The World Bank in a report published in Washington DC on Wednesday, warns that a simultaneous slowdown in the leading emerging economies, would have a serious impact on global growth prospects. Bigger contractions than expected in Brazil and Russia and slower growth in most of the world’s biggest economies, including the US and China, has triggered a downgrade in the forecast for global growth this year.

 

Global PMI (purchasing managers' index) data issued this week show that both services and manufacturing activity slowed at the end of 2015. Markit, the London-based index firm, says that the weak end to 2015 rounded off the worst quarter, albeit by a narrow margin, seen for a year.

The rate of expansion in global service sector business activity slowed to an 11-month low during December, mainly reflecting weaker growth in both the US and Chinese service economies while the global manufacturing sector ended 2015 on a disappointing note, with the rates of expansion in production and new orders both slowing in December.

The JPMorgan Global PMI, compiled by Markit from its national business survey data, fell from 53.6 in November to 52.9 in December, its lowest since September. At 53.2, the average reading for the fourth quarter was the lowest since Q4 2014, though well above the no-change level of 50 to thereby signal further economic growth. The fourth quarter survey data are broadly consistent with global GDP rising at an annual rate of 2%.

New business meanwhile grew globally at the slowest rate for 11 months, easing in both sectors, a factor restraining employment growth well below pre-crisis trend rates and adding to the sense that companies remain more cost conscious and reluctant to invest in the expansion of capacity in the post-recession world.

The World Bank says that global growth disappointed again in 2015, slowing to 2.4%, and is expected to recover at a slower pace than previously envisioned.

Growth is projected to reach 2.9% in 2016, as a modest recovery in advanced economies continues and activity stabilizes among major commodity exporters, according to the World Bank’s January 2016 Global Economic Prospects. Forecasts are subject to substantial downside risks. A more protracted slowdown across large emerging markets could have substantial spillovers to other developing economies, and eventually hold back the recovery in advanced economies.

A broad-based slowdown across developing countries could pose a threat to hard-won gains in raising people out of poverty, the report warns.

Jim Yong Kim, World Bank group president, commented:

More than 40% of the world’s poor live in the developing countries where growth slowed in 2015. Developing countries should focus on building resilience to a weaker economic environment and shielding the most vulnerable. The benefits from reforms to governance and business conditions are potentially large and could help offset the effects of slow growth in larger economies.

The World Bank report says:

Since 2010, a synchronous growth slowdown has been underway in emerging markets. Given the size and integration with the global economy of the largest emerging markets, the BRICS (Brazil, Russian Federation, India, China, and South Africa), a slowdown in these economies could have significant spillovers to the rest of the world through trade and financial flows.
A 1 percentage point decline in BRICS growth would lower growth in other emerging markets by 0.8 percentage point, in frontier markets by 1.5 percentage points, and in the global economy by 0.4 percentage point over the following two years. A continued BRICS growth slowdown — combined with financial market stress in emerging markets — could cut global growth by one-third in 2016.

Global economic growth, GDP, 2016