World Bank Downgrades Global Economic Forecast Again

January 7, 2016Economic Conditionsby EW News Desk Team

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On Wednesday, the World Bank once again downgraded its global economic growth forecast for 2016. The downgrade resulted from the World Bank's prediction of weak performance from major emerging market economies, like China and Brazil. The reduced performance of these economies will reduce overall performance of the global economy and perpetuate the sluggish improvement of more advanced economies such as the United States.

According to the World Bank, and as reported by Reuters, global growth should accelerate to 2.9 percent in 2016, expanding from 2.4 percent in 2015. While any growth is a positive result, it is disappointing compared to earlier predictions from June of 2015 that anticipated growth at rates as high as 3.3 percent. 

The Bank commented that: "Given the size and global economic integration of the largest emerging markets—Brazil, the Russian Federation, India, China, and South Africa, or the so-called BRICS—the simultaneous slowdown underway in all but one of them could have significant spillovers to the rest of the world."

According to the Bank's forecast, the Russian and Brazilian economies would contract in 2016. Earlier predictions had anticipated a small amount of growth for these nations. The reversal is so significant that the World Bank actually predicts possible contraction of 0.7 percent this year for Russia. That is actually a significant improvement over the 3.8 percent contraction the Russian economy endured in 2015. 

Similarly, the forecast predicted that Brazil's GDP would decline by 2.5 percent in 2016. In June, the World Bank had predicted growth of 1.1 percent for the South American nation in 2016. However, conditions have not improved enough to reach that rate of growth, particularly following contraction estimated at 3.7 percent in 2015. 

Of course, China is anticipated to represent the biggest drag on the global economy. While the Asian juggernaut will experience GDP growth of about 6.7 percent in 2016, this is down from a prediction in June of 7.0 percent. Given the relative size of the Chinese economy, this represents a huge loss to the international economy.

Of the world's largest emerging markets, India was the only one predicted to experience reasonable amounts of growth. In 2015, the World Bank had only estimated growth of 7.3 percent, but adjusted that number up to 7.8 percent on Wednesday. 

Because of all of the struggling emerging markets, more developed countries' predictions also shrank. For example, the experts once predicted that the U.S. economy would experience 2.8 percent growth, but those forecasts shrank to 2.07 percent on Wednesday. Eurozone economies shrank in a similar fashion, down to 1.7 percent from an earlier prediction of 1.8.