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News : Global Economy Last Updated: Jun 11, 2015 - 8:06 AM


Developing countries facing “structural slowdown” likely to last for years
By Michael Hennigan, Finfacts founder and editor
Jun 11, 2015 - 1:09 AM

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A structural growth slowdown has been underway in many developing countries as the growth in working age populations, productivity, and investment has eased, according to the World Bank.

Developing countries face a series of tough challenges in 2015, including the looming prospect of higher borrowing costs as they adapt to a new era of low prices for oil and other key commodities, resulting in a fourth consecutive year of disappointing economic growth this year, says the Bank's latest Global Economic Prospects (GEP) report, released in Washington DC on Wednesday.

As a result, developing countries are now projected to grow by 4.4% this year, with a likely rise to 5.2% in 2016, and 5.4% in 2017.

In high-income countries, in contrast, recovery is gaining momentum, as growth in the Euro Area and Japan picks up and the United States continues to expand, despite a weak start to the year. High-income countries are on course to grow by 2.0% this year, 2.4% in 2016 and 2.2% in 2017. The global economy is likely to expand by 2.8% this year, 3.3% in 2016 and 3.2% in 2017.

With the exception of India, countries such as China have to be prepared for slower growth and with an expected liftoff in US interest rates, borrowing will become more expensive for emerging and developing economies over the coming months. "This process is expected to unfold relatively smoothly since the US economic recovery is continuing and interest rates remain low in other major global economies," according to the report.

The report adds that lower prices for oil and other strategic commodities have intensified the slowdown in developing countries, many of which depend heavily on commodity exports. While commodity importers are benefiting from lower inflation, fiscal spending pressures, and import costs, low oil prices have so far been slow to spur more economic activity because many countries face persistent shortages of electricity, transport, irrigation, and other key infrastructure services; political uncertainty; and severe flooding and drought caused by adverse climate.

Growth in Brazil, held back by weak confidence and higher inflation, is expected to contract by 1.3% in 2015, a 2.3% percentage point swing from January, while Russia’s economy, hit by oil price declines and sanctions, is forecast to contract by 2.7%.

Mexico’s GDP is projected to advance by a more moderate 2.6%, as a soft patch in US activity and falling oil prices weigh on growth. In China, the carefully managed slowdown continues, with growth likely to moderate to a still robust 7.1% this year. In India, which is an oil-importer, reforms have buoyed confidence and falling oil prices have reduced vulnerabilities, paving the way for the economy to grow by a robust 7.5% rate in 2015.

Oxford Economics reports that a plunge in import demand in the first quarter of 2015r turned emerging markets countries from contributors to global trade growth to detractors for the first time since 2009.

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