What lies ahead for the world economy in 2016? Here’s what you need to know

Is there an end in sight to the global economy’s slowdown? Not yet, says the World Bank, which just cut its growth forecast because of a worse-than-predicted performance by commodity-exporting countries.

In its latest Global Economic Prospects report, the bank said the impact of the commodities slump, alongside sluggish growth in advanced economies, weak trade and diminishing capital flows, would push global growth down to 2.4% this year, from the 2.9% estimated in January.

The World Bank’s downgrade follows a similar move by the International Monetary Fund, which cut its global growth forecast in April to 3.5%, down from 3.6% in January.

What happened to growth?

Commodity-exporting countries are struggling to cope with lower prices for oil, metals and other commodities. These economies – in emerging markets in Latin America and the Caribbean, the Middle East and Africa – are only expected to grow at a rate of 0.4% this year, the bank said. This is a downward revision of 1.2% on its January outlook.

World Bank Group President Jim Yong Kim said: “This sluggish growth underscores why it’s critically important for countries to pursue policies that will boost economic growth and improve the lives of those living in extreme poverty.

“Economic growth remains the most important driver of poverty reduction, and that’s why we’re very concerned that growth is slowing sharply in commodity-exporting developing countries due to depressed commodity prices.”

Although commodity-importing emerging market countries are performing better, lower prices for energy and goods and services have not provided the hoped-for shot in the arm for economies. Growth in these countries is now expected to reach 5.8%, slightly down from January’s prediction of 5.9%.

The spectre of private debt

The bank also warned about the risks to some emerging market and developing economies of a build-up in corporate debt, which is being driven by low interest rates and, more recently, increasing financial need.

Highlighting the problem, World Bank Chief Economist and Senior Vice President Kaushik Basu said: “One development that bears caution is the rapid rise of private debt in several emerging and developing economies.

“In the wake of a borrowing boom, it is not uncommon to find non-performing bank loans, as a share of gross loans, to quadruple.”

What are the risks to the global economy?

As the global economy battles flagging growth, the World Bank’s report outlines a string of what it describes as “pronounced risks”, including:

- A further slowdown in major emerging markets

- Sharp changes in financial market sentiment

- Stagnation in advanced economies

- A longer-than-expected period of low commodity prices

- Geopolitical risks in different parts of the world

- Concerns about the effectiveness of monetary policy in spurring stronger growth.

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