing. And it will have an impact on the
cost of international borrowing, as well.”
A region that’s the exception to the World Bank forecast for
developing nations is South Asia. It has a projected growth rate of 7.1
percent this year.
“South Asia is becoming the fastest growing region. The main driver
of that is India with [a] strong monetary policy framework, willingness
to undertake reforms. All of these send a very strong signal that medium
term growth prospects are going to get stronger,” he said.
The World Bank Global Economic prospects report is more optimistic
for 2016 and 2017. Growth forecasts for developing countries for those
two years are 5.2 percent and 5.4 percent respectively.
(Voanews)
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